Marketing Strategies for

the New Economy

Chapter 14

McGraw-Hill/Irwin Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved.

14-2

Does Every Company Need a New-Economy Strategy?

• New economy means the industries that: – Fuel the development of or participate

significantly in electronic commerce and the Internet,

– Develop and market computer hardware and software, and

– Develop or provide any of the growing array of telecommunications services.

14-3

Does Every Company Need a New-Economy Strategy?

• Long-term prospects for doing business in the new economy are enormous.

• Nearly every company needs to examine how it will be affected by and can take advantage of new technologies.

• The fact that one’s competitors will surely develop and deploy such strategies is a further argument for doing so.

14-4

The Inherent Advantages and Disadvantages of the New Economy

• Syndication involves the sale of the same good to many customers, who may then combine it with information from other sources and distribute it.– Originator – Syndicator– Distributor– Really Simple Syndication (RSS)

14-5

The Inherent Advantages and Disadvantages of the New Economy

• Why is syndication important?– It delivers informational goods, rather than

tangible goods.– The syndication process can be automated

and digitized, enabling syndicated networks to be created, expanded, and flexibly adapted far more quickly than would be possible in the physical world.

– Syndication via the Internet—and via mobile phones or other mobile devices—opens up endless opportunities for marketers.

14-6

The Inherent Advantages and Disadvantages of the New Economy

• Increasing returns to scale of network products– The characteristic of informational networks—

a product becomes more valuable as the number of users increases—is often called a positive network effect, or network externality.

– This characteristic has led to the seemingly crazy strategy of giving one’s Internet product away for free, often a strategy of choice for new-economy marketers!

14-7

The Inherent Advantages and Disadvantages of the New Economy

• Increasing returns to scale of network products– Companies that can identify and exploit

opportunities where they can benefit from the increasing returns to scale that result from positive network effects can sometimes grow very quickly on relatively modest investment.

– The social networking phenomenon.– The question of cash flow.

14-8

The Inherent Advantages and Disadvantages of the New Economy

• The ability to efficiently personalize and customize market offerings– Collaborative filtering– Rules-based personalization– Customization techniques, which are user-

driven instead of marketer-driven, allow users to specify the nature of what is offered to them.

14-9

The Inherent Advantages and Disadvantages of the New Economy

• Disintermediation and restructuring of distribution channels– Disintermediation: The Internet makes it

possible for marketers to reach customers directly, without the expense or complication of distribution channels.

– Deciding to disintermediate or restructure one’s channel should not be done lightly.

14-10

The Inherent Advantages and Disadvantages of the New Economy

• Global reach, 24 x 7 access, and instantaneous delivery– Global reach is a reality; making products and

services available 24 hours per day, seven days per week, 52 weeks per year; and, in some cases, providing instantaneous delivery.

14-11

The Inherent Advantages and Disadvantages of the New Economy

• Are these new-economy attributes opportunities or threats? – Most marketers can choose to take

advantage of one or more of the benefits offered by new-economy technologies.

– To that extent, these technologies constitute opportunities available to marketers who employ them.

– They also raise complex ethical issues.

14-12

The Inherent Advantages and Disadvantages of the New Economy

• For most products, price, over the long run, usually is not far from variable cost.

• If variable cost is zero, will prices drop to near zero, too?

• Few barriers to entry.

• Many Internet strategies are easily imitated.

14-13

The Inherent Advantages and Disadvantages of the New Economy

• Defenses– The patent and copyright system. – Versioning: Marketers who determine which

features will be valuable to some customers, but of little value to others, can package and repackage information differently and serve market segments with margins that need not fall to zero.

14-14

The Inherent Advantages and Disadvantages of the New Economy

• First-mover advantage: fact or fiction?– In the Internet gold rush in the late 1990s, the

key to Internet success was said to be first-mover advantage.

– Being the first mover can bring some potential advantages, but not all first movers are able to capitalize on those advantages.

14-15

Developing a New-Economy Strategy: a Decision Framework

• Marketing applications for new-economy tools– The six-stage consumer experience process.

14-16

A Customer Experience Model for New-Economy Marketing Decision Making

14-17

Developing a New-Economy Strategy: a Decision Framework

• Product promotion and brand building tools– Search, e-mail marketing, blogs, promotional

sites, and banner advertising.– Mobile advertising

14-18

Developing a New-Economy Strategy: a Decision Framework

• Product promotion and brand building tools (cont.)– The fastest growing of these is search.

• The paid inclusion model and search engine optimization.

– E-mail marketing is also on the rise.• Opt-in e-mail and permission marketing.• Viral e-mail.

– Promotional sites• Use of affiliate schemes and aggregators.

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Developing a New-Economy Strategy: a Decision Framework

• Product promotion and brand building tools (cont.)– Banner advertising includes rich media;

cliffhangers; superstitials; streaming audio; and vFlash.

– A way to make Web advertising more measurable is to have advertisers pay for performance, rather than for placement, regardless of the type of ad employed.

14-20

Developing a New-Economy Strategy: a Decision Framework

• Applications for conducting transactions– Dynamic pricing: A system that gauges a

customer’s desire to buy, measures his means, and sets the price accordingly.

– Making it easy for customers to pay, as PayPal does in the United States.

– Use of digital signatures to make Web transactions more frequent and more secure.

– Internet banking.

14-21

Developing a New-Economy Strategy: a Decision Framework

• New-economy applications for: – Delivering digital products– Customer service and support– Product return and disposal

14-22

Developing a New-Economy Strategy: a Decision Framework

• The Critical Questions

• Can we digitize any or all of the necessary flows at each stage in the consumer experience process?– For cash, the answer is yes except where

currency issues pose problems.– For goods and services, the question is more

difficult.

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Developing a New-Economy Strategy: a Decision Framework

• Can we do so first, and/or in a proprietary way?

– Barriers to entry on the Web are low, and most good ideas can be quickly imitated.

– A key question in deciding whether or not to employ a new-economy application is whether one can do so in a proprietary way, thereby deterring imitation, or do so with a sufficient head start.

14-24

Developing a New-Economy Strategy: a Decision Framework

• How valuable and how time-critical are what kinds of information to the recipient?– The more valuable and time-critical the

information, the more sensible it may be to invest in new economy applications to provide easy, timely, and 24 x 7 access to those who can benefit from the information.

14-25

Developing a New-Economy Strategy: a Decision Framework

• Can new-economy tools reach and build relationships with customers in the target market?– Simply reaching customers with new-

economy tools may not be enough.– Going beyond reach to build mutually

beneficial relationships may be what is needed.

14-26

Developing a New-Economy Strategy: a Decision Framework

• Are new economy tools measurably effective and efficient compared to other solutions?– Marketers’ concerns over the effectiveness

and efficiency of their Web sites have led to the development of Web analytics, software solutions that monitor and summarize Web site usage patterns.

14-27

Managing New-Economy Strategies: The Talent Gap

• Observers note that the shelf life of chief marketing officers (CMOs) is short—a mere 26 months, on average, according to a recent study—much shorter on average than that for CEOs, CFOs, or CIOs.

14-28

Developing Strategies to Serve New-Economy Markets

• What industries will be next to get the dot-com treatment?– Jewelry; checks; telecom; hotels; real estate

brokerage; software.

• Serving the dot-com markets of tomorrow– Understanding one’s revenue model and

being willing to change it as market and technological conditions warrant are essential.

14-29

Take-Aways

• Seven potentially attractive elements characterize many new-economy technologies: – The syndication of information, the increasing

returns to scale of network products, the ability to efficiently personalize and customize market offerings, the ability to disintermediate distribution, global reach, 2437 access, and the possibility of instantaneous delivery.

14-30

Take-Aways

• First-mover advantage is simply wrong. Best beats first.

• Most observers now believe that the Internet is better suited for delivering measurable marketing results—as is direct marketing—than for brand building.

14-31

Take-Aways

• Web-based customer service applications offer the tantalizing combination of better service and significant cost savings. – The trick, of course, is to focus on the

customer service benefits first, rather than mere cost cutting, since customers are quick to discern when cost cutting takes precedence over genuine service responsiveness.

14-32

Take-Aways

• Keys to success in tomorrow’s new-economy ventures include:– Clearly understanding one’s business model

(Exactly where will revenue come from: commerce, content, community, or infrastructure?),

– Filling real (though perhaps latent) customer needs, and

– Putting together the right management team that can deliver the performance and value that customers want and will pay for.