e-Marketing Conceptual Overview Strategic Aspects January 15, 2009 1 © 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 2 © 1998-2009, Arvind Rangaswamy (All Rights Reserved) Technology Environment The Plug-In Architecture e-Marketing Applications Facilitators • • • • Government InterNIC ISO The Internet Society Internet Services Infrastructure Content and Software Infrastructure Hardware Infrastructure Your company can now plug into a massive existing technology infrastructure Database providers Google.com Your company Web services News/Entertainment Providers Netscape SAP Microsoft… Telephone Co. ISP’s CISCO NSP’s like AT&T and MCI 3 © 1998-2009, Arvind Rangaswamy (All Rights Reserved) The Increasing Need for Strategy/IT Alignment Business Strategy IT Strategy Business Scope (What?) Distinctive Competencies (Why?) IT Scope Governance (How?) Systemic Competencies IT Architecture Governance Processes/ Capabilities Business operations IT Governance Resources Processes Resources IT operations © 1998-2009, Arvind Rangaswamy (All Rights Reserved) 4 Lessons in Strategy/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). 5 © 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) 6 © 1998-2009, Arvind Rangaswamy (All Rights Reserved) Some Marketing Strategies for Digital Products 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 …… 7 © 1998-2009, Arvind Rangaswamy (All Rights Reserved) Some Marketing Strategies for Non-digital Products 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” …….. 8 © 1998-2009, Arvind Rangaswamy (All Rights Reserved) The Separation of Choice from Purchase 9 © 1998-2009, Arvind Rangaswamy (All Rights Reserved) Multi-channel Marketing Definition 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. 10 © 1998-2009, Arvind Rangaswamy (All Rights Reserved) Traditional Multiple-Channel Marketing Outside Reps 11 © 1998-2009, Arvind Rangaswamy (All Rights Reserved) A New Kind of Shopping Behavior is Emerging Communications Channels Web Site Service Channels Transaction Channels Web Site Catalog Telephone Advertising /PR Store Store e-mail Telephone Fulfillment Web Site Telephone Service people HP Dell National Semiconductor Dow Chemical AutobyTel Auto companies Kiosk Store Sales Force Sales Force Coach WalMart Sears 12 © 1998-2009, Arvind Rangaswamy (All Rights Reserved) Multi-Channel Marketing Sales Force Web Site Call Center Customers Catalog Product Divisions 13 © 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 14 © 1998-2009, Arvind Rangaswamy (All Rights Reserved) Cost-Effective Touchpoints The Dilemma in Reaching Heterogeneous Customers Sales calls Live seminars Access to KB/ key contacts Samples Call center Online seminars Website Smart agents Newsletters Email alerts PR/Advertising 20% 80% Customers 80% 20% Profits © 1998-2009, Arvind Rangaswamy (All Rights Reserved) 15 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). 16 © 1998-2009, Arvind Rangaswamy (All Rights Reserved) Costs at a Small Software Company (Before and After Web-Based Self-Help) Phone (No. of calls per month ) Chat/E-mail Self-help Average Support Duration Support costs Contacts per month Cost per contact Before 80,000 After 25,000 8,000 5 Minutes $850,000 88,000 $7.50 70,000 330,000 1 Minute $310,000 425,000 73 cents Lesson: Cost per contact goes down; so does contact duration, which could be a bad thing! 17 © 1998-2009, Arvind Rangaswamy (All Rights Reserved) Effectiveness Rationale: Attractiveness of Multi-channel Customers Shopped Shopped in One in Two Channel Channels Revenue ($) Share of wallet Past customer value ($) Likelihood of staying Active Shopped in Three Channels Shopped in Four Channels 193,274 69,865 322,149 1,682,853 0.20 0.32 0.48 0.72 152,502 97,798 690,514 3,428,024 0.11 0.15 0.38 0.67 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. Source: Kumar and Venkatesan, Journal of Interactive Marketing (Spring 2005) 18 © 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). 19 © 1998-2009, Arvind Rangaswamy (All Rights Reserved) The Strategic Approach to Multi-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). 20 © 1998-2009, Arvind Rangaswamy (All Rights Reserved) Creating Path Dependence Example of National Semiconductor Online, email and telephone support Private sites Design communities/ Discussion forum Account executives Analog University Bob Pease seminars Knowledge base PR releases Events, tradeshows “National Edge” New product documents Get support Explore new design options New Design Process Distributors Evaluation boards Order status Real time Price and availability Obsolete items Samples Make purchases 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) Select components Product tree Product descriptions and options System diagrams 21 Source: Adapted from www.national.com (National Semiconductor) © 1998-2009, Arvind Rangaswamy (All Rights Reserved) Deep Linking: Building Relationships with Customers Customer Access Points: Tele-Web Interface Firm/ Supplier 1 Supplier 2 Distributor Information Transactions Knowhow Support Control 22 © 1998-2009, Arvind Rangaswamy (All Rights Reserved) Brand Consistency Across Channels Victoria’s Secret Store Catalog Web site 23 © 1998-2009, Arvind Rangaswamy (All Rights Reserved) Multi-channel Promotions at Victoria’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 Note: Products purchased at the web site cannot be returned at a store and vice versa. 24 Source: Anne Marie Blaire, Victoria’s Secret, © 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. 25 © 1998-2009, Arvind Rangaswamy (All Rights Reserved) Challenges in Implementing Multi-channel Marketing 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. 26 © 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). 27 © 1998-2009, Arvind Rangaswamy (All Rights Reserved) Some Action Guidelines for 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. 28 © 1998-2009, Arvind Rangaswamy (All Rights Reserved) “Two-Sided” Platform Networks Traditional platforms Shopping mall Credit card company Nightclub Employment agency Publisher of academic journals Digital platforms Cable TV operator Real estate agency HMO ….. eBay Google B2B Exchange Telecom provider Orbitz.com Monster.com Acrobat Windows OS Playstation, Xbox … 29 © 1998-2009, Arvind Rangaswamy (All Rights Reserved) An Example Two-Sided Platform (e.g., Yahoo!) 30 © 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 twosided platforms, buyers and sellers interact directly, with the platform providing some needed resource to facilitate the interaction (eBay). 31 © 1998-2009, Arvind Rangaswamy (All Rights Reserved) Platform Types One Sponsor One Provider Many Providers Proprietary Licensor Macintosh OS (Apple) Windows OS Monster.com American Express branded Playstation (Sony) MBNA cards Scientific-Atlanta set tops Joint Venture Many Sponsors 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 32 © 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? 33 © 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 34 © 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. 35 © 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 longrun viability. 36 © 1998-2009, Arvind Rangaswamy (All Rights Reserved)