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ch15 (Spring 2014)

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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


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