ELC 310 DAY 3.

ELC 310 DAY 3

Agenda Progress on assignments? Questions?
Finish Discussion on e-Business Models and Performance Metrics Begin Discussion on the Marketing Plan eMarketing Plans due October 22 (6 weeks from now)

Overview Strategic Planning SWOT Analysis Strategic Objectives
Strategy Strategy to Electronic Strategy Business Models to E-Business Models E-Business Models Value and Revenue Strategic E-Business Models Performance Metrics The Balanced Scorecard

From Business Models to E-Business Models
Business model: a method by which the organization sustains itself in the long term, and includes its value proposition for partners and customers as well as its revenue streams. A firm will select one or more business models as strategies to accomplish enterprise goals.

How does a firm select the best business models?
Critical components: Customer value. Does the model create value through its product offerings that is differentiated in some way from that of competitors? Scope. Which markets do the firm serve, and are they growing? Are these markets currently served by the firm, or will they be higher risk new markets? Price. Are the firm’s products priced to appeal to markets and also achieve company share and profit objectives?

How does a firm select the best business models?
Revenue sources. Where is the money coming from? Is it plentiful enough to sustain growth and profit objectives over time? Connected activities. What activities will the firm need to perform to create the value described in the model? Does the firm have these capabilities? Implementation. The company must have the ability to actually make it happen. Capabilities. Does the firm have the resources (financial, core competencies, and so on) to make the selected models work? Sustainability. The e-business model is particularly appropriate if it will create a competitive advantage over time.

E-Business Model = Business Model + Information Technology
E-Business Models The direct connection with information technology makes a business model an e-business model: E-Business Model = Business Model + Information Technology E-business model: method by which the organization sustains itself in the long term using information technology, which includes its value proposition for partners and customers as well as its revenue streams.

E-Business Models E-business models can capitalize on digital data collection and distribution techniques without using the Internet. Remember that e-marketing and e-business models may operate outside the Internet. The term e-business models to include both Internet and offline digital models throughout the rest of our discussion.

Value and Revenue Whether online or offline, the value proposition involves knowing what is important to the customer or partner and delivering it better than other firms. Value encompasses the customer's perceptions of the product’s benefits, specifically its attributes, brand name, and support services. Subtracted from benefits are the costs involved in acquiring the product, such as monetary, time, energy, and psychic. Value = Benefits - Costs

E-Marketing Contributes to the E-Business Model

Menu of Strategic E-Business Models
A key element in setting strategic objectives is to take stock of the company's current situation and decide the level of commitment to e-business in general and e-marketing in particular. Questions prior to embarking on any e-business strategies: Are the business models likely to change in my industry? What does the answer to question 1 mean to my company? When do I need to be ready? How do I get there from here?

E-Business Models at Various Levels of Commitment
Each level of the pyramid indicates a number of opportunities for the firm to provide stakeholder value and generate revenue streams using information technology. Because there is no single, comprehensive, ideal taxonomy of e-business models, we categorize the most commonly used models based on the firm's level of commitment.

Activity Level E-Business Models
Online purchasing. Firms can use the Web to place orders with suppliers, thus automating the activity. Order processing. This occurs when online retailers automate Internet transactions created by customers. . When organizations send communications to stakeholders, they save printing and mailing costs. Content publisher. Companies create valuable content or services on their Web sites, draw lots of traffic, and sell advertising. Another type of content publishing, the firm posts information about its offerings on a Web site, thus saving printing costs = brochureware.

Activity Level E-Business Models
Business intelligence (BI). This refers to the gathering of secondary and primary information about competitors, markets, customers, and more. Online advertising. As an activity, the firm buys advertising on someone else’s or Web site. Online sales promotions. Companies use the Internet to send samples of digital products (e.g., music or software), or electronic coupons, among other tactics. Pricing strategies. With dynamic pricing, a firm presents different prices to various groups of customers, even at the individual level.

Business Process Level E-Business Models
Customer relationship management (CRM) = retaining + growing business / individual customers through strategies that ensure their satisfaction with the firm and its products = keep customers for the long term + increase the number and frequency of their transactions. Knowledge management (KM) = combination of a firm’s database contents + the technology used to create the system + the transformation of data into useful information and knowledge. Supply chain management (SCM) = coordination of the distribution channel to deliver products more effectively and efficiently to customers. With community building, firms build Web sites to draw groups of special-interest users. Firms invite users to chat / post on their Web sites to attract potential customers to the site.

Business Process Level E-Business Models
Affiliate programs = when firms put a link to someone else’s retail Web site and earn a commission on all purchases by referred customers. Database marketing = collecting, analyzing, and disseminating electronic information about customers, prospects, and products to increase profits. Enterprise resource planning (ERP) = a back-office system for order entry, purchasing, invoicing, and inventory control. Mass customization = Internet’s unique ability to customize marketing mixes electronically and automatically to the individual level.

Enterprise Level E-Business Models
E-commerce refers to online transactions: selling goods and services on the Internet, either in one transaction or over time with an ongoing subscription. Direct selling refers to a type of e-commerce in which manufacturers sell directly to consumers, eliminating intermediaries such as retailers. Content sponsorship online is a form of e-commerce in which companies sell advertising either on their Web sites or in their . A portal is point of entry to the Internet, such as the Yahoo! and AOL Web sites. They are portals because they provide many services in addition to search capabilities.

A portal is point of entry to the Internet, such as the Yahoo! and AOL Web sites. They are portals because they provide many services in addition to search capabilities. Online brokers are intermediaries that assist in the purchase negotiations without actually representing either buyers or sellers. The revenue stream in these models is commission or fee-based: The brokerage model are E*Trade (online exchange), and eBay (online auction), A B2B exchange is a special place because it allows buyers and sellers in a specific industry to quickly connect.

Online agents represent either the buyer or the seller and earn a commission for their work. Selling agents help a seller move product. Manufacturer’s agents represent manufacturing firms that sell complementary products to avoid conflicts of interest. The catalog aggregator, brings together many catalog companies to create a new searchable database of products for buyers. A special type of agent = the metamediary, it represents a cluster of manufacturers, online retailers, and content providers organized around a life event or major asset purchase

Purchasing agents represent buyers. Shopping agents help individual consumers find specific products and the best prices online (e.g., The reverse auction, allows individual buyers to enter the price they will pay for particular items at the purchasing agent’s Web site, and sellers can agree or not. An online purchasing agent is called a buyer cooperative or a buyer aggregator. A virtual mall is similar to a shopping mall in which multiple online merchants are hosted at a Web site.

Pure Play Pure plays = businesses that began on the Internet, even if they subsequently added a brick-and-mortar presence. E.g. E*Trade is a pure play, beginning with only online trading Pure plays face significant challenges: They must compete as new brands and take customers away from established brick-and-mortar businesses. One way to change the rules is to invent a new e-business model, as Yahoo! and eBay did.

An Optimized System of E-Business Models
E-business is the continuous optimization of a firm’s business activities through digital technology. Firms usually combine traditional business and e-business models. E.g. Schwab = combined its online and offline brokerages in a unified system. The challenge: customers expect a high degree of coordination between online and offline operations. The danger: the established corporate culture might squash e-commerce initiatives or slow them down with the best of intentions. The solution: Many businesses have spun off their e-commerce operations as wholly owned subsidiaries or pure plays so they can compete without the weight of the parent business.

An Optimized System of E-Business Models
A fully optimized e-business that uses the Internet to sell is the sum of multiple e- business activities and processes: E-commerce, business intelligence, customer relationship management, supply chain management, and enterprise resource planning as represented in the following equation: EB = EC + BI + CRM + SCM + ERP

Performance Metrics The only way to know whether a company has reached its objectives is to measure results. Performance metrics = specific measures designed to evaluate the effectiveness and efficiency of an organization’s operations. Armed with this information, the company can make corrections to be sure it accomplishes the goal. Performance metrics should be defined along with the strategy formulation so the entire organization will know what results constitute successful.

Performance Metrics Performance metrics used to measure strategy effectiveness: Translate the vision, strategy, or e-business model into components that have measurable outcomes that various departments can use to create action plans, Communicate to employees what results the firm values. When employee evaluations are tied to the metrics, people will be motivated to make decisions that lead to the desired outcomes.

The Balanced Scorecard
BEFORE to measure success, firms used: Financial performance, Market share, The bottom line (profits). BUT these approaches are narrowly focused and place more weight on short-term results rather than addressing the firm's long-term sustainability.

The Balanced Scorecard
NOW, they use: The Balanced Scorecard = enterprise performance management systems that measure many aspects of a firm’s achievements. 50% of organizations worldwide have adopted the Balanced Scorecard with excellent results. The scorecard approach links strategy to measurement by asking firms to consider their vision, critical success factors for accomplishing it, and subsequent performance metrics in four areas: Customer, internal, innovation and learning, and financial.

Four Perspectives The customer perspective:
Uses measures of the value delivered to customers. These metrics tend to fall into four areas: time, quality, performance and service, and cost. E.g. Time from order to delivery, customer satisfaction levels with product performance, amount of sales from new products, and industry-specific metrics such as equipment up-time percentage or number of service calls.

Four Perspectives The internal perspective:
Evaluates company success at meeting customer expectations through its internal processes. E.g.: cycle time (how long to make the product), manufacturing quality, and employee skills and productivity. Information systems are a critical component of the internal perspective for e-business firms.

Four Perspectives The innovation and learning perspective
= the growth perspective: Companies place value on continuous improvement to existing products and services as well as on innovation in new products. E.g. Number of new products and the percentage of sales attributable to each; penetration of new markets; and the improvement of processes such as CRM or SCM initiatives.

Four Perspectives The financial perspective:
= Income and expense metrics as well as return on investment, sales, and market share growth. The point is to understand what the company wants to accomplish and devise performance metrics to monitor the progress and see that the goals are reached.

Scorecard Benefits Obtain timely information to update its strategy.
Balance long-term and short-term measures and evaluate every part of the firm and how each contributes toward accomplishing selected goals. It helps firms leverage their relationships with partners and supply chain members. Go beyond financial metrics in measuring many different aspects that lead to effective and efficient performance. Creates a long-term perspective for company sustainability.

Scorecard Benefits Forces companies to decide what is important and translate those decisions into measurable outcomes that all employees can understand. A great communication tool because employees can use the scorecard as a guide to coordinate their efforts. Support employee evaluation in that individual performance can be tied to successful outcomes on the metrics. A way to measure intangible as well as tangible assets. The are flexible and allow firms to select appropriate metrics for their goals, strategies, industry, and specific vision.

Applying the Balanced Scorecard to E-Business and E-Marketing
Metrics for the Customer Perspective Customer Perspective Scorecard for E-Business Firm

Metrics for the Internal Perspective Internal Perspective Scorecard for E-Business Firm

Metrics for the Innovation and Learning Perspectives Innovation and Learning Scorecard for E-Business Firm

Metrics for the Financial Perspective Financial Perspective Scorecard for E-Business Firm

Chapter 3: The E-Marketing Plan
E-Marketing, 3rd edition Judy Strauss, Adel I. El-Ansary, and Raymond Frost Chapter 3: The E-Marketing Plan © Prentice Hall 2003

Overview Overview of the E-Marketing Planning Process
Creating an E-Marketing Plan The Napkin Plan The Venture Capital E-Marketing Plan A Six-Step E-Marketing Plan Step 1—Situation Analysis Step 2—Link E-Business with E-Marketing Strategy Step 3— Formulate Objectives Step 4—Design Implementation Plan to Meet the Objectives Step 5—Budgeting Step 6—Evaluation Plan

Overview of the E-Marketing Planning Process
How can information technologies assist marketers in building revenues and market share or lowering costs? How can firms identify a sustainable competitive advantage with the Internet when so little is understood about how to succeed?

Overview of the E-Marketing Planning Process
The best firms have clear visions that they translate, through the marketing process, from e-business objectives and strategies into e-marketing goals and well-executed strategies and tactics for achieving those goals. This marketing process entails three steps: Marketing plan creation Plan implementation Evaluation/corrective action.

Creating an E-Marketing Plan
E-marketing plan: It is a guiding, dynamic document that links the firm’s e-business strategy (e-business model) with technology-driven marketing strategies and lays out details for plan implementation through marketing management. The e-marketing plan serves as a roadmap to guide the direction of the firm, allocate resources, and make tough decisions at critical junctures. There are two common types of e-marketing plans: The napkin plan, The venture capital plan.

The Napkin Plan Dot-com entrepreneurs were known to simply jot their ideas on a napkin over lunch and then run off to find financing. The big company version of this is the just-do-it. An employee has an idea, and convinces management to just do it. These plans sometimes work and are sometimes even necessary but they are not recommended when substantial resources are involved. Sound planning and thoughtful implementation are needed for long-term success in business.

The Venture Capital E-Marketing Plan
Small to mid-sized firms and entrepreneurs with start-up ideas usually begin with a napkin plan without going through the entire traditional marketing planning process. BUT as the company grows and needs capital, it has to put together a comprehensive e-marketing plan. Where does an entrepreneur go for capital? Sometimes bank loans, Debt financed (20% down) Most of the time, it is equity financed, Private funds (friends and family), Angel investors, Venture capitalists.

Investors are looking for a well-composed business plan, and more importantly, a good team to implement it. The business plan should contain enough data and logic to prove that: The e-business idea is solid, The entrepreneur has some idea of how to run the business.

9 questions that every business plan should answer: Who is the new venture’s customer? How does the customer make decisions about buying this product or service? To what degree is the product or service a compelling purchase for the customer? How will the product or service be priced?

9 questions that every business plan should answer: How will the venture reach all the identified customer segments? How much does it cost (in time and resources) to acquire a customer? How much does it cost to produce and deliver the product or service? How much does it cost to support a customer? How easy is it to retain a customer?

VCs look for a way to get their money and profits out of the venture within a few years: The golden exit plan is to go public and issue stock in an initial public offering (IPO), As soon as the stock price rises sufficiently, the VC cashes out and moves on to another investment. All VCs’ investments are not successful. But if even one out of 20 is an Amazon.com, the risk was well worth the reward.

A Six-Step E-Marketing Plan

Step 1—Situation Analysis
Planning for e-marketing does not mean starting from scratch but working with existing business, e-business, and marketing plans is an excellent place to start.

Step 1—Situation Analysis
The organizational e-business plan: SWOT analysis => e-business strategy. The marketing plan: gathers information about the firm’s products, the markets currently served, and so forth. The distribution plan: identifies areas where the products are currently sold and suggests geographic gaps that might be receptive to e- commerce. Promotion plan information: gives clues about how the Internet fits with the firm’s current advertising, sales promotion, and other marketing communications. The firm and brand positioning in the marketplace: Internet planners must decide how closely Web site content and promotion will follow current positioning strategies. The marketer moves to strategy formulation.

Step 2—Link E-Business with E-Marketing Strategy
Marketers need to: Review the marketing and e-business plans, 2 Conduct a strategic planning to help achieve the firm’s e- business goals + define potential revenue streams, 3 Create supporting e-marketing strategy for the e-business goals: A Tier one strategy: marketers design segmentation, targeting, differentiation, and positioning strategies, B Tier two strategy deals with the 4P’s and relationship management by creating strategies around the offer (product), value (pricing), distribution (place), and communication (promotion), Further, marketers design customer and partner relationship strategies (CRM/PRM).

Tier One E-Marketing Strategic Planning: Segmenting & targeting
Market opportunity analysis (MOA): The demand analysis = market segmentation analyses to describe and evaluate the potential profitability, sustainability, accessibility, and size of various potential segments. The segment analysis in the B2C market with demographic characteristics, geographic location, selected psychographic, and past behavior toward the descriptors help firms identify potentially attractive markets. Allows the company to select its target market and understand its characteristics, behavior, and desires in the firm’s product category.

Tier One E-Marketing Strategic Planning: Segmenting & targeting
Tools: - Traditional segmentation analyses. Analyzes of customer bases using cookies, database analyses, and other techniques, Supply analysis: forecasts segment profitability + finds competitive advantages, Study of competition to find the company own performance advantages.: strengths and weaknesses, e-marketing initiatives, … Identify future industry changes.

Tier One E-Marketing Strategic Planning: Identifying brand differentiation variables and positioning strategies The understanding of the competition + the target(s) Differentiation of the products to provide benefits perceived as important by the target. The positioning statement: the desired image for the brand relative to the competition.

Tier Two E-Marketing Strategic Planning
The two Tiers are elaborated in an interative process: It is difficult to know what the brand position should be without understanding the offer that comprises the brand promise.

The Offer: Product Strategies
The organization can: Sell merchandise, services, or advertising on the Web site, Adopt a e-business model such as online auctions, Create new brands for the online market, Simply sell selected current or enhanced products in that channel. A firm must decide how online product prices will compare with offline equivalents considering the differing costs of sorting and delivering products to individuals through the online channel as well as competitive and market concerns.

The Offer: Product Strategies
There are two online pricing trends are: Dynamic pricing—this strategy applies different price levels for different customers or situations. The Internet allows firms to price items automatically and “on the fly” while users view pages, Online bidding—this presents a way to optimize inventory management. E.g. Priceline.com, eBay.com

Distribution Strategies
Many firms use the Internet to distribute products or create efficiencies among supply chain members in the distribution channel. Direct marketing—Many firms sell directly to customers, by-passing intermediaries in the traditional channel for some sales. Agent e-business models—Firms such as eBay and E*Trade bring buyers and sellers together and earn a fee for the transaction.

Marketing Communication Strategies
The Internet spawned a multitude of new marketing communication strategies, both to draw customers to a Web site and to interact with brick-and-mortar customers. Firms use Web pages and to: Communicate with their target markets and business partners, Build brand images, Create awareness of new products, Position products using the Web and .

Relationship Management Strategies
E-marketing communication strategies help build relationships with a firm’s partners, supply chain members, or customers using: Customer relationship management (CRM) software to retain customers and increase average order values and lifetime value, Partner relationship management (PRM) software to integrate customer communication and purchase behavior into a comprehensive database, Extranets—two or more proprietary networks linked for better communication and more efficient transactions among firms (PRM).

Step 3— Formulate Objectives
In general, an objective in an e-marketing plan takes the form: Task (what is to be accomplished), Measurable quantity (how much), Time frame (by when).

Typical E-Marketing Objectives
Most e-marketing plans aim to accomplish multiple objectives such as: Increase market share, Increase sales revenue, Reduce costs, Achieve branding goals, Improve databases, Achieve customer relationship management goals, Improve supply chain management.

E-Marketing Objective-Strategy Matrix
Objective-strategy matrix presents the firm’s e-marketing strategies and accompanying goals.

Step 4 — Design Implementation Plan to Meet the Objectives
Select: The marketing mix (4 Ps), Relationship management tactics, Other tactics to achieve the plan objectives. Devise detailed plans for implementation. Check the right marketing organization is in place for implementation.

Step 4 — Design Implementation Plan to Meet the Objectives
Information technologies are especially adept at automating these processes, this is why the information gathering tactics are important: Web site forms, feedback , and online surveys, Web site log analysis software helps firms review user behavior at the site and make changes to better meet the needs of users, Business intelligence uses the Internet for secondary research, assisting firms in understanding competitors and other market forces.

Step 5 — Budgeting A key part of any strategic plan is to identify the expected returns from an investment. Returns are matched against costs to develop a cost/benefit analysis, ROI calculation, or internal rate of return (IRR) Determine whether the effort is worthwhile. During plan implementation, marketers will closely monitor actual revenues and costs To monitor of results are on track for accomplishing the objectives.

Revenue Forecast Revenue streams:
The firm uses an established sales forecasting method for estimating the site revenues in the short, intermediate, and long term. Inputs: The firm’s historical data, industry reports, and competitive actions. An important part of forecasting is to estimate the level of Web site traffic over time. This number affects the amount of revenue a firm can expect to generate from its site. Revenue streams: Web site direct sales, - Advertising sales, Subscription fees, - Affiliate referrals, Sales at partner sites, - Commissions, and other fees.

Budgeting Intangible Benefits:
Putting a financial figure on such benefits is challenging but essential for e-marketers. What is the value of increased brand awareness from a Web site? Cost Savings: Money saved through Internet efficiencies is considered soft revenue for a firm.

E-Marketing Costs Costs for employees, hardware, software, programming, and more. Some traditional marketing costs may creep into the e-marketing budget The cost of a Web site can range from $5000 to $50 million. Few of the costs site developers incur: Technology costs: software, hardware, Internet access or hosting services, educational materials and training, and other site operation and maintenance costs. Site design. Web sites need graphic designers to create appealing page layouts, graphics, and photos.

E-Marketing Costs Other costs site developers incur:
Salaries. All personnel that work on Web site development and maintenance are budget items. Other site development expenses. If not included in the technology or salary categories, any other expenses will be here (registration of multiple domain names and hiring consultants). Marketing communication. All advertising, public relations, and promotions activities, both online and offline, to draw site traffic. Search engine registration, online directory costs, list rental, prizes for contests, and more. Miscellaneous. Other typical project costs might fall here— expenses such as travel, telephone, stationery printing to add the new URL, and more.

Step 6 — Evaluation Plan Once the e-marketing plan is implemented, its success depends on continuous evaluation. The tracking systems should be in place before the electronic doors open. What should be measured? The plan objectives need to be evaluated with: Balanced scorecard for e-business ROI …

Key Terms Angel investors Demand analyses Direct marketing
Dynamic pricing E-marketing plan Market Opportunity Analysis (MOA) Online bidding Partner Relationship Management (PRM) Segment analysis Situation analysis Supply analyses Venture Capital (VC)

Review Questions What are the six steps in an e-marketing plan?
Why do entrepreneurs seeking funding need a venture capital e-marketing plan rather than a napkin plan? What is the purpose of the marketing opportunity analysis and the segment analysis? What four elements in tier one and five elements in tier two are devised for e-marketing strategy? What is the purpose of an e-marketing objective-strategy matrix? How do managers use budgeting within the e-marketing planning process? Why do e-marketing plans need an evaluation component?

Discussion Questions If you had money to invest, what would you look for in a venture capital e-marketing plan? What kinds of questions should a firm ask in developing an e-marketing plan to serve customers in current markets through an online channel? Why is it important for e-marketers to specify not only the task but also the measurable quantity and time frame for accomplishing an objective? Why would the management of American Airlines expect its e-marketers to estimate the financial impact of intangible benefits such as building brand equity through messages to frequent flyers?

ELC 310 DAY 3.

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