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Chapter 15Chapter 15

New (and Old) MarketingChannels:

Electronic Marketing Channels an

Direct Selling

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Major Topics for Ch. 151.What is EMC?

2.Trends in EMC

3.Structure of EMC*

4.Advantages and Disadvantages of

EMC*

.!"#$ications of EMC

%. Direct Se$$in

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Electronic MarketingElectronic Marketing

ChannelsChannels 

Topic 1:

 Technology

Internet

Computers

Impact on

Design & Management of Marketing Channels 

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Electronic MarketingElectronic Marketing

ChannelsChannels

The use of online media to make products & servicesavailable so that the target market with access to

enabling technologies can shop& complete the transaction viainteractive electronic means

Topic 2

Not physical availability

Internet, Web-T, Cell !hon

"ctually purchasing pro#ucts through the useof !Cs, Web-T, Cell !hones

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Developments & Trends in EMCDevelopments & Trends in EMC

$ %nline shopping to over '(( billionfrom

mi#-)**(s to the en# of '()'+

$ %nline shopping has become a routineshopping choice+

$ !Cs, peripherals, softare, & booksaccounte# for a signicantportion of total retail spen#ing onthese pro#ucts

$ %nline shopping to over '(( billionfrom

mi#-)**(s to the en# of '()'+

$ %nline shopping has become a routineshopping choice+

$ !Cs, peripherals, softare, & books

accounte# for a signicantportion of total retail spen#ing onthese pro#ucts

.lectronic

MarketingChannels

+ /010 Department of Commerce

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Channel Migration*

Spending

Distribution

2005

 

2002

Stores 68% 72% 74% 78%

Catalogs 5% 6% 6% 6%

Online* 27% 22% 20% 16%

1ource2 "0C0 Nielsen3s 4oli#ay .-spen#ing 5eport

'((6 '((7

4oli#ay 1hopping across Di8erent Channels

0internetretailer0com

 What oul# #o you #o if you are a physical store-base# re

http://www.internetretailer.com/http://www.internetretailer.com/

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&uture of 'n$ine Sho##ing

 (ear 'n$ine as )of 

etai$ Sa$es

) Changefro" +revious

 (ear

'((' )07 )*0:

'()( ;0( (0(

'()) *0( )'0<

'()' )(0( ))0)

'()7 )(0( (0(

'n$ine Sa$es as a +ercentage of Tota$ etai$

Sa$es

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E$ectronic Channe$s on

Socia$ ,et-or Sites• =y '((*, almost > of "mericans

ha# a ?acebook or My1pace

account

• "mong "merican, age );-77,almost @ ere registere# ith?acebook or My1pace

• =usinesses are no rapi#ly

engaging in ?-commerce A?acebookCommerce

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StructureStructureof Electronicof Electronic

Marketing Channels*Marketing Channels*

 Threeey

!henomena

)0 5einterme#iation versus

#isintermediation

2. Information flow versus 

product flow

3. Virtual channel structure versus 

physical channel structure

 Topic 7

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1. Disintermediation and1. Disintermediation and

ReintermediationReintermediation

Disinterme#iation 5einterme#iation

Intermediaries becomesuperfluous because producers

gain exposure to vast numbers of

customers in cyberspace

Shifting, changing, or addingmiddlemen to the channel

 ma!on.com uto"#y"Tel Corp.

$eapod% Inc.Dell

Computer Corp0

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DisintermediationDisintermediationversusversus

Reintermediation*Reintermediation*

 No matter howtechnologicallysophisticated the

Internet becomes, thelaws of economics asthey relate to channelstructure do not change.

 Efficiency in the performance of

distribution tasks is whatultimately determines whatform channel structure will

take.

The !nternet has not e$i"inated "idd$e"en/

or caused tota$ disinter"ediation.

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2. Marketing Channel Flows2. Marketing Channel Flows

  Product Flow

  Promotion Flow

  Information Flow*

  Ownership Flow

  Negotiation Flow

4o can a mi##leman a## value9.EB !harmaceutical

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Mar&etin' Channels for $harmaceuticals

+h0sica$ Distriution &$o- !nfor"ation &$o-

Manufacturer

Distriutor

+har"ac0

#atient

Manufacturer

+har"ac0Doctor

#atient

!nsurerM'

+M*

+ !harmacy =enet Manager A0me#co0comB

DTC

http://www.medco.com/http://www.medco.com/

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Internet Limits as a Stand-aloneInternet Limits as a Stand-alone

ChannelChannel

?ive Channel ?los1ome can not be

han#le# by internet

?ive Channel ?los1ome can not be

han#le# by internet

.EB +h0sica$ +roduct &$o- in Channel$ Cannot be #igitiFe#

$ !rocesse# sloly, often by people

$ Is basis for all other GosHnegotiation,

onership, information, &

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3. 5irtua$ 6'n$ine7 Channe$ Structure5ersus Conventiona$ 6Store7 Channe$

Structure

$ Di8erent Market 1egments

$ Di8erent !ro#uct or 1ervices

$ Co"#$e"ents rather than e#$aces .ach %ther+

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Advantages & Disadvantages ofAdvantages & Disadvantages of

EMC*EMC*

Topic 4

Advantages of

Electronic

Marketing Channels

1. (lo)al scope * reach

2. Convenience+rapid transaction processin'

3. Information processin' efficiency * fle,i)ility-. ata")ased mana'ement * relationship

capa)ilities

5. /ower sales * distri)ution costs

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Disadvantages ofElectronic

Marketing Channels

1. /ac& of contact with actual products * delayed

possession

2. 0ulfillment lo'istics not at Internet speed or

efficiency

3. Clutter% confusion% * cum)ersomeness ofInternet

-. onpurchase moties for shoppin' not

addressed

5. 4ecurity concerns of customers

Advantages & Disadvantages of EMC*Advantages & Disadvantages of EMC*

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Implications of EMCImplications of EMCTopic 5

•Objectives & strategies of the firm & EMC*•Role of EMC in the marketing mix

•Channel design & EMC*

•Channel management & EMC*

•Evaluation & EMC

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Objectives & Strategies of the Firm andObjectives & Strategies of the Firm and

EMC*EMC*

•Role of distribution becomes more complexbecause of electronic marketing channels

=•How to Integrate Online with Offline channels

 + %ine only  %nline only  %ine J %nline Amulticha

.EB My research proKect

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The Internet arms large numbers of customers withmore 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 formore & more firms

EMC Impact on The Marketing MixEMC Impact on The Marketing Mix

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EMC and Channel Design*EMC and Channel Design*

The channel manager should provide “channel-surfing” consumers with whatever channels orcombinations of channels they desire

=

 a) A facet of the development of an

effective multichannelmarketing strategy b)Unbundle Channel Functions

* A special topic: PIC (Partially Integrated Channel)

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DUA D!S"#!$U"!O &!"' ()C

C'A( S"#UC"U#( O+"!OS

(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

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DUA D!S"#!$U"!O &!"' ()C

 C'A( S"#UC"U#( O+"!OS

(b) Manufacturer sells through third-party

online reseller(e.g, Callaway Golf selling through buy.com)

Manufacturer 

(Callaway Golf)

Independent Internet Sales

Channel

(buy.com)

Standard Channel

(pro shops, brics !

mortar sports"#olf outlets)

Consumers

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DUA D!S"#!$U"!O &!"' O!( S(!,

C'A( S"#UC"U#( O+"!OS

(c) Manufacturer sells through some standard channels that

do operate their own online store, and some that do notManufacturer 

(Simon ! Schuster, $ublisher)

Standard Channel

(brics ! mortar

 boostores)%arnes ! &oble

%arnes ! &oble

 brics ! mortar

 boostores

%arnes ! &oble Internet

Sales Channel

(bn.com)

Consumers

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EMC and Channel Management*EMC and Channel Management*

Multichannel challenge of conventional and

electronic channels

=

The fundamental issues ofmotivating channelmembers, building cooperation, managing

conflict, & coordinating elements of the

marketing mixrequires manager’s full attention

Key Issue: Managing Conflict between Marketing

Channels

d l f

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EMC and Evaluation ofEMC and Evaluation of

Channel PerformanceChannel Performance

  Likely to change Unlikely to change

 

Specific criteria for Performance expectations,

performing evaluations & criteria, & measurement of

technological means for how well they are being met

doing so by channel members

Ex) Store Traffic Measure

Wh t d i l i t f

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What drives sales impact of

online channel addition?$1teve im AI1/B an# 1am Min AC1/L=B

$uestion2 ?or store-base# retailers, #oesa##ing

online channel lea# to more

sales9

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Likely Drivers

 

$Channel Disruption A!otential for

DisplacementB+

$ Timing2 Chronological Time an#

%r#er of a##ition

$Incumbent 5etailer 5esource2

1cale of !hysical store-base#business

$Incumbent 5etailer 5esource25etailer3s =ran# . uit

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Analysis Results1515

 

$Channel Disruption A!otential for

DisplacementB2 1earch goo# O .Eperiencegoo#

$ Timing2 Chronological Time A(B an# %r#erof channel a##ition AJB

$Incumbent 5esource2 1cale of !hysicalstore business2A-B+

$Incumbent 5esource2 5etailer =ran#. uit 2 J  

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Direct SellingDirect SellingTopic 6

enition: the sale of a consumer product or servic

 person-to-person, away from a xed retail location

Three e0 #oints8$ 9oes direct$0 to consu"ers: ho"es/

o;ces/ or other $ocations

< Concerned -ith the sa$e of consu"er#roducts in consu"er "arets rather than

industria$ #roducts

< !nvo$ves sa$es#eo#$e "eeting fact=to=face -ith custo"ers

d

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Structure & TrendsStructure & Trends

in Direct Sellingin Direct Selling

= Marets Served

= T0#es of +roducts So$d

= &ir"s !nvo$ved in Direct Se$$ing

= +ro$e"s > +ros#ects for DirectSe$$ing

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Markets ServedMarkets Served

o-ation +er-ent o. Sales

ome 6-.-

Telephone 1-.7

8or&place 9.7

Internet 5.5Temporary locations -.1

:ther 2.6

Location of Direct 1elling Channel 1ales

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Types of Products SoldTypes of Products Sold

+rodu-t Categor/ +er-ent o. "otal Sales

$ersonal Care $roducts 26.-

ome+0amily Care

$roducts

33.7

/eisure+;ducational

$roducts

6.5

4erices+Miscellaneous+

:ther 

33.-

MaKor !ro#uct Categories 1ol# through Direct 1ellingChannels as a !ercentage of Total 1ales

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Firms Involved in Direct SellingFirms Involved in Direct Selling

$ 4un#re#s eEist$ 5ange in siFe from those ithannual sales over ) billion tothose ith sales ell un#er )million

$  Tupperare Corp0+$ "von !ro#ucts, Inc0+

http2PP0avon0comP$ Cutco Cutlery Corp0$ "may Corporation

?acts

.Eamples

http://www.avon.com/http://www.avon.com/

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Rationale for DesigningRationale for Designing

Direct Selling ChannelsDirect Selling Channels

etho# of #istribution for provi#ingro#ucts & services to customers

 The #ecision shoul# be base# on anobKective analysis of thea#vantages or#isa#vantages of each channel

alternative0

=ut2

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Variables To Consider for Direct Selling*Variables To Consider for Direct Selling*

)B Market variables & D1 channel+

'B!ro#uct variables & D1 channel+

7BCompany variables & D1 channel

6BInterme#iary variables & D1

channel

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1) Market Variables1) Market Variables

Developments in consumer attitudes &

behaviorsthat could make direct selling more

attractive:

)0

Consumers have $essti"e available for shopping

in tra#itional stores0

'0Consumers are becoming more sophisticate#

an# de"and "ore > etter #roduct infor"ation.

70

Consumers are seekingincrease# convenience

in shopping0

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2) Product Variables2) Product Variables

roducts that are high !uality, that are uni!ue, or 

that re!uire speciali"ed information & advice are logicalchoices for direct selling:

!ro#uct uality may becomepparent only hen consumersare informe# about them

in conKunction ith hands=onde"onstrations.

!ro#uct uniueness may become apparent only throughthe direct he$# of sa$es#eo#$e. 

Consumer satisfaction may#epen# on hether theconsumer has #ro#er

infor"ation0

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#asic variables to consider:

'0?inancial capacityof the company

3) Company Variables3) Company Variables

70Managerial eEpertise

in #istribution+

)01iFe of the

company

60=asic obKectives &

policies of the company

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4) Intermediary Variables4) Intermediary Variables

#asic intermediary variables to consider:

)0

"vailability of alternatives

'0 

Cost ofusing channelalternatives

701ervices that

alternatives arecapable of or

illing to provi#e

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The $people% side of the marketing channel:

ConGict Communicationsprocesses

5ole!oer

5) Behavioral Variables5) Behavioral Variables

Problems&ProspectsProblems&ProspectsT i 6

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Problems & ProspectsProblems & Prospects

for Direct Selling*for Direct Selling*

1. ac an a-areness of DS as ana$ternative.

2. ,egative i"#ression on DS in genera$.*

3. o-er avai$ai$it0 of consu"ers for at=ho"esa$es ca$$s and #arties.*

4. The #erceived ris 0 consu"ers ishigh co"#ared to other "odes ofsho##ing.

 Topic 6