Chapter 15
New (and Old) Marketing Channels:
Electronic Marketing Channels and
Direct Selling
Major Topics for Ch. 15
1. What is EMC?
2. Trends in EMC
3. Structure of EMC*
4. Advantages and Disadvantages of EMC*
5. Implications of EMC
6. Direct Selling
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 over $200 billion from
mid-1990s to the end of 2012*
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
* U.S. Department of Commerce
Channel Migration*
Holiday Shopping across Different Channels
Spending
Distribution
2004
2005
2003
2002
Stores
68%
72%
74%
78%
Catalogs
5%
6%
6%
6%
Online*
27%
22%
20%
16%
Source: A.C. Nielsen’s Holiday E-spending Report
www.internetretailer.com
* What would do you do if you are a physical store-based retailer?
Future of Online Shopping
Online Sales as a Percentage of Total Retail Sales
Year
Online as % of % Change from
Previous Year
Retail Sales
2002
1.3
19.7
2010
8.0
0.0
2011
9.0
12.5
2012
10.0
11.1
2013
10.0
0.0
Electronic Channels on Social
Network Sites
• By 2009, almost ½ of Americans had a
Facebook or MySpace account
• Among American, age 18-33, almost ¾
were registered with Facebook or
MySpace
• Businesses are now rapidly engaging in
F-commerce (Facebook Commerce)
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*
How can a middleman add value?
Ex) Pharmaceutical
Promotion Flow
Marketing Channels for Pharmaceuticals
Physical Distribution Flow
Information Flow
Manufacturer
Manufacturer
Insurer/
HMO
PBM*
Distributor
Doctor
Pharmacy
Pharmacy
DTC
patient
patient
* Pharmacy Benefit Manager (www.medco.com)
Internet Limits as a Stand-alone Channel
Five Channel Flows
Some can not be
handled by internet
Ex) Physical 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 and
EMC*
• Role of distribution becomes 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
EMC Impact on 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
EMC and 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
* A special topic: PIC (Partially Integrated Channel)
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)
EMC and 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
Key Issue: Managing Conflict between Marketing
Channels
EMC and Evaluation of
Channel 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: (+)
Topic 6
Direct Selling
Definition: the sale of a consumer product or service
person-to-person, away from a fixed retail location
Three key points:
• Goes directly to consumers’ homes, offices, or
other locations
• Concerned with the sale of consumer products
in consumer markets rather than industrial
products
• Involves salespeople meeting fact-to-face with
customers
Structure & Trends
in Direct Selling
- Markets Served
- Types of Products Sold
- Firms Involved in Direct Selling
- Problems & Prospects for Direct Selling
Markets Served
Location of Direct Selling Channel Sales
Location
Percent of Sales
Home
64.4
Telephone
14.7
Workplace
8.7
Internet
5.5
Temporary locations
4.1
Other
2.6
Types of Products Sold
Major Product Categories Sold through Direct Selling
Channels as a Percentage of Total Sales
Product Category
Percent of Total Sales
Personal Care Products
26.4
Home/Family Care
Products
33.7
Leisure/Educational
Products
6.5
Services/Miscellaneous/
Other
33.4
Firms Involved in Direct Selling
Hundreds exist
•
Range in size from those with
annual sales over $1 billion to those
with sales well under $1 million
•
Facts
•
•
Examples
Tupperware Corp.*
Avon Products, Inc.*
http://www.avon.com/
•
•
Cutco Cutlery Corp.
Amway Corporation
Rationale for Designing
Direct Selling Channels
A method of distribution for providing
products & services to customers
But:
The decision should be based on an
objective analysis of the advantages or
disadvantages of each channel
alternative.
Variables To Consider for Direct Selling*
1)
Market variables & DS channel*
2) Product variables & DS channel*
3) Company variables & DS channel
4) Intermediary variables & DS channel
5) Behavioral variables & DS channel
Ex) Mary Kay in China
1) Market Variables
Developments in consumer attitudes & behaviors
that could make direct selling more attractive:
1.
Consumers have less
time available for shopping
in traditional stores.
3.
Consumers are seeking
increased convenience
in shopping.
2.
Consumers are becoming more sophisticated
and demand more & better product information.
2) Product Variables
Products that are high quality, that are unique, or
that require specialized information & advice are logical
choices for direct selling:
Product quality may become
apparent only when consumers
are informed about them
in conjunction with hands-on
demonstrations.
Consumer satisfaction may
depend on whether the
consumer has proper
information.
Product uniqueness may become apparent only through
the direct help of salespeople.
3) Company Variables
Basic variables to consider:
1.
Size of the
company
2.
Financial capacity
of the company
4.
Basic objectives &
policies of the company
3.
Managerial expertise
in distribution*
4) Intermediary Variables
Basic intermediary variables to consider:
1.
Availability of
alternatives
2.
Cost of
using channel
alternatives
3.
Services that
alternatives are
capable of or
willing to provide
5) Behavioral Variables
The “people” side of the marketing channel:
Communications
processes
Conflict
Power
Role
Topic 4
Problems & Prospects
for Direct Selling*
1. Lack an awareness of DS as an alternative.
2. Negative impression on DS in general.*
3. Lower availability of consumers for at-home
sales calls and parties.*
4. The perceived risk by consumers is
high compared to other modes of shopping.
5. Recruitment of salespeople has become
difficult.*