8-1

MARKETING ON THE INTERNET

CHAPTER 8: SEGMENTATION, TARGETING, DIFFERENTIATION AND

POSITIONING STRATEGIES
 Chapter 8 Objectives
8-2

 Explain why and how e-marketers use market segmentation

to reach online customers.

 List the most commonly used market segmentation bases and

variables.

 Outline characteristics of the 3 major e-business markets.

 Describe important coverage strategies e-marketers can use

for targeting selected segments of online customers.
 Chapter 8 Objectives, cont.
9-2

 Define differentiation and positioning

 Explain why they are important elements of marketing strategy.

 Identify dimensions of differentiation

 and internet-specific differentiation strategies.

 Discuss the many ways that companies can position or

reposition themselves:
 On the basis of attributes, technology, benefits, user category,
relation to competitors, or integrator capabilities.
 The 1-800-Flowers Story
8-4

 Started as a traditional flower retailer in New York City in

1976 by Jim McCann.
 1986 acquired the rights to the phone number 1-800-Flowers

 1995 - Extended the brand to the internet and expanded to

plants, gourmet food baskets and other gift-related
merchandise.

 Uses SAS data mining software to identify customer

segments for better targeting.

 As a result of segmentation and targeting, customer retention

increased by 15% and sales by 13.8%.
 The 1-800-Flowers Story, cont.
8-5

 The website attracted 13.1 million new customers and

the repeat order rate increased to 60%.

 Firm is staying on the cutting edge and is still pursuing

somewhat unorthodox avenues such as Second Life.

 Moral: better segmentation and targeting can lead to

lower costs and increased sales.
 The 1-800-Flowers – Second Life
8-6
 The 1-800-Flowers – Second Life
8-7
 The 1-800-Flowers – Second Life
8-8
 Segmentation & Targeting Overview
8-9

 Marketing segmentation - the process of grouping

individuals or businesses, according to use, consumption,
or benefits of a product or service.

 Market targeting - the process of selecting market

segments that are most attractive to the firm.

 Criteria for selecting segments to target:

1. Accessibility
2. Profitability
3. Growth
 Three Basic Markets
8-10

 Business Market
 Marketing to other businesses
 Online B2B marketing is huge, but often forgotten segment

 Government Market
 The U.S. government is the world’s largest buyer
 State, local and international govt’s as well = huge market

 Issues – Red tape, paperwork, rules, bidding, approval

 Consumer Market
 Marketing goods and services to end consumers
 Market Segmentation Bases and Variables
8-11

 Marketers can base their segmentation of consumer

markets on:
 Geographic location
 Demographics

 Psychographics

 Behavior (with regard to the product)

 In addition, marketers may combine bases, such as

geo-demographics (geography and demographics).
 Market Segmentation Bases and Variables
8-12

Segmentation Bases and Examples of Related Variables

 Geographic Segments
8-13

 Product distribution strategy is one of the driving forces behind

geographic segmentation.

 Countries may also be segmented based on internet usage.

 Geographic markets may also be evaluated by infrastructure

variables such as:
 Computer and internet adoption rates
 Telecom Services
 Wireless Internet Access

 Language spoken may also be a variable.

 Top Internet Languages
8-14
 Demographic Segments
8-15

 To reach segments marketers identify attractive demographic

niches.

 Three market segments in particular are currently of great

interest to e-marketers:
 Millenials
 Kids
 Influentials
 Millenials
8-16

 Those born between 1979 and 2000

 Represent 75 Million People and over 90% use the internet

 They grew up with the internet.

 Handle multitasking and info overload very well

 94% have cell phones , 90% sent a text in the last 24

hours and 85% have a social networking profile.

 1 in 5 access internet exclusively through mobile devices

 Millenials, cont.
8-17

 Over 50% watch TV and use internet at the same time.

 In general very tech savvy, can multitask, and also know how to
get around traditional marketing:
 Popup Blockers
 DVRs
 Represents a huge challenge and proving ground in the future for
e-marketers.

 If marketers can get their attention (possibly through

entertainment) they are likely to spread the word of positive
product experiences through online word-of-mouth (eWOM).
 Kids
8-18

 The number of kids under 16 online is increasing.

 Now over 29 million members.
 They have spending power of $40 billion.

 What kids do online:

 Online games (78%)
 Look up information for homework (34%)

 Use a search engine (15%)

 Read or send e-mail (20%)

 Watch online videos or movie trailers (28%)

 Kids, cont.
8-19

 The safety of children online has become a hot button issue.

 Parents worry about children interacting with inappropriate people or
viewing objectionable content.

 Various education and legislative based solutions have been

proposed such as:
 Educating children
 Banning Offensive Material Online
 Requiring/Suggesting providers place age warnings, verification systems
and/or ratings on sites.

 Technology based solutions include:

 Asking the ISP to filter content
 Filter the content on the users computer via software
 Using search engines that filter results
 Influentials
8-20

 Influentials - individuals who influence others and drive

change.

 In the US, they represent 10% of the total population and

15% of the online population.

 They use the internet to research purchases and then give

advice to others based on their findings.
 Thus,
they serve as opinion leaders for the rest of the
population.
 Psychographic Segments
8-21

 Potential user psychographics include:

 Personality
 Traits and habits.
 Ex. Self vs. Other oriented
 Ex. procrastinator or non.

 Values
 Morals and deeply held beliefs.

 Activities, Interests, & Opinions (AIO)

 Lifestyles
 Interest Communities
8-22

 Interest communities attract like-minded individuals who

post comments on Web sites or send e-mails to other
members.
 Socialnetworking is perhaps the most important type, but there
are many other types of online communities.

 There are several ways to target online communities.

 Build own community via online chats, and boards
 Advertise on another firm’s community site or emails.

 The firm can join the community and post as a member.

 Attitudes
8-23

 Attitudes – internal evaluations about something.

 Examples – On average Japanese users prefer more formal
online language as opposed to more casual US online style
 Baby Boomers like earth tone colors, Millenials like bright
vibrant ones.

 Some marketers believe that a segment’s attitudes toward

technology can help determine buying behavior.
 Behavior Segments
8-24

 Two common segmentation variables:

 Benefits sought and Product usage:

 Marketers using benefit segmentation form groups of

consumers based on benefits they desire from product.

 To determine benefits sought, marketers can both ask

consumers and look at what people actually do online.
 Onlineactivities
 Popular Web sites
 Product Usage Segments
8-25

 Marketers often segment by light, medium, and heavy product

usage.
 Ex. 80/20 rule

 Marketers can also segment users as brand loyal, loyal to a

competitive product, switchers, and nonusers.

 Marketers can also segment according to how consumers use the

internet:
 Home vs. work access
 Access speed and screen size
 Broadband vs. Narrow vs. Mobile
 Online engagement level
 (See next slide)
 Social Media Segments by Online Engagement Level
8-26
 Targeting Online Customers
8-27

 After reviewing segments, select best one(s) to target.

 E-marketers do this by using a targeting strategy.

 Which targets to serve online
 Which locations

 Other factors

 Two targeting strategies are well-suited for the internet.

 Nichemarketing – specialty sites
 Micromarketing – targeting a very small number of people
 Local Marketing
8-28

 Even if a business does not have a full website, local marketing

efforts can and do work very well online.
 Ex. Google and Yahoo! Local searches, Yelp reviews

 Also Google offers a text messaging service for users wanting

to find a local business.
 Send a text to 466453 (Google)
 Include the item you want and the zip code
 Example – Movies 33431
 29

DIFFERENTIATION & POSITIONING

 Differentiation and Positioning:
9-30
The J. Peterman Story
 Classic example of successfully combining clever
differentiation with powerful positioning.

 Founder established company as a breed apart from

ordinary competitors.

 Every item has a description that communicates nostalgia

and romance.
 The J. Peterman Story, cont.
9-31
 The J. Peterman Story, cont.
9-32
 Differentiation
9-33

 Differentiation - the process of adding meaningful and

valued differences to distinguish the company’s offering
from the competition.

 There are 5 differentiation dimensions:

1. Product
2. Services
3. Personnel
4. Channel
5. Image
 Product Differentiation
9-34

 Product line differentiation is an important e-marketing

strategy.

 Differentiation may include customization, bundling, and

attractive pricing of products.

 Internet sales cannot rely as heavily on product packaging

and displays as do traditional retailers.

 Packages shipped to households may require additional

packing materials not required in bulk case shipments to
wholesalers and retailers.
 Service Differentiation
9-35

 Customer service can be enhanced by 24-hour customer

feedback through e-mail or chats and the ability to
respond more rapidly to customer concerns.

 Online banking, securities trading and home delivery of

groceries (sort of), are becoming increasingly popular.

 Today such services supplement traditional services, but

may someday replace them.
 Personnel Differentiation
9-36

 The internet allows companies to deliver products more

efficiently.
 Automated processes
 Reduced dependence on personnel

 Low-cost channels

 Lower transaction cost

 Channel Differentiation
9-37

 The internet:
 Isa location-free, time-free distribution and communication
channel.

 Functionsas a communication channel for companies that

provide product or service information online.

 Serves as a transaction and distribution channel for companies

that conduct online commercial transactions.

 Becomes the entire distribution channel for digital products.

 Image Differentiation
9-38

 A company can differentiate itself by creating a unique

experience online, called “experience branding.”

 Through experience branding firms can better retain

customers, target key segments, and enhance profitability.
 Build-a-Bear extends its offline experience online.
 Some Web sites invite users to upload content and comments,
which increases consumer engagement.
 Differentiation Strategies
9-39

 There are a number of differentiation strategies

that firms can choose from including:
1. Being the first to enter the market.
2. Owning a single product attribute in the mind of the
consumer.
3. Demonstrating product leadership.

4. Utilizing an impressive company history or heritage.

 Internet-Specific Differentiation Strategies
9-40

 There are 6 differentiation strategies unique to online

businesses:

1. Site Environment/Atmospherics
 Easy downloads, accurate and clear information, easy
navigation.

2. Build Trust
 Strong brand recognition.
 Privacy policy.
 Safe and encrypted payment process for transactions.
 Internet-Specific Differentiation Strategies, cont.
9-41

3. Efficient and Timely Order Processing

4. Pricing
 In the early days of the Web, companies offered
discounts as purchase incentives.
 Majority of firms today differentiate themselves in other
ways besides pricing.

5. Customer Relationship Management

 Managing long-term relationships with customers.

6. Invite User-generated Content

 The key is to trust customers, listen, respond, and learn.
 Internet-Specific Differentiation Strategies
9-42

Exhibit 9.2
 Positioning
9-43

 Positioning - process of creating a desired image for a

company and its products in the minds of a chosen user
segment.

 The e-marketer’s goal is to build a position on one or more

bases that are relevant and important to the consumer.

 Firms can position brands, the company itself, the CEO, or

individual products.
 Bases and Strategies for Positioning
9-44

1. User category

2. Competitor positioning

3. Integrator positioning

4. Product or service attribute

5. Technology positioning

6. Benefit positioning
 User Category
9-45

 User category positioning relies on customer segments.

 Firefly
mobile phone specifically for kids
 Websites/brands catering to specific market segments

 Kellogg’s interactive site for kids

 Competitor Positioning
9-46

 Many firms position by benefits that provide advantages

over their competitors.

 Companies may position themselves against:

A particular firm.
 Relative industry position.

 An entire industry.
 Integrator positioning
9-47

 Integrators provide everything a consumer needs in a

particular product category, industry, or even in
general.

 Consumers want convenience and one-stop shopping:

 Orbitz/Expedia – all types of travel.
 TheKnot.com offers everything to do with weddings.
 Product or Service Attribute
9-48

 May include features such as size, color, ingredients,

speed, etc.
 Amazon’s 1-click checkout process is an example of a
positioning attribute.

 Tylenol provides added online information on health related

issues, pain relief and better sleep.
 Technology Positioning
9-49

 Positioning on the basis of technology shows that a firm is

on the cutting edge.

 Not always just for tech firms:

 Lands’ End, consumers can build virtual models of themselves
and try on virtual outfits.
 Lowe’s HoloRoom
 https://www.youtube.com/watch?v=1vTbuHqAZlE
 Benefit Positioning
9-50

 Extra benefits that the product, service or site offers in

addition to its primary functions:
 MillerLite offers software that can be used as a social
organizer.
 On the Valvoline motor oil site, visitors can send greeting cards,
download racing screensavers, and sign up for newsletters.
 Repositioning Strategies
9-51

 Repositioning - the process of creating a new or modified

brand, company, or product position.

 A company may enhance or modify a position, based on

market feedback.
 Yahoo! repositioned from online guide to Web portal.
 Amazon repositioned from world’s largest bookstore to “Earth’s
biggest selection.”
 Facebook originally just for students - now open to all and hosts
many business page profiles and third-party applications.
 What’s next?
7-52

 Chapter 9 – Product: The Online Offer

 10-53

MARKETING ON THE INTERNET

CHAPTER 9: PRODUCT: THE ONLINE OFFER
 Chapter 9 Objectives
10-2

 Define product and describe how it contributes to

customer value.

 Discuss how attributes, branding, support services,

and labeling apply to online products.

 Outline some of the key factors in e-marketing

enhancing product development.
 Google
10-55

 Performs almost 1 billion searches a day, speaks 345

languages and is the most-visited U.S. Web site.

 Founded in 1998 and delivered an innovative new search

strategy that ranked results by popularity as well as
keywords.

 Innovative products and strong customer focus drive its

success and profitability.
 Google cont.
10-56

 Generates revenue from several B2B markets:

 Licensing of its search services.
 Sales of advertising to Web advertisers.
 Shares the risk by using pay-per-click ads

 Pays close attention to user value, keeps costs low, and

delivers eyeballs to advertisers.

 Firm stays on the cutting edge and continually ads new

products and services on a regular basis.
 https://www.youtube.com/watch?v=cdgQpa1pUUE
 Many Products Capitalize on Internet Properties
10-57

 Another way of viewing a product seeing it as a bundle of

benefits that satisfies needs of organizations or consumers.
 Includes tangible goods, services, ideas, people, and places.
 Products such as search engines are unique to the internet
 Others such as digital music simply use the internet as a new
distribution or sales channel.

 Organizations use research to determine what is important to

customers when creating new products.

 The marketing mix and CRM work together to produce relational

and transactional outcomes with consumers.
 Creating Customer Value Online
10-58

 Customer Value = Benefits - Costs

 Product decisions must be made that deliver benefits to

customers.
 Attributes

 Branding

 Support Services
 Labeling
 Product Benefits: Attributes
10-59

 Product Attributes are its specific features.

 The internet increases customer feature benefits in many

ways including:
 Mass customization
 Personalization of not just products but the shopping
experience itself.
 Product Benefits: Branding
10-60

 A brand includes a name, symbol, or other identifying

information.
 When a firm registers that information with the U.S. Patent
Office, it becomes a trademark.

 Some marketers believe a brand represents a promise to

customers.
 Brand Equity
10-61

 Brand equity is the intangible value of a brand, measured

in dollars.

 A great brand taps into popular culture and touches

consumers.

 A well built brand or web site should be able to pass the

“Smash Test”.
 Ifall logos and identifying information are removed users
ought to be able to still identify the site.
 How? – Consistent colors, font size & style, writing tone/voice, and
appearance should communicate desired brand image.
“Smash Test” – What Site is This?
“Smash Test” – What Site is This?
“Smash Test” – What Site is This?
“Smash Test” – What Site is This?
“Smash Test” – What Site is This?
 “Smash Test” – What Site Is This?
10-67
 Highest Value Global Brands
10-68

http://www.bestglobalbrands.com/2014/ranking/

http://www.interbrand.com/en/best-global-brands/2013/Best-Global-Brands-
 Brand Relationships and Social Media
9-69

 The explosion of social media sites escalates the brand

relationship process with peer-to-peer communication about
brands.

 Ernst & Young found that 63% of entertainment and media

CEOs used social media to build brands.

 Forrester Research identified 3 roles for social media in

branding:
 Build trust.
 Differentiate the brand.
 Nurture consumers to build brand loyalty.
 Levels of Brand Relationship Intensity
10-70

 The 5 levels of brand relationship intensity.

Highest
intensity Tell others about the brand
Advocacy

Communicate with each other

Community

Communicate with company

Connection between purchases

Identity Display the brand proudly

Is on the list of
Awareness possibilities
 Branding Decisions for Web Products
10-71

 Branding Decisions include:

 Whether to use existing brand name(s) or create new ones?

 Whether or not to co-brand?

 What domain name to use?

 Branding Decisions for Web Products
10-72

 Firms can use existing brand names or create new brands

for the internet.

 Some firms may want to use different names offline and

online to avoid risk if the new product should fail.
 Creating New Brands for Internet Marketing
10-73

 Good brand names should:

 Suggest something about the product.
 Differentiate the product from competitors.
 Be capable of legal protection.
 On the internet, a good brand name should be short, memorable,
easy to spell, and translate well into other languages.

 Co-branding occurs when two companies form an alliance and

put their brand names on a product:
 Intel
 Gillette and Duracell
 Coach and Lexus
 GM and Apple
 Internet Domain Names
10-74

 A URL (Uniform Resource Locator) is a Web site address.

 Also called an IP address or domain name.

 Domain names contain several “levels”.

 http:// indicates that the browser should expect data using the
hypertext protocol.
 The second-level is often the name of the company.
 The top-level may be .com or a country name, such as .mx for
Mexico or .uk for the United Kingdom.
 There are at least 40 top level names available including .biz,
.info, .pro, etc.
 Internet Domain Names, cont.
10-75

 The Internet Corporation for Assigned Names and

Numbers (ICANN) is a nonprofit corporation that makes
decisions about protocol and domain name assignment,
registration, etc.

 GoDaddy and other sites provide domain registration

services at low cost.

 More than 97% of words in the dictionary have already

been registered as domain names.
 Internet Domain Names, cont.
10-76

 Organizations should purchase related names and spellings.

 Picking the right domain name can make a huge difference.

 Directing people correctly to a site.

 Building consistency in marketing communications.

 Product Benefits: Support Services
10-77

 Customer support is a critical component in creating online

value for users.

 Customer service reps help customers with installation,

maintenance, product guarantees, etc. to increase customer
satisfaction.

 CompUSA combines online and offline channels to increase

customer support.
 Product Benefits: Labeling
10-78

 Labeling has digital equivalents in the online world.

 Online “labels” provide information about the terms product
usage, online services, features, and installing software.
 Online “labels” also provide extensive legal and disclaimer
information about the software product.

 Online firms may add the Better Business logo or TRUSTe

privacy shield to their sites.
 Customer Co-Design
10-79

 Business and consumer collaboration are possible on the

Internet.

 Software developers often seek customer input about new

products.
 They often allow users to download beta versions of new products,
test them, and provide feedback.
 Customer interaction has been found to increase product success.

 Good marketers look for customer feedback to improve products

 Some set up sites to gather customer ideas and input:
mystarbucksidea.com.
 Amazon seeks customers’ product reviews.
 New-Product Strategies: Product Mix Strategies
10-80

 Many new products, YouTube, Yahoo!, and Twitter, were

introduced by “one-pony” firms.

 Other firms have added online products to an already

successful product mix.

 Companies can choose among six categories of new-

product strategies.
 Product Mix Strategies, cont.
10-81

 Firms select one of the following strategies, based on

marketing objectives, risk tolerance, resource availability,
etc.
1. Discontinuous innovations are new-to-the-world products.
2. New-product lines are new products in a different category
for an existing brand name.
3. Additions to existing product lines.
4. Improvements or revisions of existing products.
5. Repositioned products can be targeted to different markets
or promoted for new uses.
6. Me-too lower-cost products.
 11-82

MARKETING ON THE INTERNET

CHAPTER 10: PRICE: THE ONLINE VALUE

 Chapter 10 Objectives
11-2

 Identify the main pricing strategies used for selling online.

 Discuss the buyer’s view of pricing online

 Highlight the seller’s view of pricing online

 Outline arguments for & against the Net as an efficient market.

 Describe several types of online payment systems

 The Internet Changes Pricing Strategies
11-3

 In a broad sense, price is the sum of all values that buyers

exchange for the benefits of a product.
 These might be money, time, energy, and psychic costs.

 Throughout most of history, prices were negotiated

 Fixed price policies are a modern idea.

 The Internet is taking us back to an era of dynamic pricing -

varying prices for individual customers.

 The internet also allows for price transparency - both buyers

and sellers can view prices online.
 Buyer & Seller Perspectives: Buyer View
11-85

 The meaning of price depends on the viewpoint of the

buyer vs. that of the seller.

 Buyer’s costs may include money, time, energy, and psychic

costs.

 Buyers often enjoy many online cost savings:

 The Net is convenient and fast.
 Self-service saves time.
 One-stop shopping and integration save time.
 Automation saves energy.
 Buyer Control
11-86

 Shift in power from seller to buyer affects pricing

strategies.
 In the B2C market, buyers can set prices and sellers decide whether
to accept the prices in a reverse auction (name your own price).
 In the B2G market, government buyers request proposals for
materials and labor.
 In the B2B market, buyers bid for excess inventory at exchanges.

 Buyer power online is also based on the huge quantity of

information and products available on the Web.
 Buyer & Seller Perspectives: Seller View
11-87

 The seller’s perspective includes internal and external factors.

 Internal factors include pricing objectives, marketing mix

strategy, and information technology

 Pricing objectives may be:

 profit oriented
 market oriented
 competition oriented

 Information technology can place both upward and downward

pressure on prices.
 The Internet Puts Upward Pressure on Prices
11-88

 Online customer service is an expensive competitive necessity.

 Distribution and shipping costs.

 Affiliate programs add commission costs.

 Site development and maintenance.

 Customer acquisition costs (CAC).

 The average CAC for early online retailing was $82.
 http://www.panalysis.com/customer_acquisition_cost/
 The Internet Puts Downward Pressure on Prices
11-8

 Firms can save money by using internet technology for

internal processes.
 Self-service order processing
 Just-in-time inventory

 Overhead

 Customer service

 Printing and mailing

 Digital product distribution

External Factors Affect Online Pricing
11-90

 Market structure and market efficiency affect pricing.

 The seller’s ability to set prices varies by market type:
 Pure competition – many buyers and sellers trading a uniform
undifferentiated commodity.
 Monopolistic competition – many buyers and sellers, trading similar
yet not perfectly substitutable products.
 Oligopolistic competition – only a few sellers
 Pure monopoly – only one seller, price is usually regulated by the
government.

 If price transparency results in a completely efficient market,

sellers will have no control over online prices.
 Efficient Markets
11-91

 A market is efficient when customers have equal access to

information about products, prices, and distribution.

 In an efficient market, one would expect to find:

 Lower prices.
 High price elasticity.

 Frequent price changes.

 Smaller price changes.

 Narrow price dispersion between highest and lowest price for a

product.
 Latitude of Pricing Control
11-92

Gove rnme nt control

Pure monopoly

Oligopolistic competition
Are a of control for
Monopolistic competition e -marketing pricing strategy

Pure competition

Effic ient market

Marke t control
 Is the Net an Efficient Market?
11-93

 External market factors place downward pressure on

prices and contribute to efficiency.
 PriceTransparency.
 High price elasticity.

 Reverse auctions.

 Tax-free zones.

 Competition.

 Frequent price changes.

 Smaller price change increments.

 Is the Net an Inefficient Market?
11-94

 The internet does not act like an efficient market

regarding narrow price dispersion.
 Studieshave shown greater price spread was found for online
purchases than for offline purchases.

 Pricedispersion may occur because many buyers do not know

enough to find the best/better deal.
 However, this is unlikely to be the real cause.

 So what are the real causes?

 Is the Net an Inefficient Market? cont.
11-95

 Price dispersion may also relate to other issues:

 Brand strength.
 Online pricing.

 Delivery options.

 Time-sensitive shoppers.

 Switching costs.

 The internet is only a semi-efficient market.

 Payment Options
11-96

 Electronic money uses the internet and computers to

exchange payments electronically.
 PayPal

 Bill Me Later

 Other off-line e-money payment systems include:

 Smartchips
 Payment by cell phone
 http://www.starbucks.com/coffeehouse/mobile-apps
 Pricing Strategies
11-97

 Price setting is an art as much as a science.

 Marketers can employ all traditional pricing strategies to

the online environment:
 Fixed Pricing
 Dynamic Pricing

 Leasing/Renting
 Fixed Pricing
11-98

 Fixed pricing (menu pricing) occurs when sellers set the

price and buyers must take it or leave it.
 Everyone pays the same price.

 Two common fixed pricing strategies are:

 Price leadership – offer the lowest price
 Promotional pricing – one day/week specials, shipping discounts, etc.
 Dynamic Pricing
11-99

 Dynamic pricing is the strategy of offering different

prices to different customers.

 Firms use dynamic pricing strategy to optimize inventory

management and to segment customers.

 Airlines have long used dynamic pricing to price air travel.

 There are 2 types of dynamic pricing:

 Segmented pricing
 Price Negotiation
 Segmented Pricing
11-100

 Pricing levels are set based on order size, timing, demand,

supply, or other factors.

 Segmented pricing is becoming more common as firms collect

more behavioral information.

 Segmented pricing can be effective when:

 The market is segmentable.
 Pricing reflects value perceptions of the segment.
 Segments exhibit different demand behavior.

 However, firms must be careful not to upset customers.

 Negotiated Pricing and Auctions
11-101

 Through negotiation, the price is set more than once in a

back-and-forth discussion.

 Online auctions such as eBay utilize negotiated pricing.

 ReverseAuctions such as Priceline
 B2B auctions are an effective way to unload surplus inventory.
 Renting/Leasing Software
11-102

 Software companies sometimes decide to rent rather than

sell software to customers.

 Renting software is similar to leasing cars.

 Pay for what you use – features, time period, etc.
 The renter may not have to pay for maintenance, repairs or other
services if included in the lease terms.

 Salesforce.com rents a leading CRM software system.

 12-103

MARKETING ON THE INTERNET

CHAPTER 11: THE INTERNET FOR DISTRIBUTION

 Chapter 11 Objectives
12-104

 Describe the three major functions of a distribution channel.

 Explain how the internet is affecting distribution channel length.

 Discuss trends in supply chain management and power

relationships among channel players.

 Outline the major models used by online channel members.

 Highlight how companies can use distribution channel metrics.

 Distribution Channel Overview
12-105

 A distribution channel is a group of interdependent firms

that transfer product and information from the supplier to
the consumer.

 Participants in a distribution channel:

 Producers – manufacturers and their suppliers
 Intermediaries – wholesalers and retailers (transaction
facilitators)
 Buyers – consumers or end users

 The structure of the channel can make or impede

opportunities for marketing on the internet.
 Online Channel Intermediaries
12-106

 Channel Intermediaries include:

 Wholesalers - buy products from the manufacturer and resell

them to retailers. (Take title)

 Retailers buy products from manufacturers or wholesalers and

resell them to end consumers. (Take title)

 Brokers facilitate transactions between buyers and sellers without

representing either party. (Do not take title)

 Agents may represent either the buyer or seller.

(Do not take title)
 Intermediary Models
12-107

 3 intermediary models are in common use on the internet:

 Brokerage models
 Online Exchange
 Online Auction

 Agent models for sellers and buyers

 Online retailing models

 Brokerage Models
12-108

 The Broker creates a market in which buyers and sellers

negotiate and complete transactions.
 Example – Online stock trading - E*Trade, Schwab and
Ameritrade allow customers to place trades online.

 The B2B market has also spawned brokerages.

 Converge.com is the leading exchange for global electronics.

 Online auctions are available in the B2B, B2C, and C2C

markets.
 Agent Models –
12-109
Representing Sellers
 May represent sellers or buyers.

 Agent models that represent sellers include:

 Selling agents
 Usually represent one seller
 Ex. Sites that are Amazon Associates

 Manufacturer’s agents
 Represent multiple sellers “Seller Aggregators”
 Ex. Travel sites

 Virtual malls – Ex. Yahoo Shopping, Amazon

 Agent Models cont. -
12-110
Representing Buyers
 Agents that represent buyers include:
 Shopping agents
 BizRate.com

 Reverse auctions
 Priceline.com

 BuyerCooperatives (buyer aggregator) pool many buyers

together to drive down the price.
 Had a presence in earlier days of the web, but were not sustainable.
 However, some new versions have popped back up.
 Examples of Buyer Co-Ops?
 Online Retailing
12-111

 Online retailing is one of the most visible e-business models.

 Can sell a much greater assortment of products in smaller quantities online.
 The “long tail” refers to the ability to increase revenue by selling small
quantities of large numbers of products online.

 Multichannel Marketing – the use of more than one sales

channel. For example – online, in store, catalog, mobile, etc.

 Digital goods such as news, music, software, movies, etc. may be

delivered over the internet.

 The manufacturer sells directly to the customer in the direct

distribution model. Example – Dell.
 Content Sponsorship Model
12-112

 In this model firms create Web sites, draw traffic, and sell
advertising.

 All of the major portals utilize this model:

 Google, Yahoo!, MSN

 Content sponsorship is sometimes used in combination with

other models to generate multiple revenue streams.
 Example – Buy.com
 Infomediary Model
12-113

 An infomediary is an online organization that aggregates

and distributes information.

 Market research firms are examples of infomediaries.

 Some infomediaries compensate consumers for sharing

demographic and psychographic information and
receiving ads targeted to their interests.
 Distribution Channel Length and Functions
12-114

 Distribution channel length refers to the number of

intermediaries between the supplier and the consumer.

 Direct distribution channels have no intermediaries.

 Indirect channels have one or more intermediaries.

 Disintermediation – process of eliminating intermediaries.

 Can potentially reduce costs, but complete disintermediation is
the exception.
 Functions of a Distribution Channel
12-115

 Channel functions can be characterized as follows:

 Transactional

 Logistical

 Facilitating
 Transactional Functions
12-116

 Transactional Functions – involve activities centering around

contact with buyers.

 Include using the internet for:

 Processingtransactions.
 Marketing communication strategies.

 Matching products to buyer needs.

 Negotiating prices.
 Logistical Functions
12-
117

 Logistical functions include physical distribution activities,

such as:
 Transportation

 Inventory
storage
 Aggregation of products

 Logistical functions are often outsourced to third-party

specialists.
 Outsourced Logistics
12-
118

 Third-party logistics providers can manage the supply

chain and provide value-added services.
 UPS

 FedEx

 United States Postal Service (Reverse Logistics)

 In the C2C market, eBay has formed a partnership with

Mailboxes Etc.
 The Last Mile Problem
12-
119

 A big problem for online retailers is the expense of

delivering small quantities to homes and businesses.
 25% of deliveries require multiple delivery attempts.
 30% of packages are left on doorsteps, with possibilities for theft.

 Innovative firms are introducing solutions.

 Smart box.
 Retail aggregator model: delivery at convenience stores or service
stations.
 E-stops - storefronts solely for customer package pickups.
 Order online for offline retail delivery (Site to Store).
 UPS Smartphone Delivery Scheduling
 Facilitating Functions
12-
120

 Facilitating Functions include market research and

financing.

Market Research:
 There are costs and benefits of internet-based market
research.
 Some information is free.
 Employees can conduct research from their desks.
 Internet-based information tends to be timelier.
 Web-based information is in digital form.
 E-marketers can receive detailed reports.
 Facilitating Functions: Financing
12-
121

 Intermediaries want to make it easy for customers to pay and

to close the sale.

 This accounts for so many different payment types accepted

online.
 Example – All major credit cards, PayPal, Bill Me Later, etc.

 Credit card companies have formed Secure Electronic

Transactions (SET).
 Legitimizes merchants and consumers.
 Protects consumers’ credit card numbers.
 Consumers have a maximum $50 liability for purchases made with a
stolen card.
 Legal protection does not exist in all countries.
 Distribution System
12-
122

 There are 3 ways to define the scope of the channel as a

system:
 Distributionfunctions that are downstream from the
manufacturer to the consumer.
 The supply chain, upstream from the manufacturer, working
backwards to raw materials.
 Consider the supply chain, manufacturer, and distribution
channel as an integrated system called the value chain or
integrated logistics.
 Supply Chain Management
12-
123

 Supply Chain Management (SCM) - the coordination of

the flow of material, information, and finance.

 Key functions of supply chain management are continuous

replenishment and build to order to eliminate inventory.

 Supply chain participants often use Enterprise Resource

Planning (ERP) systems to manage inventory and
processes.
 13-124

MARKETING ON THE INTERNET

CHAPTER 12: E-MARKETING COMMUNICATION TOOLS

 Chapter 12 Objectives
13-125

 Define Marketing Communication (MarCom)

 Explain the importance of hierarchy of effects models.

 Discuss how marketers use the internet for advertising, marketing

public relations, sales promotions, direct marketing, and personal
selling.

 Identify several emerging MarCom tools.

 Describe the most effective online MarCom tactics.

 Will it Blend?
13-126

 Blendtec supplies commercial blenders to Starbucks and others.

 Blendtec produced a video in which the CEO blended unusual products

such as a rake, golf clubs, and light bulbs.
 The original video, uploaded to YouTube, received 3.9 million views in an
8-month period.
 The Will It Blend? Campaign illustrates the potential value of connecting
with consumers online versus traditional advertising.
 “Viral Marketing/Advertising”

 http://www.blendtec.com
 http://www.willitblend.com
 Marketing Communication Tools
13-127
(MarCom)
 MarCom consists of both planned and unplanned messages
between firms &customers and among customers.

 E-marketers can enhance MarCom by using technology,

such as e-mail, web pages, blogs, digital receiving devices,
etc.

 Integrated Marketing Communications (IMC) - may

include advertising, sales promotion, public relations
marketing, direct marketing, and personal selling.
Integrated Marketing Communication (IMC)
12-128

 IMC is a cross-functional process for planning, executing, and

monitoring brand communications.

 The goal is to profitably acquire, retain, and grow customers.

 IMC strategy requires a thorough understanding of target

markets, the brand, its competition, and other internal and
external factors.
 IMC Goals and Strategies
13-129

 The AIDA (Awareness, Interest, Desire, Action)/Hierarchy of Effects or

the “think, feel, do” model.
 Helps guide selection of online and offline MarCom tools.
 The model recognizes that consumers first become aware of a
product before they develop feelings and purchase it.
 Caveat: Depends on whether the product purchasing decision is high-or
low-involvement.

 The models can help marketers select appropriate communication

objectives and strategies, such as:
 Building brand equity.
 Eliciting a direct response.
 E-Marketing Tactics for Hierarchy of
Effects Goals
13-130
 Social Media Strategies & Tactics
12-131
 Internet Advertising
13-132

 Advertising is non-personal (usually persuasive),

communication about products or ideas paid for by an
identified sponsor.

 All paid space on a Web site or in an e-mail is considered

advertising.

 US Online advertising reached $21.1 billion in 2007, $23.4B

in 2008, $22.7B in 2009, $26B in 2010, $32B 2011, $39B in
2012, $42.8B in 2013, and $52.8B in 2014.

 In 2014, 28% of US ad dollars were spent online.

 Internet Advertising Formats
13-133

 Keyword search is the fastest growing and possibly most

important technique.
 Part of Search Marketing – using search engines to market a site.
 May be done by improving organic listings (SEO), using paid listings
(Paid Search), or using some combination of both.

 Display ads are the third largest.

 Display ads include traditional banners and many additional sizes.
 Formats include rectangles, pop-ups, banners, and skyscraper
display ads.
 Proportion of Advertising Dollars by Format
13-134
 Rich Media Ads
13-135

 Rich media ads are interactive, at least offering click-through.

 Rich media ads often use Flash animation to attract attention.

 Many formats can be rich media:

 Banner ads
 Interstitial ads –ads that appear while content is loading

 Floating ads – moves across the screen or floats above

 Expanding ads – change in size

 Trick Banners – looks like a dialog box from your computer

 Pop-up and Pop-under ads

 E-Mail Advertising
13-136

 E-mail advertising is the least expensive type of online

advertising.

 Types of e-mail advertising include:

 E-mail
newsletters
 Embedded text at the bottom of emails
 Sponsorships
13-137

 Sponsorships: paid effort from an advertiser to tie

its name to information, an event, or a venue that
reinforces its brand in a positive manner.

 Sports,Charity Events, Blog, Website, etc.

 May be direct tie-in between sponsor and sponsorship, or may
not be any obvious connection.
 About branding, not immediate sales
 Mobile Advertising
13-138

 Mobile Internet usage grew about 25% annually from

2007-2014.

 Techniques for mobile devices include:

 Display ads
 Text Message ads
 Location-based ads
 Paid search
 Video
 Apps
 Marketing Public Relations (MPR)
13-139

 Public relations includes activities that influence public

opinion and create goodwill.

 MPR includes brand-related activities, such as online

events, and nonpaid, third-party media coverage.
 A Web site can serve as an electronic brochure.
 Online events can draw traffic to a site.
 Users can download video podcasts to many types of receiving
appliances.
 Viral marketing and other techniques can help companies create
buzz online.
 Sales Promotion Offers
13-140

 Sales promotions are short-term incentives that facilitate

the movement of products to the end user.
 Coupons
 Rebates
 Samples
 Contests,
sweepstakes, and games
 Premiums (free or low cost gifts)

 Marketers report 3-5 times higher response rates with

online promotions than with direct postal mail.
 Promotions can help build awareness and entice trial but
may not help build relationships in the long term.
 Direct Marketing
13-141

 Direct marketing includes techniques such as:

 Telemarketing.

 E-mail.

 Postal mail, including catalog marketing.

 Targeted online ads that solicit a direct response.

 Text messages or Short message services (SMS).

 Multimedia message services (MMS).

 Instant messaging (IM).

 E-Mail
13-142

 E-mail remains the most important communication technique for

building customer relationships.
 75.4% of marketers invest in e-mail campaigns.

 E-mail has advantages over postal direct mail.

 Average cost is less than $0.01.
 No postage or printing charges.
 Immediate and convenient avenue for direct response
 Can be automatically individualized.

 E-mail also has disadvantages.

 Consumer distaste for unsolicited e-mail or spam.
 Effective lists are hard to obtain and maintain.
 Metrics for Electronic and Postal Mail
13-21

E-mail Postal Mail

Delivery cost per thousand $30 $500

Creative costs to develop $1,000 $17,000

Click-through rate 10% N/A

Customer conversion rate 5% 3%

Execution time 3 weeks 3 months

Response time 48 hours 3 weeks

143
 Permission Marketing:
Opt-in, Opt-out
13-144

 When consumers opt-in, they are giving permission to

receive commercial e-mail about topics of interest to them.

 Opt-in techniques are part of a bigger marketing strategy

called permission marketing, “turning strangers into
customers.”

 Lists with opt-in members get much higher response than

other lists.
 Viral Marketing
13-145

 Viral marketing is the online equivalent of word of mouth

marketing.
 Gmail is a viral marketing success story.
 Movies such as Blair Witch Project and American Psycho were
promoted using viral marketing techniques.
 Racecar Driver Jeff Gordon’s Pepsi Max Video
 http://www.youtube.com/watch?v=q02BXGDSDkE
 Text Messaging
13-146

 Text Messages or Short message services (SMS) are

messages sent over the internet by way of a cell phone.

 Instant messages (IM) are sent among users who are online at
the same time.

 Marketers can build relationships by sending permission-based

information where consumers want to receive it.
 Flight delays
 Music and movie schedules
 Coupons
 Location-Based Marketing can help take this to the next level.
 Direct Marketing Metrics
13-147

 E-mail receives a 3-10% click-through to the sponsor’s

Web site and an average 5% conversion rate.

 However, with SMS campaigns 94% of messages are read

by recipients and 23% show or forwarded messages.
 Spam
13-148

 Spam is unsolicited e-mail.

 Spammers routinely harvest e-mail addresses from

newsgroup/message board postings.

 Many moderated groups filter spam and most e-mail

programs can filter spam.

 The CAN-SPAM Act appears to have little ability to stop

spam, but technology has.
 Personal Selling
13-149

 Personal selling involves real time conversation between a

salesperson and customer,
 May be face-to-face, by telephone, or by computer.

 Some companies provide real time sales assistance online

through a live chat feature.

 The internet can also be a powerful resource in generating

leads for salespeople.
 MarCom Metrics
13-
150

 If viewed only from a Click-Through perspective, display ads are

generally ineffective.
 Only 0.15% of all users click on them.
 However these types of ads may be effective at building brand
awareness, favorability and/or purchase intent.

 Online ads that were bigger or contained rich media delivered

greater impact.

 There is increasing evidence that online and offline advertising work

well together.

 See next slide for IMC metrics and industry averages.

 Best and Worst Performing IMC Tactics
13-
151