Topic 9

1. e-Marketing (MAR3880) By Kanghyun Yoon Topic 9 Place Strategy

2. Discuss how the Internet technology has changed the way of implementing place strategy. Review the essence of distribution channel. Discuss which types of channel structures are suitable for marketing online. Discuss how to maximize the customer value online utilizing the internet technology. Lecture Outline

3. Consider the following issues when it comes to designing e-place strategy that can be based on the Internet technology. Issue 1: How does the Internet technology change the way of implementing traditional place strategy? Issue 2: What is distribution (e.g., place)? Issue 3: Which types of channel structures are more suitable for marketing over the internet environment? Issue 4: How to utilize the internet technology to maximize the performances of place strategy? Issues Regarding e-Place Strategy

4. Issue 1Impacts of internet technology on traditional place strategy

5. Disintermediation and New Types of Intermediaries Appearance of new direct-distribution model (e.g., disintermediation). New e-business intermediaries (e.g., reintermediation). Metamediaries. Changing Perspectives on Disintermediation From disintermediation to consideration of efficiency. Multi-Channel Structure Composition of offline and online channels. Channel cannibals. New Aspects in Channel Management and Power Changing the power relationships among channel members. Structural relationship with buyers by the sellers. Automatic replenishment. Electronic data exchange (EDI). Impacts of Internet Technology

6. Issue 2Understanding the essence of channel distribution

7. Role of Distribution Channel A distribution channel is defined as a group of interdependent firms that work together to transfer product and/or information from the supplier to the end users. A distribution channel is an important part of the Value Delivery Network (VDM), e.g., the Value Chain System. Value Chain System = Supply Channel + Distribution Channel. Why are marketing intermediaries important in the distribution channel? Match supply and demand Exchange efficiency: Cost reduction (disintermediation) Various value-added activities by specialists Benefits and Drawbacks of the Internet Channel Benefits: 24/7/365 continuous availability, reach, interactivity, information repository, and so on. Drawbacks: Heavy investment for small business, information overloading, need for intensive customer service, and so on. Importance of Place Strategy

8. The Value Chain System F S W R Customer S M R S R W Supply Chain Function Distribution Channel Function

9. Why are marketing intermediaries required? Since distributors perform many value-added functions. There are three different types of functions (Lamb, Hair, and McDaniel 2002) Transactional Functions: Contact with buyers Marketing communications Matching product to buyer’s needs Negotiating price Process transactions Logistical Functions: Physical distribution Aggregating product Outsourced logistics Last mile problem Facilitating Functions: Market research Financing Functions of Distribution Channel

10. Issue 3How to design an optimal channel structure using internet environment?

11. What customers want from the Internet channel? Convenience, product depth, experience, content, value, service, interactive tools, and novelty (Forrester Research). Different Impacts of the Internet on Channel Design Low-cost delivery due to disintermediation Increase of personalized experience with maximum accessibility Two Issues Regarding the Role of the Internet Issue 1: How to deploy the right channels? It is the issue of optimal design of the channel structure. In other words, it is about designing the optimal multi-channel distribution structure. Issue 2: Whether and how to complement current channel structure with the Internet technology? We can consider the issue of separation vs. integration. Key Issues on Channel Design

12. Previous studies show multichannel offerings increase sales. However, the challenge is how to improve customers’ total experiences across all channels. Factors to be consider toward optimal channel structure: Characteristics of Target Customers Understand their needs and buying patterns offline and online. Company Objectives Low-cost delivery vs. accessibility to maximize personalized experience. Types of Product Search Goods (Digital Products) vs. Experience Goods. Value Proposition What value can be added by using current portfolio of the right channels. Channel Conflicts Does the inclusion of the Internet as a new channel increase the channel conflicts. Optimal Channel Structure

13. In the Internet Age, there are two crucial questions: Should we integrate our Internet business with our traditional business? The matter of either integration or separation. How many channels are required to reach final consumers? The matter of multichannel distribution strategy. Benefits of Integration Cross-promotion of established brand, shared information, purchasing leverage, and distribution economies. Benefits of Separation Greater focus, more flexibility, and access to venture funding. Multichannel Distribution Strategy Gateway: uses three channels with own retail stores, online, and direct sales using telephone. Compaq: uses multiple distribution channels with online, physical stores, and catalog. How many channels and what kind of channels? Separation vs. Integration

14. Separation vs. Integration Separation (Bn.com) Strategic Partnership (Rite Aid and Drugstore.com) Joint Venture (KBkids.com) In-House Division (Officedepot.com) • Integration • Established brand • Shared information • Purchasing leverage • Distribution efficiencies • Separation • Greater focus • More flexibility • Access to venture funding

15. Brand Dimension: Q: Does the brand extend naturally to the Internet? (A: Integration) Q: Will we target a different customer segment or offer a different product mix online than in stores? (A: Separation) Q: Will we need to price differently online than in stores to stay competitive? (A: Separation) Management Dimension: Q: Do current executives have the skills and experience needed to pursue the Internet channel? (A: Integration) Q: Are they willing to judge the Internet initiatives by a different set of performance criteria? (A: Integration) Q: Will there be major channel conflict? (A: Separation) Q: Does the Internet fundamentally threaten the current business model? (A: Separation) Road Map for Decision Making

16. Operations Dimension: Q: Do our distribution systems translate well to the Internet? (A: Integration) Q: Do our information systems provide a solid foundation on which to build? (A: Integration) Q: Does either system constitute a significant competitive advantage? (A: Integration) Equity Dimension: Q: Are we having trouble attracting or maintaining talented executives for the Internet division? (A: Separation) Q: Do we need outside capital to fund the venture? (A: Separation) Q: Is a certain supplier, distribution, or other partner key to the venture’s success? (A: Separation) Road Map for Decision Making

17. Issue 4Maximizing the customer value using the internet technology

18. Blackwell, Roger D., Paul W. Miniard, and James F. Engel (2001), Consumer Behavior, 9th ed., Harcourt College Publishers. (see chapter 3 - 6) Hanson, Ward (2000), Principles of Internet Marketing, South-Western College Publishing, Ohio. Kotler, Philip and Gary Armstrong (2004), Principles of Marketing, 10th ed., Prentice Hall. (see chapter 1 and 2) Siegel, Carolyn (2006), Internet Marketing: Foundations & Applications, 2nd ed., Houghton Mifflin, New York. Strauss, Judy, Adel El-Ansary, and Raymond Frost (2006), E-Marketing, 4th ed., Pearson: Prentice-Hall, New Jersey. Reference