Transcript Chapter 11

Chapter 11. Strategies For EMarkets
Foundations of the Net-Enabled
Organization
Detmar Straub, 1st Edition
Copyright © 2003 John Wiley & Sons, Inc.
1
Copyright John Wiley & Sons, Inc. All rights reserved.
Reproduction or translation of this work beyond that named in
Section 117 of the United States Copyright Act without the
express written consent of the copyright owner is unlawful.
Requests for further information should be addressed to the
Permissions Department, John Wiley & Sons, Inc. Adopters of
the textbook are granted permission to make back-up copies for
their own use only, to make copies for distribution to students of
the course the textbook is used in, and to modify this material to
best suit their instructional needs. Under no circumstances can
copies be made for resale. The Publisher assumes no
responsibility for errors, omissions, or damages, caused by the
use of these programs or from the use of the information
contained herein.
2
Chapter 11. Learning Objectives
• To describe the unique capabilities of Internet
technologies
• To differentiate between vertical and horizontal
marketing channels
• To utilize marketing tools and strategies in case
applications
• To point out the advantages and disadvantages of
online firms
• To discuss the characteristics of customer
relationship management (CRM) systems
• To explain the critical pricing issues related to
cyberspace
3
Chapter 11. Outline
1. Introduction
2. Strategy and E-Markets
3. Strategic Marketing Issues related to the
Uniqueness of E-Markets
4. Reprise: B2B Verses B2C
5. Vertical Channels
6. Pre-NE Era Tools for Reaching Out: Database
Marketing, Data Mining and Data Warehousing
7. B2B Marketing Strategies
8. B2C Marketing
9. Pricing Issues in Cyberspace
4
11.1 Introduction
Marketing Issues for NEOs:
• How can marketing products and services benefit
from Net-Enablement?
• In what ways is cyberspace different as a
marketplace from traditional , physical spaces?
• How do marketing strategies differ between B2B
and B2C?
• What are the marketing strategies that make sense
for hybrids?
5
11.2 Strategy and E-Markets
• Which channels does a firm have to bring
together effectively?
– Raw materials and sub-components together on
the supplier-side
– Products and services to brokers and customers
on the customer-side
• The challenge of handling all the vendor,
complementor and supplementor
relationships goes beyond the boundaries of
traditional marketing.
6
Strategy and E-Markets
• When firms move towards greater virtuality, they
must explore channels “outside the box”. Where
and when should such channels be deployed?
• “Channel conflict” is a critical issue that must be
resolved as channels need to complement each
other when ever possible.
• In what ways will pricing at all supply chain
levels change as a result of Net-Enablement?
7
11.3 Strategic Marketing Issues Related to
the Uniqueness of E-Markets
• The Web enables new forms of
business, such as those listed in the
following slides, making new forms of
marketing possible.
8
11.3.1 Unique Capacity #1: Online Auctions
•
•
•
•
Gathering individuals from the far reaches of
the planet at a given time, with the overall
auction running continuously, is not feasible in
physical commerce.
This is the perfect case of the substitution of
informational for physical processes.
The challenge is to retain user interest and
liveliness of bidding so both buyers and sellers
return frequently to the site.
eBay’s markets for small groups of buyers and
sellers are unique to each transaction. Buyers
and sellers must return for new purchases.
9
11.3.2 Unique Capacity #2: Web Exchanges
• Online exchanges represent an
unprecedented expansion of markets as they
can potentially reach a global market at a
fraction of the cost of bringing buyers and
sellers together in the physical world.
• Issuing the request for bids (RFB), the
features of each lot of product can be
specified and bidders who may ordinarily
be frozen out can participate.
• Online exchanges therefore favor multisourcing over sole sourcing.
10
11.3.3 Unique Capacity #3: New Communications Media
• Media enhancements through Internet
technologies affect nearly all channels.
• Interactive responses (such as online chat) can
be a powerful tool in strengthening customer
relationships.
• Furthermore, sales reps in cyberspace are
capable of maintaining contact with 3
customers at a time – a 3-fold increase in
productivity!
• Newer technologies promise ever greater
simulations of human social contact.
11
11.3.4 Unique Capacity #4:
Web Cam Broadcasting
• Influential brand
images can now be
conveyed using “video
streaming” over the
Internet, delivered
anywhere at the
customer’s
convenience.
• Live shots capitalize on
a sense of immediacy
that is important in
establishing customer
involvement.
Figure 11.2 real-time traffic on the
Verrazano Narrows bridge
12
11.3.5 Unique Capacity #5: Peer-to-Peer
(P2P) Communications
• P2P technology allows entities to exchange data,
such as file-sharing, directly, without the
intervention or control of a 3rd party.
• The software includes a search capacity to
determine where the information is located and
then to establish a direct connection through the
Internet to that IP address.
• The digitalization of content combined with the
ability to share it over networks has overturned
physical constraints and make new business
propositions possible.
13
11.3.6 Unique Cap. #6: Global Reach and Range
• Global accessibility is one of the unique and
distinctive features of the Internet.
• Range can be achieved by companies like
Amazon.com, with extensive inventory
often supplied by affiliates and based on its
ability to aggregate content from their own
and other firm’ sites.
• Products and services can thus be offered on
a worldwide basis via a comparatively
modest investment.
14
11.3.7 Unique Capacity #7: New Pricing Models
• Priceline and other
variants have changed the
underlying pricing of
traditional auctions by
reversing the roles of
buying and selling.
• Here the price is initiated
by the buyer but is
determined by the lowest
bid by the seller. This is
transparent to all
participants, who are able
to adjust their successive
bids accordingly.
Figure 11.4 Priceline’s
new pricing model
15
11.3.8 Unique Capacity #8: Novel Display Capabilities
• Wine.com is an example of
the way goods and services
are able to be presented in
unique ways, by type, region
or winery, in ways that
would be extremely difficult
to duplicate physically.
• In cyberspace, each way of
displaying the inventory is
equally valid because the
physical processes of
display have been
supplanted by information.
Figure 11.4 Novel display
features at wine.com
16
11.3.9 Unique Capacity #9: Personalization
and Recommender Systems
• The Web can be programmed to treat
customers as individuals.
• When a customer identifies him/herself or is
identified by cookies set, this underlying
intelligence can be used to effectively
respond to customer needs.
• Recommender systems that assemble and
process customer needs can personalize
responses in ways that are difficult for
physical stores to duplicate.
17
11.4 Reprise: B2B Verses B2C
• B2B relationships tend to be higher in
volume and less cash-driven, and involving
higher levels of trust as well as different
procurement process structures and
intermediary handling of goods and services.
• For individual buyers, trust in the product and
vendor is relatively important, while building
a long term relationship with the vendor less
so since transactions may be infrequent and
sales values relatively small.
18
11.5 Vertical Channels
• B2B channels are
usually seen as a chain
(“the supply chain”),
with suppliers at
different ‘tiers’.
• Goods & services move
‘vertically’ along this
chain.
• Net-enabled orgs. are
interested in working
effectively with
horizontal partners and
other stakeholders as
well.
Fig. 11.6 Vertical marketing channels
19
It is increasingly
likely that NEOs
will have both
competitive and
cooperative
relationships
with their rivals.
Figure 11.7 Horizontal Partnerships
20
in the marketing channels
Figure 11.8 Criteria for determining competitors and
21
complementors
11.6 Pre-NE Era Tools for Reaching Out: Database
Marketing, Data Mining, and Data Warehousing
• Firms need data and information to reach out to
their vertical and horizontal partners or customers.
• Traditionally, data is seen as raw signals emerging
from the environment that is captured and then
stored in computer systems where it is processed
into information.
• Information serves to reduce uncertainty about
threats to the firm and to give insights into new
opportunities to pursue.
• The ability of a NEO to use more and varied
information than competitors is mission critical,
esp. since product cycles keep getting shorter.
22
Figure 11.9 Information and data in the
general systems model of the firm
23
11.6.1 Database Marketing
• 3rd party providers of market
analysis gather data from a
variety of sources and
aggregate it for resale, often
from both private and public
sources.
• What does the Web offer a
database marketer?
– Enormously expanded markets
for its services
– Opportunities to collect fees in
real time
– Ability to repackage services
and cross-sell them
Figure 11.10 Database marketing a
firm’s home page on the web
24
11.6.1 Use of Database Marketing Services by NEOs
• The value of information acquired through 3rd
parties is that it allows a firm to segment its market
and its marketing efforts.
• Firms can also combine this external data with their
internal transactional data, such as through online
ordering - which is extremely useful, especially in
B2C contexts.
• The desire to capture such information is obvious
and the online environment has the advantage of
requiring individual customers to identify
themselves.
• Clickstream data is related to individual customer
behavior and can tell a great deal about their
preferences.
25
11.6.2 Data Warehousing
• Data warehouses combine data from
numerous sources into a single
repository that can be:
– searched and queried,
– mined with data mining software,
– and probed for new perspectives on how
to market to customers through the
various channels available.
26
11.6.3 Data Mining
• Data mining is a set of tools that allow managers
to view data in new ways.
• Figure 11.12 shows data mining software used to
examine Bank of America’s consumer finance
interest rate can be highlighted in its row or
column.
• Using computers, various comparisons are then
possible, as well as “rolling up” and “drilling
down” to get more precise information or for
trouble-shooting the effectiveness (or lack) of
certain goods and services to a degree not
previously possible.
27
Figure 11.12 Data mining of bank interest rates
28
11.7 B2B Marketing Strategies
• B2B Marketing stresses connections
between channel participants who are
businesses.
• These exchanges are either where there
is an ultimate consumer at the end of
the chain, or where a business is itself
the end of the chain.
29
11.7.1 Supply Chains & Electronic Trading Networks
• ETN (Electronic Trading
Networks, like Covisint)
business exchanges are a
new B2B development.
• They are typically either
intermediary or shared
infrastructure atomic models.
• The ETN strategy needs to
take account of the relatively
weak position of these.
• However, the effect is to
make supply chains more
efficient and cheaper.
Figure 11.13 Covisint
ETN home page
30
11.7.2 Development of Buying Networks
rather than Pure 1-to-1 Auctions
• Buyer networks are being developed in part
to create information visibility in the supply
chain.
• Unlike traditional auctions that are one-off
transactions at arm’s length, ETNs
encourage alliances.
• Bids may be set up for long term supply at
fluctuating prices, and terms renegotiated
over time.
31
11.7.3 B2B Information Visibility
• As trust grows between partners, information
sharing may help reduce clinches in the supply
chain, thus countering the “bull-whip” effect –
over/under ordering due to imprecise information.
• Buying networks also create flexibility by
contracting dual and multi-sourcing arrangements.
• Sharing transactional information can greatly help
all downstream partners estimate demand and
develop a long term perspective.
32
Figure 11.14 Bullwhip effect from
information invisibility in the supply chain
33
11.7.4 Changes in Distribution Channels
and Logistical Failures
• The supply chain can break down at numerous
points, such as if a key supplier has its
manufacturing plant wiped out by a flood.
• This could have a very bad effect unless a plan
is in place with alternative sources to replace
the lost capacity.
• Information visibility could help avoid the
problem by allowing adjustments to take place
that keep the system in equilibrium.
34
11.7.5 Long Term Channel Conflicts In
Atomic Business Models
• Channel conflicts can result in lower network
performance over time while synergies can
increase performance.
• E.g., the direct-to-consumer model conflicts with
shared infrastructure since both try to own the
relationship with the customer.
• Full service providers, on the other hand, include
partners like intermediaries and suppliers in their
network.
• The effects of combining different business
models are presented in Table 11.2.
35
1. Content
Provider
----
2. Direct-toconsumer
CON
3. Full service
Provider
?
----
4. Intermediary
?
SYN
----
?
?
?
?
5. Shared
Infrastructure
6. VNI
----
CON
CON
7. Virtual
Community
SYN SYN
8. Single Point
of Contact
SYN
------SYN
SYN
?
?
-------
Table 11.2 Channel Conflicts in NE Business Models
CON = conflict, SYN = synergy, ? = questionable combination36
11.7.6 B2B Intermediaries
• There are numerous B2B 3rd
parties, like Microsoft’s
Biztalk, that depend on
serving in an intermediary
role in the flow of goods and
services through the supply
network.
• Other firms, like i2, Apache,
Ariba, SAP, and Web
Methods, provide
middleware for firms to
make the electronic
connections to their down
and up stream partners.
Figure 11.15 Microsoft’s Biztalk
B2B Intermediary
37
11.7.7 A Network, Not a Chain
• The evolving relationships among firms,
partners, and customers can be described as a
network of interconnections, rather than as
‘chains’.
• Networks differ from chains in that network
nodes may (or may not) be connected to each
other.
• The potential for complete connectivity means
that information can be spread throughout the
network wherever it is needed so participants
only handle a good or perform a service as
required.
38
Figure 11.16 Former traditional supply chain
for CompUSA
39
A Network, Not a Chain
• The evolution of CompUSA’s supply chain into a
network demonstrates these principles.
• Goods are delivered by Ingram to either the
retailer or customer, speeding up delivery while
simultaneously reducing CompUSA’s inventories.
• Figure 11.17 shows how the network changes
when the need for new products arises.
• Information from the customer flows both to IBM
and CompUSA, then IBM sends feedback about
new products and features to Solectron, the
manufacturer.
40
Figure 11.17 Adaptive supply networks
41
11.8 B2C Marketing
• B2C marketing differs markedly from
B2B, both in terms of volume and the
fact that consumers are more likely to
engage in ‘impulse’ buying.
• How should “e-tailers” think about
creating a sales channel that will drive
sales?
42
11.8.1 Models of Cues In B2C
• In terms of why consumers buy, different factors
in play for the hearts and minds of consumers on
the Web compared to traditional retail sales.
• Sayrac-Yaverglu found both traditional marketing
variables and factors unique to the Web to be
important for encouraging sales.
• Rose and colleagues discovered that the longer it
took for a Web page to download, for example, the
less interested is the consumer.
• Trust, security and privacy are also major
considerations for motivating online B2C sales.
43
Figure 11.19 Reports on why e-consumers buy online
44
11.8.2 Inherent Deficiencies and
Advantages of Online Shops
• Feature #1: While Websites can present the
consumer with visually and aurally stimulating
information, but cannot yet emulate the sense of
touch.
• Feature #2: Digital stores cannot yet transfer
physical offerings directly to customers.
• Feature #3: Dynamic pricing is much easier to
manage in a Web store.
• Feature #4:Customers entering their own data can
give insights into patterns of buyer behavior, but
privacy may be an issue.
45
Inherent Deficiencies and Advantages of
Online Shops (cont.)
• Feature # 5: Immediacy in terms of shopping
where one is, but online security is an issue.
• Feature #6: Search engines are the boon and bane
of Web stores as while they open up the world,
they still generate many false hits.
• Feature #7: Email and FTP are potential channels
for communicating with customers for after-sales
support, etc.
• Feature #8: The Web is a pull rather that push
phenomenon, so customers are usually ‘half-sold’
already.
46
11.8.3 Personalization, Mass
Customization, and Markets-of-One
• Personalization is a unique capacity of
electronic storefronts that B2C strategists
need to be conversant with in terms of
tailoring responses to the specific individual
who is visiting.
• There are 3 forms of personalization:
–Tailored offerings
–Recommender systems
–Configuration engines
47
3 Forms of Personalization
• Tailored offerings: Amazon.com, for example,
exploits this capacity by “pushing” information
about products related to prior purchases.
• Recommender Systems: these are Web
applications that accept general preference
information from individuals and then try to
match these interests with products and services
• Configuration Engines: these personalize by
offering customers their choice of features on
products or complementary products, and may
note when products will not function together.
48
Figure 11.21 Reviews of products at
epinions.com
49
11.8.4 e-Branding and Spiral Branding
• Making products and services known for
cyber products seems to be moving in the
direction of spiral branding.
• Voice mail refers to a firm’s Web site, which
also provides telephone contact numbers, or
TV, etc, also refers to Web sites or call
center numbers, thereby giving consumers
plenty of contact choices.
• “Bail-out chutes” are absolutely essential
for maintaining a continuous thread of
contact with the customer.
50
11.8.5 Clickstream Analysis of
Consumer Transactions
• Vendors can track the movement of a user
through their Web site via the http that
carries information about the originating
site link, or through cookies set.
• Tracking this “clickstream” provides firms
with a very powerful tool to learn a great
deal about consumer behavior and
preferences - particularly if combined with
demographic data - as well as which parts
of their sites are working and which are not.
51
11.8.6 Interactive Marketing, including CRM
• This takes advantage of the
ability of a Web site to
respond to a consumer in
multiple ways.
• www.talkbycom is a live
chat vendor, whose software
allows a firm to conduct
multiple live chat sessions
between sales reps. and
visiting users.
• The customer thus perceives
the Web site as highly
responsive, since questions
can be answered, problems
resolved and after sales
support rendered.
Figure 11.22 TalkBy live chat
associated with IBM’s home page
52
Customer Relationship Management Systems
• The careful management of the relationship with
customers through computer supported systems is one
way of creating an effective interactive marketing
channel.
• www.scoutsolutions.com software gives employees
access to contact and sales prospects from the field
• Online Call Centers: these will remain a critical
marketing tool, at least for now.
• Typical CRM Management System Modules include:
–
–
–
–
–
1. Acquisition Module
2. Profitability by customer and customer segment module
3. Retention module
4. Loyalty module
5. Service module
53
11.9 Pricing Issues in Cyberspace (B2B)
• A price is an economic equilibrium point that
represents a compromise between a buyer and a
seller.
• For longer term B2B relationships, the agreed on
price will benefit both parties.
• Opportunistic behavior should be minimal as it is
not in the interests of either party to see the other
fail.
• Buyers have a broader awareness of pricing
options, while sellers have a larger marketplace
for their bids.
54
Pricing Issues in Cyberspace (B2C)
• Dynamic pricing is a potential marketing
advantage for Web stores.
• Moreover, pricing can be programmed, based
on immediate demand conditions, etc (as
airlines do), and in this way higher volumes
or higher margin goods or services can be
sold.
• In theory, with the availability to compare
prices on the Web, there is every reason to
believe that consumers will enjoy lower prices
in the long run.
55
End of Chapter 11
56