e-Marketing
Conceptual Overview
Strategic Aspects
January 15, 2009
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© 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
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© 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
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© 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)
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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).
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© 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)
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© 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
……
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© 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”

……..
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© 1998-2009, Arvind Rangaswamy (All Rights Reserved)
The Separation of Choice from
Purchase
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© 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.
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© 1998-2009, Arvind Rangaswamy (All Rights Reserved)
Traditional
Multiple-Channel Marketing
Outside
Reps
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© 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
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© 1998-2009, Arvind Rangaswamy (All Rights Reserved)
Multi-Channel Marketing
Sales
Force
Web
Site
Call
Center
Customers
Catalog
Product
Divisions
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© 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
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© 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)
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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).
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© 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
$310,000
425,000
73 cents
Lesson: Cost per contact goes down; so does contact duration,
which could be a bad thing!
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© 1998-2009, Arvind Rangaswamy (All Rights Reserved)
Effectiveness Rationale: Attractiveness
of Multi-channel Customers
Shopped Shopped
in One
in Two
Channel Channels
Revenue ($)
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)
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© 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).
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© 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).
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© 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
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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
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© 1998-2009, Arvind Rangaswamy (All Rights Reserved)
Brand Consistency Across Channels
Victoria’s Secret
Store
Catalog
Web site
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© 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.
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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.
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© 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.
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© 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).
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© 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.
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© 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


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Cable TV operator


Real estate agency


HMO


…..
eBay
Google
B2B Exchange
Telecom provider
Orbitz.com
Monster.com
Acrobat
Windows OS
Playstation, Xbox
…
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© 1998-2009, Arvind Rangaswamy (All Rights Reserved)
An Example Two-Sided Platform
(e.g., Yahoo!)
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© 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).
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© 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
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© 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?
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© 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
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© 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.
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© 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.
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© 1998-2009, Arvind Rangaswamy (All Rights Reserved)