1. Internet Marketing E-Commerce

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

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

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

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

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

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

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

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

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

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

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

13. E- Commerce Takes Off 3 Categories of profit pools 1.Anchor Services – Service providers that form the basis of an e-commerce Web site 2.Extension Services – Alliance partners with an anchor service 3.Neutral Services – Profit pool components without high profits or customer contact frequency Desirable Features of Online E-Commerce Allies Anchor Service Extension Service High customer acquisition cost Profitable pool component Frequent customer content High profit/revenueratio Strong positioning Consistent position to anchor Trusted Effective, reliable Table 12.1

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

15. E-Commerce Takes Off The battle for customers takes place during: 1.Researching and selecting the vehicle 2.Finding a dealer and price 3.Choosing financing, insurance, warranty 4.Closing the deal New intermediaries complicate the split of profits between elements of the profit pool Example: Online car sales

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

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

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

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

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

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

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

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

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

25. Distribution Strategies Three sources of channel conflict 1.Goal divergence – objectives of manufacturer or service provider differ 2.Responsibility disputes – pertain to customer handling, territorial assignments, functions to be served and technology to be used 3.Differing perceptions of reality – actions may be misconstrued and lead to conflict Channel Conflict Traditional distribution channels are threatened by online commerce

26. Distribution Strategies Figure 12.14 Likelihood of Channel Conflict

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

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

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

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

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

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

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

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