1 © 1998-2009, arvind rangaswamy (all rights reserved) january 15, 2009 e-marketing conceptual...

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

January 15, 2009

e-Marketing

Conceptual OverviewStrategic Aspects

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Outline for Today’s Session

Aligning business and marketing strategies with technology capabilities

Overview of online strategies for digital and non-digital products

Online as a Marketing Medium: Strategic Challenges and Opportunities

Multi-channel marketing The opportunities and challenges of two-sided

platform networks Some guiding “principles” for online intermediaries

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Facilitators• Government• InterNIC• ISO• The Internet

SocietyInternet Services

Infrastructure

Hardware Infrastructure

Content and Software Infrastructure

e-Marketing Applications

Your company cannow plug into a massiveexisting technologyinfrastructure

Database providersGoogle.comYour companyWeb services

News/Entertainment Providers NetscapeSAPMicrosoft…

Telephone Co.ISP’sCISCO

NSP’s like AT&Tand MCI

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Technology EnvironmentThe Plug-In Architecture

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The Increasing Need forStrategy/IT Alignment

Mar

ket

sC

orp

orat

e

IT

Architecture

Processes ResourcesProcesses/Capabilities

Resources

Governance

IT Scope

Systemic Competencies

ITGovernance

Distinctive Competencies

(Why?)

Business Scope

(What?)

Governance(How?)

Business Strategy IT Strategy

Business operations IT operations

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Lessons inStrategy/IT Alignment

Spending smart is more important than being first in the industry – focus IT spending on enhancing innovation, differentiation, customer relationships, and productivity.

IT must reinforce business strategy, and business strategy must help identify winning IT investments.

Leverage IT for scale and scope. Leverage IT with protected intellectual property. Embed IT in processes that are inimitable, and/or not

transparent to competitors.

Put the right people and processes in place before putting the right IT system.

Source: Based, in part, on a McKinsey article titled Getting IT spending right this time (2003).

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The Exchange Processes for Digital Products are Being Completely Redefined

Digital products (e.g, software, music, entertainment, and “content” that can be delivered on the Net)

Reproducible at low marginal costs by anyone in the marketing channel (including customers)

Low distribution costs (on the Internet)

Non-destructible

Customizable

Have high heterogeneity in customer value (thus, they need to be priced according to value, not cost)

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Personalize/Customize the offering Bundle – make digital products more tangible Deliver completely new “product experiences” Update product frequently Explore creative pricing options

Licensing Subscription Metering (Web services) Dynamic pricing

……

Some Marketing Strategies for Digital Products

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You can add digital content to any product. This may result in separating “choice” from “purchase” for many non-digital products.

Create product assortments that are difficult/expensive to replicate offline (e.g., Long-tail)

Personalize/“Customerize”

Incorporate digital enhancements that increase usability of the product

Manage the exchange process online (Create “path dependence”

……..

Some Marketing Strategies forNon-digital Products

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The Separation of Choice from Purchase

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Multi-channel MarketingDefinition

Multi-channel marketing is a capability that helps firms to enhance customer relationships by simultaneously offering their customers and prospects information, products, services, and support (or any combination of these) through two or more synchronized channels.

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Traditional Multiple-Channel Marketing

OutsideReps

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Communications Channels

Service Channels

Transaction Channels

Advertising/PR

e-mail

Web Site

Telephone

Store

Kiosk

Sales Force

Store

Servicepeople

Telephone

Web Site

Ful

fillm

ent

SalesForce

Web Site

Catalog

Store

Telephone

A New Kind of Shopping Behavior is Emerging

CoachWalMart

Sears

HPDell

National SemiconductorDow Chemical

AutobyTelAuto companies

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Multi-Channel Marketing

Corporate

Marketing Product

Divisions

Customers

Store/

Retailers Catalog

SalesForce

CallCenter

WebSiteTh

ird P

arty

Logistics

Pro

vid

ers

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The Business Case for Multi-channel Marketing

What is the business value of Multi-channel Marketing?

Efficiency rationale

Effectiveness rationale

Strategic rationale

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The Dilemma in ReachingHeterogeneous Customers

Sales callsLive seminarsAccess to KB/ key contactsSamplesCall centerOnline seminarsWebsiteSmart agentsNewslettersEmail alertsPR/AdvertisingC

ost-

Effe

ctiv

e T

ouch

poin

ts

Customers Profits

80%

80%20%

20%

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Differential Costs of Servicing

Phone 62%, email 19%, web 12% and chat 3% of all interactions in 2002-2003.

Typically, the cost of processing an Internet order is about 10% of the costs of a paper order (Business Week, Feb 6, 2006).

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Costs at a Small Software Company(Before and After Web-Based Self-Help)

Before After Phone (No. of calls per month )

80,000 25,000

Chat/E-mail 8,000 70,000 Self-help - 330,000 Average Support Duration 5 Minutes 1 Minute Support costs $850,000 $310,000 Contacts per month 88,000 425,000 Cost per contact $7.50 73 cents

Lesson: Cost per contact goes down; so does contact duration, which could be a bad thing!

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Effectiveness Rationale: Attractiveness of Multi-channel Customers

Shopped in One Channel

Shopped in Two Channels

Shopped in Three Channels

Shopped in Four Channels

Revenue ($) 193,274 69,865 322,149 1,682,853

Share of wallet 0.20 0.32 0.48 0.72

Past customer value ($) 152,502 97,798 690,514 3,428,024

Likelihood of staying Active 0.11 0.15 0.38 0.67

Source: Kumar and Venkatesan, Journal of Interactive Marketing (Spring 2005)

Note: Within a row, cells of the same color are not statistically different from each other. The analysis is based on data from 3,721 B2B customers for the period 1998-2002. Data is from a computer hardware and software company.

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The Strategic Rationale for Multi-channel Marketing

Leaders view multi-channel marketing not just as a strategic necessity, but as a new capability they need to build strategic advantage.

They are guided by well-defined strategies for building and reinforcing customer relationships by offering their customers compelling brand and shopping experiences across channels.

They are building “path dependence” in exchange process to cement relationships with customers.

They are using multi-channel marketing to make it easier than ever for their customers and prospects to do business with them, than with their competitors (e.g., more convenience).

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The Strategic Approach toMulti-channel Marketing

Create “path dependence.”

Offer deep-linking to the best customers.

Institute appropriate organizational structure, management incentives, and measurement metrics.

Deploy integrated, IT-supported real-time supply chain and customer systems.

Re-organize the company around customers (We call this Customerization).

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Account executives Analog University Bob Pease seminars Knowledge base PR releases Events, tradeshows “National Edge” New product documents

Online, email and telephone support

Private sites Design communities/ Discussion forum

Distributors Evaluation boards Order status Real time Price and

availability Obsolete items Samples

New Design Process

Explore new design options

Select components

Make purchases

Get support

Develop designs

Application briefs Application diagrams and notes Webench online design tools Software/simulation tools Tech support (Online, email

and telephone) Prototype kit (shipped next day)

Product tree Product descriptions

and options System diagrams

Source: Adapted from www.national.com (National Semiconductor)

Creating Path DependenceExample of National Semiconductor

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Deep Linking: Building Relationships with Customers

Customer Access Points: Tele-Web Interface

Firm/ Distributor

Supplier 1 Supplier 2

Information

Transactions

Knowhow

Support

Control

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Brand Consistency Across ChannelsVictoria’s Secret

Store Catalog

Web site

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Multi-channel Promotions atVictoria’s Secret

Stores URL on shopping bags Catalogs in stores Brand ads include URLs

Catalogs Callouts for web site Scent strip for Victoria’s Secret Beauty

Web site Sign up for catalog online e-mail to customers for store-specific

promotions Order from catalog online Store locator

Source: Anne Marie Blaire, Victoria’s Secret,

Note: Products purchased at the web site cannot be returned at a store and vice versa.

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Some Multi-channel Enablers

Web addresses in print/other media (e.g., on TV commercials, shopping bag, store receipts).

Putting catalog online.

Provide technical information online.

Chat button online to link to call center.

Kiosks in store.

Combined P&L for multiple channels.

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CRM systems have been bolted on to legacy IT systems, without changing the underlying processes.

Technology, rather than strategic rationale, is driving customer experiences across channels.

Lack of understanding & respecting of today’s customer preferences (e.g., for privacy).

Dominant sales channels fear cannibalization, resulting in channel conflicts/lack of flexibility.

Content spend across the organization is not visible – so it is not managed for consistency and responsiveness.

Challenges in ImplementingMulti-channel Marketing

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Some Key Decisions to Make in Implementing Multi-channel Marketing

Should we offer the same products across different channels (Superset versus Subset in some channels)?

Should web presence be a separate entity, or should it be the integrating channel (Distinct versus Integrated)?

Should we provide a common brand experience across channels (Channel versus Brand emphasis). Example: Should we offer the same price across channels?

How should we deploy resources across channels commensurate with the value of each targeted segment? (Common versus separate P&L).

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Some Action Guidelinesfor Multi-channel Marketers

Create content for multiple channels/multiple uses.

Constantly work towards understanding/defining your customers’ brand and channel experiences.

Experiment Measure Experiment

Consider “multiple credit system” to reward both demand creation and demand fulfillment.

Do what is right for your customers, but be friendly to your indirect channels.

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“Two-Sided” Platform Networks

Digital platforms eBay Google B2B Exchange Telecom provider Orbitz.com Monster.com Acrobat Windows OS Playstation, Xbox …

Traditional platforms Shopping mall

Credit card company

Nightclub

Employment agency

Publisher of academic journals

Cable TV operator

Real estate agency

HMO

…..

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An Example Two-Sided Platform

(e.g., Yahoo!)

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Characteristics of Two-Sided Platforms

“Presence of Externality”: Participants on one side care about the level of participation and usage on the other side of the platform.

There is differentiated treatment of each side by the platform owners (typically, money side and subsidy side).

The total volume of transactions depend on how the total price is allocated to the two sides, and not just on the total price (i.e., cross-subsidy influences total demand).

In the “platform as a merchant” model buyers and sellers do not interact directly (e.g., telecom companies). In true two-sided platforms, buyers and sellers interact directly, with the platform providing some needed resource to facilitate the interaction (eBay).

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Platform Types

One Provider Many Providers

One Sponsor

Proprietary

Macintosh OS (Apple)

Monster.com

Playstation (Sony)

Licensor

Windows OS

American Express branded MBNA cards

Scientific-Atlanta set tops

Many Sponsors

Joint Venture

CareerBuilder (among three news groups)

Orbitz (among Airlines)

Covisint (B2B exchange for Auto Cos.)

Shared

802.11 Wi-Fi

Linux

Visa

Real Estate MLS

Source: Adapted from Tom Eisenman, Harvard University

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Strategic Options for Platforms

Which side to subsidize? How much? How? For how long?

Proprietary platform, or shared platform?

How to prevent envelopment by other platform providers?

How to reduce tendency for “multi-homing” among platform participants?

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Intermediaries Add Value Via One or More of the Following…

Aggregating/Assembling unique content, services, or users

Creating original content

Facilitating price discovery

Qualifying members/participants/customers

Ensuring level playing field

Matching buyers with sellers

Managing work flow (process optimization)

Providing ancillary services (e.g., logistics)

Offering market metrics

Targeting communications

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Recap of Core Ideas

The “plug-in” digital infrastructure offers many new opportunities (and challenges) for marketers and entrepreneurs.

The business case for e-marketing is based on how it aligns with the core business strategy, and by how it could improve differentiation, innovation, productivity, and customer relationships.

Online marketing strategies could differ substantially between digital products and services and non-digital products and services.

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Recap of Core Ideas

More leading companies are moving from multiple-channel marketing to multi-channel marketing.

You could start your multi-channel activities with an efficiency or effectiveness rationale, but you need to move towards establishing a strategic basis for your multi-channel initiatives.

Online two-sided platforms are emerging as an important “business model.”

Online intermediaries have to offer compelling incremental value to all their stakeholders to have long-run viability.

1 © 1998-2009, arvind rangaswamy (all rights reserved) january 15, 2009 e-marketing conceptual...

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