Download Online channels

Chapter 15
Electronic Marketing Channels (EMC):
Online channels
Major Topics for Ch. 15
1. What is it?
2. Trends in EMC
3. Structure of EMC*
4. Advantages and Disadvantages of EMC*
5. Implications of EMC
Topic 1:
Electronic Marketing
Channels
Computers
Technology
Internet
Impact on
Design & Management of Marketing Channels
Topic 2
Electronic Marketing
Channels
Not physical availability
Internet, Web-TV, Cell Phone
The use of online media to make products & services
available so that the target market with access to
enabling technologies can shop
& complete the transaction via
interactive electronic means
Actually purchasing products through the use
of PCs, Web-TV, Cell Phones
Developments & Trends in EMC
• Online shopping
to $127 billion from
mid-1990s to the end of 2007*
Electronic
Marketing
Channels
• Online shopping has become a routine
shopping choice*
• PCs, peripherals, software, & books
accounted for a significant
portion of total retail spending on
these products
* 2007 U.S. Census on E-commerce
Still, Online Shopping is
Relatively Small (2007 Figure)
E-commerce
-In Manufacturing: $1,855 Billion 35.0% of Total
Shipment
-In Wholesaling: $1,226 Billion  21.2% of Total Sales
-In Retailing: $127 Billion  3.2% of Total Retail Sales
Online Retail Sales
Online Sales as a Percentage of Total Retail Sales,
Holiday Seasons
Category
Online as % of
Total Retail
Sales (2004)
2004
Revenue
in Millions
2005
Apparel/Clothing 16%
$3.8B
$5.3B
Toys/Video
Games
11%
$2.5B
$2.3B
Consumer
Electronics
10%
$2.3B
$4.8B
Source: A.C. Nielsen’s Holiday E-spending Report
Channel Migration*
Holiday Shopping across Channels
Spending
Distribution
2005
2004
2003
2002
Stores
68%
72%
74%
78%
Catalogs
5%
6%
6%
6%
Online
27%
22%
20%
Source: A.C. Nielsen’s Holiday E-spending Report
www.internetretailer.com
* What do you do if you are an incumbent?
16%
Topic 3
Three
Key
Phenomena
Structure of Electronic
Marketing Channels*
1. Reintermediation versus
disintermediation
2. Information flow versus
product flow
3. Virtual channel structure versus
physical channel structure
1. Disintermediation and
Reintermediation
Disintermediation
Intermediaries become
superfluous because producers
gain exposure to vast numbers
of customers in cyberspace
Dell
Computer Corp.
Reintermediation
Shifting, changing, or adding
middlemen to the channel
Amazon.com
Auto-By-Tel Corp.
Peapod, Inc.
Disintermediation versus
Reintermediation*
No matter how
technologically
sophisticated the
Internet becomes, the
laws of economics as
they relate to channel
structure do not
change.
Efficiency in the
performance of
distribution tasks is what
ultimately determines
what form channel
structure will take.
=
The Internet has not eliminated middlemen,
or caused total disintermediation.
2. Marketing Channel Flows
Product Flow
Negotiation Flow
Ownership Flow
Information Flow*
Ex) Pharmaceutical
Promotion Flow
Pharmaceutical Industry
Physical Distribution Flow
Manufacturer
Distributor
Pharmacy
patient
Information Flow
Manufacturer
Insurer/
HMO
PBM*
Doctor
Pharmacy
patient
* Pharmacy Benefit Manager
Internet Limits
Five Channel Flows
Some can not be
handled by internet
Ex) Product Flow in Channel
• Cannot be digitized
• Processed slowly, often by people
• Is basis for all other flows—negotiation,
ownership, information, & promotion
3. Virtual (Online) Channel Structure Versus
Conventional (Store) Channel Structure
• Different Market Segments
• Different Product or Services
• Complements rather than Replaces Each
Other*
Topic 4
Advantages & Disadvantages of
EMC*
Advantages of
Electronic
Marketing Channels
1.
2.
3.
4.
Global scope & reach
Convenience/rapid transaction processing
Information processing efficiency & flexibility
Data-based management & relationship
capabilities
5. Lower sales & distribution costs
Advantages & Disadvantages of EMC*
Disadvantages of
Electronic
Marketing Channels
1. Lack of contact with actual products & delayed
possession
2. Fulfillment logistics not at Internet speed or
efficiency*
3. Clutter, confusion, & cumbersomeness of
Internet
4. Nonpurchase motives for shopping not
addressed*
5. Security concerns of customers
Topic 5
•
•
•
•
•
Implications of EMC
Objectives & strategies of the firm & EMC*
Role of EMC in the marketing mix
Channel design & EMC*
Channel management & EMC*
Evaluation & EMC
Objectives & Strategies of the Firm*
• Role of distribution more complex because
of electronic marketing channels
=
• How to Integrate Online with Offline channels
* Offline only  Online only  Offline + Online (multichannel)
Ex) My research project
The Marketing Mix
The Internet arms large numbers of customers with
more information about products & services
to level the playing field
The fourth P, place (distribution), may assume a
larger role relative to the other three variables for
more & more firms
Channel Design*
The channel manager should provide “channelsurfing” consumers with whatever channels or
combinations of channels they desire
=
a) A facet of the development of an
effective multichannel marketing strategy
b) Unbundle Channel Functions
DUAL DISTRIBUTION WITH EMC :
CHANNEL STRUCTURE OPTIONS
(a)
Manufacturer has own online presence
(e.g., Tupperware)
(dotted line indicates common ownership)
Manufacturer
(Tupperware)
Owned Internet Sales
Channel
(tupperware.com)
Standard Channel
(independent
direct salespeople)
Consumers
DUAL DISTRIBUTION WITH EMC:
CHANNEL STRUCTURE OPTIONS
(b) Manufacturer sells through third-party
online reseller
(e.g, Callaway Golf selling through buy.com)
Manufacturer
(Callaway Golf)
Standard Channel
(pro shops, bricks &
mortar sports/golf outlets)
Independent Internet Sales
Channel
(buy.com)
Consumers
DUAL DISTRIBUTION WITH ONLINE SELLING:
CHANNEL STRUCTURE OPTIONS
(c) Manufacturer sells through some standard channels that
do operate their own online store, and some that do not
Manufacturer
(Simon & Schuster, Publisher)
Standard Channel
(bricks & mortar
bookstores)
Barnes & Noble
Barnes & Noble
bricks & mortar
bookstores
Consumers
Barnes & Noble Internet
Sales Channel
(bn.com)
Channel Management*
Multichannel challenge of conventional and
electronic channels
=
The fundamental issues of motivating channel
members, building cooperation, managing
conflict, & coordinating elements of the
marketing mix requires manager’s full
attention
Evaluation of Performance
Likely to change
Specific criteria for
performing evaluations &
technological means for
doing so
Ex) Store Traffic Measure
Unlikely to change
Performance expectations,
criteria, & measurement of
how well they are being met
by channel members
What drives sales impact of
online channel addition?
•Steve Kim (ISU) and Sam Min (CSULB)
•Question: For store-based retailers, does adding
online channel lead to more sales?
0.25
Share
0.20
0.15
Clothes
0.10
Book & CD
Sports
0.05
Office
Electronics
0.00
98
99
100
101
102
103
Calendar Year less 1900
104
105
Likely Drivers
•Channel Disruption (Potential for
Displacement)
•Timing: Chronological Time and Order
of addition
•Incumbent Retailer Resource: Scale of
Physical store-based business
•Incumbent Retailer Resource: Retailer’s
Brand Equity
Analysis Results
15
•Channel Disruption (Potential for Displacement):
Search good > Experience good
•Timing: Chronological Time (0) and Order of
channel addition (+)
•Incumbent Resource: Scale of Physical store
business:(-)*
•Incumbent Resource: Retailer Brand Equity: (+)