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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© 1998-2009, Arvind Rangaswamy (All Rights Reserved)
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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© 1998-2009, Arvind Rangaswamy (All Rights Reserved)
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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© 1998-2009, Arvind Rangaswamy (All Rights Reserved)
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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© 1998-2009, Arvind Rangaswamy (All Rights Reserved)
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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© 1998-2009, Arvind Rangaswamy (All Rights Reserved)
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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© 1998-2009, Arvind Rangaswamy (All Rights Reserved)
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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© 1998-2009, Arvind Rangaswamy (All Rights Reserved)
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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© 1998-2009, Arvind Rangaswamy (All Rights Reserved)
The Separation of Choice from Purchase
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© 1998-2009, Arvind Rangaswamy (All Rights Reserved)
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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© 1998-2009, Arvind Rangaswamy (All Rights Reserved)
Traditional Multiple-Channel Marketing
OutsideReps
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© 1998-2009, Arvind Rangaswamy (All Rights Reserved)
Communications Channels
Service Channels
Transaction Channels
Advertising/PR
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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© 1998-2009, Arvind Rangaswamy (All Rights Reserved)
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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© 1998-2009, Arvind Rangaswamy (All Rights Reserved)
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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© 1998-2009, Arvind Rangaswamy (All Rights Reserved)
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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© 1998-2009, Arvind Rangaswamy (All Rights Reserved)
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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© 1998-2009, Arvind Rangaswamy (All Rights Reserved)
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 $7.50 73 cents
Lesson: Cost per contact goes down; so does contact duration, which could be a bad thing!
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© 1998-2009, Arvind Rangaswamy (All Rights Reserved)
Effectiveness Rationale: Attractiveness of Multi-channel Customers
Shopped in One Channel
Shopped in Two Channels
Shopped in Three Channels
Shopped in Four Channels
Revenue ($) 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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© 1998-2009, Arvind Rangaswamy (All Rights Reserved)
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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© 1998-2009, Arvind Rangaswamy (All Rights Reserved)
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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© 1998-2009, Arvind Rangaswamy (All Rights Reserved)
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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© 1998-2009, Arvind Rangaswamy (All Rights Reserved)
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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© 1998-2009, Arvind Rangaswamy (All Rights Reserved)
Brand Consistency Across ChannelsVictoria’s Secret
Store Catalog
Web site
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© 1998-2009, Arvind Rangaswamy (All Rights Reserved)
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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© 1998-2009, Arvind Rangaswamy (All Rights Reserved)
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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© 1998-2009, Arvind Rangaswamy (All Rights Reserved)
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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© 1998-2009, Arvind Rangaswamy (All Rights Reserved)
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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© 1998-2009, Arvind Rangaswamy (All Rights Reserved)
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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© 1998-2009, Arvind Rangaswamy (All Rights Reserved)
“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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© 1998-2009, Arvind Rangaswamy (All Rights Reserved)
An Example Two-Sided Platform
(e.g., Yahoo!)
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© 1998-2009, Arvind Rangaswamy (All Rights Reserved)
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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© 1998-2009, Arvind Rangaswamy (All Rights Reserved)
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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© 1998-2009, Arvind Rangaswamy (All Rights Reserved)
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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© 1998-2009, Arvind Rangaswamy (All Rights Reserved)
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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© 1998-2009, Arvind Rangaswamy (All Rights Reserved)
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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© 1998-2009, Arvind Rangaswamy (All Rights Reserved)
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.
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