1 © 1998-2009, arvind rangaswamy (all rights reserved) january 13, 2009 e-marketing (ebiz/mktg 543)...

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© 1998-2009, Arvind Rangaswamy (All Rights Reserved)

January 13, 2009

e-Marketing (eBiz/MKTG 543)

Introduction and Course Overview

Arvind Rangaswamy

Web address: www.arvind.infoemail: [email protected]

My Background in e-Marketing

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Outline for Today’sSession

Course overview

The emerging space of real-time, global, digital, networked organizations

Role of e-Marketing in a connected world

Course OverviewCourse web site at Angel

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Course Objectives

Provide a good understanding of the business rationale for e-Marketing, and the potential value of e-Marketing to consumers, to the marketing function, to companies, and to society at large.

Expose students to the essential vocabulary they need to meaningfully discuss current developments in e-Marketing.

Offer useful frameworks for dissecting the elements of value creation and the processes for developing and maintaining customer relationships in the “borderless” economy, and to use these frameworks to identify and exploit market opportunities.

Help students to critically evaluate an e-Marketing problem and develop strategic and operational plans appropriate for that problem.

Identify and articulate the key management issues that arise in implementing e-Marketing strategies.

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Course Materials

Required Materials

Case packet with cases (available at bookstore).

Recommended Text

Ward Hanson and Kirthi Kalyanam, Principles of Internet Marketing (Second Edition), Thomson Learning.

Angel Course Web site

All other materials required for the course are available under the Calendar tab at Angel – keyed to each session.

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Grading

Class participation (30%)

Group case presentations and write-ups (40%)

e-Marketing audit (30%)

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Class Preparation/Participation

Meet with group to prepare for class.

Quality of participation is far more important than quantity of participation.

Everyone is here to learn from each other.

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3-Stage Learning Process

Learning

Time

Individualpreparation

Small groupdiscussion

Large groupdiscussion

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Grading Criteria

Illustrative criteria for evaluating content Actionable and specific recommendations (versus

general recommendations) Conceptual framework guiding recommendations (i.e.,

rationale for recommendations) Overall strategy Basic financials Operational/implementation considerations Use of course concepts Coverage of discussion questions Internal consistency Insightful -- brought out key lessons learned

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Grading Criteria (Contd)

Illustrative criteria for evaluating presentations Focused? Captured audience attention? Quality of report/charts/presentation materials

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Grading

-- - + ++

++ Outstanding – on your way to getting the “Nobel prize” in e-Marketing

+ Clearly beats my expectations/norms for the course

Meets my expectations for the course

- Below my expectations, but can improve

-- Shouldn’t be in the course

Current State of e-Marketing

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What is e-Marketing?

e-Commerce

e-tailing

e-Business

e-Marketing

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What is e-Marketing?

Marketing is the process of planning and executing the conception, pricing, promotion, and distribution of ideas, goods, and services to create exchanges that satisfy individual and organizational goals.

-- American Marketing Association

e-Marketing (Internet marketing; Online marketing) is an adaptive and collaborative process of building and maintaining customer relationships through online activities that facilitate the exchange of ideas, products, and services which satisfy the goals of the parties to the exchange.

— My definition

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More Succinct Definitions

e-Marketing is whatever our customers want us to be.

-- Senior Executive

e-Marketing is the Viagra of big business-- Jack Welch

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Digital-Networked-Mobile Convergence:The Evolution of Information Access

AnalogStandaloneFixed location

Digital

Networked

Mobile

Digital andNetworked

Digital, MobileNetworked

Digital, Mobile

Library

MobileNetworked

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General IT Trends InfluencingComputing and Communications

Typical Today Coming Soon

Backbone bandwidth (OC-192) 10 Gb/s 40 Gb/s Tb/s

Access (home) bandwidth 0.5 - 6 Mb/s 10 Mb/s 100 Mb/s

Wireless bandwidth (Cell phone) 500 kb/s 2M b/s 100 Mb/s

Enterprise Database 20 - 50 TB 500 TB PB

Supercomputer speeds 100 - 478 TFLOPS PFLOPS

LCD/OLED Displays 1 – 11 Mpel 50 Mpel

M=106, G=109, T=1012, P=1015

b = bits; B = Bytes

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Supplier network

Customer/Market network

Extranet Intranet Internet

e-Operations e-Marketing

Company’s digital

infrastructure

Real-timeEnterprise

Real-time is an organizational capability, powered by customer-centered information and process management architectures, for anticipating and responding to changing customer and market needs as fast, or faster than, those changes.

Customer-drivenActivities and flows

Emerging Global Real-Time Enterprises Focused on Customers

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What Wal-Mart Did on 9/11

Within a few hours of the 9/11 attacks, sales of flags and other patriotic items started skyrocketing.

On Sept 11, the 2,700 Wal-Mart stores sold over 100,000 flags (compared to 6,400 the previous year on that day), and over 200,000 on Sept 12th.

Detecting these increases, Wal-Mart locked up all the supplies it could find before its competitors (like Kmart) could react.

Real-time tracking and analysis helped “adapt” to a demand surge.

Customer Relationship Management

Mar

keti

ng

Sal

es

Cu

sto

mer

Ser

vice

Selling Chain ManagementSelling Chain Management

Customers, Resellers

KnowledgeManagement

Order Management

Fin

ance

/Acc

ou

nti

ng

/Au

dit

ing

Man

agem

ent

Co

ntr

ol S

takeholders

Stakeholders

Ad

min

istr

ativ

e C

on

tro

lH

RM

S/O

RM

S

Employees

Employees

Supply Chain ManagementSupply Chain Management

Enterprise Resource PlanningL

og

isti

cs

Pro

du

ctio

n

Dis

trib

uti

on

Suppliers, Distributors, Partners

Source: Adapted from Ravi Kalakota

The New TechnologyInfrastructure

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Internet Use by US Consumers

From Pew Research, August 2008

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Internet Use by US Consumers

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Business Value of eBiz eBay -- Consolidated Statements

eBay -- CONSOLIDATED STATEMENT OF OPERATIONS

Year ending 2007 2006 2005 2004 2003 2002 2001 2000 1999

Revenue Net sales 7,672 5,970 4,552 3,271 2,165 1,214 749 431 225 Cost of sales (1,763) (1,257) (818) (614) (416) (214) (135) (95) (58) Gross profit 5,909 4,713 3,734 2,657 1,749 1,000 614 336 167 Gross margin (%) 77.02 78.94 82.03 81.23 80.79 82.37 81.98 77.96 74.22

Operating costs and expenses Sales and Marketing (1,925) (1,620) (1,186) (815) (568) (350) (253) (167) (96) Product Development (620) (495) (328) (241) (159) (105) (75) (56) (25) General Administrative (1,156) (978) (650) (476) (333) (172) (106) (73) (44) Other (1,595) (197) (129) (66) (60) (20) (39) (5) (6)

Total operating expenses (5,296) (3,290) (2,293) (1,598) (1,120) (647) (473) (301) (171) Operating income (loss) 613 1,423 1,441 1,059 629 353 141 35 (4) Investment/other income (loss) 138 124 108 69 32 44 23 43 22 Net Pre-tax income (loss) 751 1,547 1,549 1,128 661 397 164 78 19Operating income (%) 7.99 23.84 31.66 32.38 29.05 29.08 18.83 8.12 (1.56)

Current Assets

Cash equivalents 4,221 2,663 1,314 1,330 1,382 1,109 524 202 222 Short-term investments 676 542 775 682 341 90 199 354 181 Accounts receivable 481 393 323 241 226 131 102 67 37 Other current assets 1,744 1,360 772 658 198 138 59 52 26 Long term investments 138 278 826 1,268 934 470 287 218 374 Goodwill 6,257 6,544 6,120 2,710 1,719 1,456 188 23 13 Total assets 15,366 13,494 11,789 7,991 5,820 4,124 1,679 1,182 970 Total current liabilities 3,100 2,518 1,485 1,085 647 386 180 137 93 Total liabilities 3,661 2,589 1,741 1,263 924 568 249 169 116

(All figures in millions)All information derived from company annual reports and SEC filings.

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Business Value of eBizAmazon -- Consolidated Statements

AMAZON -- CONSOLIDATED STATEMENT OF OPERATIONS000,000 000

Year (Dec 31) 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998

Revenue

Net sales 14,835 10,711 8,490 6,921 5,264 3,933 3,122 2,762 1,640 609,819

Cost of sales (11,482) (8,255) (6,451) (5,319) (4,007) (2,940) (2,324) (2,106) (1,349) (476,155)

Gross profit 3,353 2,456 2,039 1,602 1,257 993 798 656 291 133,664

Gross margin (%) 22.60 22.93 24.02 23.15 23.88 25.25 25.56 23.75 17.74 21.92

Operating costs and expenses

Technology and content (818) (662) (451) (251) (208) (216) (241) (269) (160) (46,424)

Marketing and fulfillment (1,636) (1,200) (943) (748) (600) (518) (513) (594) (413) (132,654)

General and Administrative (235) (195) (166) (112) (88) (79) (90) (109) (70) (15,618)

Other (e.g, Impairment, stock compensation) (9) (10) (47) (50) (91) (116) (368) (547) (254) (48,023)

Total operating expenses (2,698) (2,067) (1,607) (1,162) (987) (929) (1,212) (1,519) (897) (242,719)

Operating income (loss) 655 389 432 440 271 64 (414) (863) (606) (109,055)

Net interest expense and other 5 (12) (4) (85) (232) (215) (114) (243) (37) (12,586)

Net Pre-tax income (loss) 476 190 359 588 35 (149) (671) (1,411) (720) (124,546)

Net margin (%) 3.21 1.77 4.23 8.50 0.66 (3.79) (21.49) (51.09) (43.90) (20.42)

Current Assets (Dec 31)

Cash equivalents 2,539 1,022 1,013 1,303 1,102 738 540 822 133 71,583

Marketable securities 573 997 987 477 293 563 456 278 573 301,862

Inventories 1,299 877 566 480 294 202 144 175 221 29,501

Total current assets 5,164 3,373 2,929 2,539 1,821 1,990 1,638 2,135 2,466 648,460

Total current liabilities 3,714 2,532 1,929 1,620 1,253 1,066 921 975 733 161,575

Long-term debt 1,282 1,247 1,521 1,855 1,945 2,277 2,156 2,127 1,466 348,140

All information derived from company annual reports and SEC filings.

(All figures in thousands)

"We are not profitable. We could be. It would be the easiest thing in the world to be profitable. It would also be the dumbest. We are taking what might be profits and reinvesting them in the future of the business. It would literally be the stupidest decision any management team could make to make Amazon.com profitable right now." Jeff Bezos, President, Amazon.com (1998)

“The layoffs were painful, but were necessary if the company were to become profitable in 2001.”

Jeff Bezos, President, Amazon.com (2001)

“Before we invest our shareholders’ money in a new business, we must convince ourselves that the new opportunity can generate the returns on capital our investors expected when they invested in Amazon. And we must convince ourselves that the new business can grow to a scale where it can be significant in the context of our overall company.”

Jeff Bezos, CEO, Amazon.com (2007)

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Business Value of eBiz Dell -- Consolidated Statements

DELL -- CONSOLIDATED STATEMENT OF OPERATIONS

Year ending 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999

Revenue Net sales 61,133 57,420 55,788 49,205 41,444 35,404 31,168 31,888 25,265 18,243 Cost of sales (49,462) (47,904) (45,897) (40,190) (33,629) (29,055) (25,661) (25,445) (20,047) (14,137) Gross profit 11,671 9,516 9,891 9,015 7,552 6,349 5,507 6,443 5,218 4,106 Gross margin (%) 19.09 16.57 17.73 18.32 18.22 17.93 17.67 20.21 20.65 22.51

Operating costs and expenses Selling, general, administrative (7,538) (5,948) (5,051) (4,298) (3,544) (3,050) (2,784) (3,193) (2,387) (1,788) Research, development, engineering (693) (498) (458) (463) (464) (455) (452) (482) (374) (272) Special chages - - - - - - (482) (105) (194) -

Total operating expenses (8,231) (6,446) (5,509) (4,761) (4,008) (3,505) (3,718) (3,780) (2,955) (2,060) Operating income (loss) 3,440 3,070 4,382 4,254 3,544 2,844 1,789 2,663 2,263 2,046 Investment/other income (loss) 387 275 226 191 180 183 (58) 531 188 38 Net Pre-tax income (loss) 3,827 3,345 4,608 4,445 3,724 3,027 1,731 3,194 2,451 2,084 Operating income (%) 5.63 5.35 7.85 8.65 8.55 8.03 5.74 8.35 8.96 11.22

Current Assets

Cash equivalents 7,764 9,546 7,054 4,747 4,317 4,232 3,641 4,910 3,809 1,726 Short-term investments 208 752 2,016 5,060 835 406 273 525 323 923 Accounts receivable 5,961 4,622 4,082 4,414 3,635 2,586 2,269 2,424 2,608 2,094 Inventories 1,180 660 588 459 327 306 278 400 391 273 Long term investments 7,681 5,696 5,458 4,319 6,770 5,267 4,373 2,418 1,048 532 Total assets 27,561 25,635 23,252 23,215 19,311 15,470 13,535 13,670 11,471 6,877 Total current liabilities 18,526 17,791 16,173 14,136 10,896 8,933 7,519 6,778 5,192 3,695 Long-term debt 362 569 625 505 505 506 520 509 508 512 Total liabilities 23,732 21,196 19,205 16,730 13,031 10,597 8,841 8,048 6,163 4,556

(All figures in millions)

All information derived from company annual reports and SEC filings (Dell restated its financial statements for 2005, 2004, and 2003 and restated figures may be different from those reported here).

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Business Value of eBizJC Penney -- Consolidated Statements

J C PENNEY -- CONSOLIDATED STATEMENT OF OPERATIONS

Date of Annual Report 2007 2006 2005 2004 2003 2002

Revenue Net sales 19,860 19,903 18,781 18,096 17,513 17,384 Cost of goods sold (12,189) (12,078) (11,590) (11,304) (11,243) (11,282) Gross profit 7,671 7,825 7,191 6,792 6,270 6,102 Gross margin (%) 38.63 39.32 38.29 37.53 35.80 35.10

Operating costs and expenses SG&A expenses (5,357) (5,521) (5,227) (5,135) (5,131) (5,041) Other expenses (income) 426 (382) (333) (382) (350) (435)Total operating costs and expenses (17,120) (17,981) (17,150) (16,821) (16,724) (16,758)Income (loss) from continuing operations before taxes 1,888 1,922 1,631 1,275 789 626 Income tax expenses (618) (658) (467) (348) (182) (130) Other income (loss) (e.g.,net interest expense) -165 (130) (187) (270) (1,292) 120 Net income (loss) 1,105 1,134 977 657 (685) 616

Operating income (%) 9.51 9.66 8.68 7.05 4.51 3.60

Merchandise inventory 3,641 3,400 3,210 3,142 3,156 4,930 Other current assets (cash, receivables, etc.) 3,110 3,248 3,492 5,090 3,434 3,408 Total assets (land, building, equipment, goodwill, etc.) 14,309 12,673 12,461 14,127 18,300 17,867 Total current liabilities 3,338 3,492 2,762 3,297 3,754 4,159 Long-term debt 3,505 3,010 3,444 3,464 5,114 4,490 Total liabilities 8,997 8,385 8,454 9,271 12,875 11,497

All information derived from company annual reports and SEC filings. The write off in 2003 reflects discontinuation of Eckerd drugstores. (All figures in millions)

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March 2, 2001

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eBiz is Dead.Long Live eBiz!

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The Marketing Process in a Connected World

• Create offerings• Customize offerings• Simplify channels• Design customer experience

• Build platforms• Generate externalities• Expand ecosystem • Enhance customer

experience

Sustainvalue

Augmentvalue

Realizevalue

Communicatevalue

Architectvalue

Refinevalue

Findvalue

CustomerRelationshipRepository

Adapt

• Sense market trends • Understand customers• Identify opportunities• Redefine markets • Segment customers

• Choose desirable segments • Craft value propositions• Validate/adapt value propositions

• Expand touchpoints• Price to maximize yield• Bundle/unbundle offerings• Adapt pricing/revenue strategy

• Manage brand• Deliver consistent message• Optimize communications mix• Integrate communications

• Monitor customer experience • Personalize relationships• Develop complete offerings• Institute loyalty programs

Source: Adapted from Mohan Sawhney

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Some Ways of Deriving Business Value from the Digital Infrastructure

ReduceReduceCosts ofCosts ofBusinessBusiness

DevelopDevelop e-Enhancede-Enhanced

ProductsProducts

EnhanceEnhanceCustomerCustomer

ExperienceExperience

AttractAttractNewNew

CustomersCustomers

AccessAccessNew MarketsNew Marketsand Channelsand Channels

ExpandExpandOfferingsOfferings

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• Customers create “power plant” on the Web.• Virtual meetings between various teams and

customers eliminates costs.• Blueprints exchanged and modified in real time on

the Web.• Customers can watch as turbine is built.

- 20-30% reduction in time to build turbine- 1-2% increase in turbine output- 30% increase in sales revenue

Example Business Value at GE(http://www.gepower.com/online_tools/index.htm)

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Online Business FunctionalityEvolution at Leading Companies

Fu

nct

ion

alit

y

1997

Static content

Dynamic content

Transactions

1994 2000 2003 2006

Process management

Value WebManagement

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Summary

e-Marketing is technology-mediated marketing. It is bringing about major changes in how an organization interfaces with its customers and its markets, and how it implements its marketing functions internally.

e-Marketing is here to stay and is growing in importance.

Emerging real-time/adaptive organizations are further increasing the role and impact of e-Marketing.

1 © 1998-2009, arvind rangaswamy (all rights reserved) january 13, 2009 e-marketing (ebiz/mktg 543)...

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