Chapter 15 New and Old Marketing Channels Electronic

Chapter 15 New (and Old) Marketing Channels: Electronic Marketing Channels and Direct Selling

Major Topics for Ch. 15 1. What is EMC? 2. Trends in EMC 3. Structure of EMC* 4. Advantages and Disadvantages of EMC* 5. Implications of EMC 6. Direct Selling

Electronic Marketing Channels Topic 1: Computers Technology Internet Impact on Design & Management of Marketing Channels

Topic 2 Electronic Marketing Channels Not physical availability Internet, Web-TV, Cell Phone The use of online media to make products & services available so that the target market with access to enabling technologies can shop & complete the transaction via interactive electronic means Actually purchasing products through the use of PCs, Web-TV, Cell Phones

Developments & Trends in EMC • Online shopping to over $200 billion from mid-1990 s to the end of 2012* Electronic Marketing Channels • Online shopping has become a routine shopping choice* • PCs, peripherals, software, & books accounted for a significant portion of total retail spending on these products * U. S. Department of Commerce

Channel Migration* Holiday Shopping across Different Channels Spending Distribution 2004 2005 2003 2002 Stores 68% 72% 74% 78% Catalogs 5% 6% 6% 6% Online* 27% 22% 20% 16% Source: A. C. Nielsen’s Holiday E-spending Report www. internetretailer. com * What would do you do if you are a physical store-based retailer?

Future of Online Shopping Online Sales as a Percentage of Total Retail Sales Year 2002 Online as % of % Change from Previous Year Retail Sales 1. 3 19. 7 2010 8. 0 0. 0 2011 9. 0 12. 5 2012 10. 0 11. 1 2013 10. 0

Electronic Channels on Social Network Sites • By 2009, almost ½ of Americans had a Facebook or My. Space account • Among American, age 18 -33, almost ¾ were registered with Facebook or My. Space • Businesses are now rapidly engaging in F-commerce (Facebook Commerce)

Topic 3 Three Key Phenomena Structure of Electronic Marketing Channels* 1. Reintermediation versus disintermediation 2. Information flow versus product flow 3. Virtual channel structure versus physical channel structure

1. Disintermediation and Reintermediation Disintermediation Intermediaries become superfluous because producers gain exposure to vast numbers of customers in cyberspace Dell Computer Corp. Reintermediation Shifting, changing, or adding middlemen to the channel Amazon. com Auto-By-Tel Corp. Peapod, Inc.

Disintermediation versus Reintermediation* No matter how technologically sophisticated the Internet becomes, the laws of economics as they relate to channel structure do not change. Efficiency in the performance of distribution tasks is what ultimately determines what form channel structure will take. = The Internet has not eliminated middlemen, or caused total disintermediation.

2. Marketing Channel Flows Product Flow Negotiation Flow Ownership Flow Information Flow* How can a middleman add value? Ex) Pharmaceutical Promotion Flow

Marketing Channels for Pharmaceuticals Physical Distribution Flow Information Flow Manufacturer PBM* Distributor Pharmacy patient Insurer/ HMO Doctor Pharmacy DTC patient * Pharmacy Benefit Manager (www. medco. com)

Internet Limits as a Stand-alone Channel Five Channel Flows Some can not be handled by internet Ex) Physical Product Flow in Channel • Cannot be digitized • Processed slowly, often by people • Is basis for all other flows—negotiation, ownership, information, & promotion

3. Virtual (Online) Channel Structure Versus Conventional (Store) Channel Structure • Different Market Segments • Different Product or Services • Complements rather than Replaces Each Other*

Topic 4 Advantages & Disadvantages of EMC* Advantages of Electronic Marketing Channels 1. 2. 3. 4. Global scope & reach Convenience/rapid transaction processing Information processing efficiency & flexibility Data-based management & relationship capabilities 5. Lower sales & distribution costs

Advantages & Disadvantages of EMC* Disadvantages of Electronic Marketing Channels 1. Lack of contact with actual products & delayed possession 2. Fulfillment logistics not at Internet speed or efficiency* 3. Clutter, confusion, & cumbersomeness of Internet 4. Nonpurchase motives for shopping not addressed* 5. Security concerns of customers

Topic 5 • • • Implications of EMC Objectives & strategies of the firm & EMC* Role of EMC in the marketing mix Channel design & EMC* Channel management & EMC* Evaluation & EMC

Objectives & Strategies of the Firm and EMC* • Role of distribution becomes more complex because of electronic marketing channels = • How to Integrate Online with Offline channels * Offline only Online only Offline + Online (multichannel) Ex) My research project

EMC Impact on The Marketing Mix The Internet arms large numbers of customers with more 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 for more & more firms

EMC and Channel Design* The channel manager should provide “channelsurfing” consumers with whatever channels or combinations of channels they desire = a) A facet of the development of an effective multichannel marketing strategy b) Unbundle Channel Functions * A special topic: PIC (Partially Integrated Channel)

DUAL DISTRIBUTION WITH EMC : CHANNEL STRUCTURE OPTIONS (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

DUAL DISTRIBUTION WITH EMC: CHANNEL STRUCTURE OPTIONS (b) Manufacturer sells through third-party online reseller (e. g, Callaway Golf selling through buy. com) Manufacturer (Callaway Golf) Standard Channel (pro shops, bricks & mortar sports/golf outlets) Independent Internet Sales Channel (buy. com) Consumers

DUAL DISTRIBUTION WITH ONLINE SELLING: CHANNEL STRUCTURE OPTIONS (c) Manufacturer sells through some standard channels that do operate their own online store, and some that do not Manufacturer (Simon & Schuster, Publisher) Standard Channel (bricks & mortar bookstores) Barnes & Noble bricks & mortar bookstores Consumers Barnes & Noble Internet Sales Channel (bn. com)

EMC and Channel Management* Multichannel challenge of conventional and electronic channels = The fundamental issues of motivating channel members, building cooperation, managing conflict, & coordinating elements of the marketing mix requires manager’s full attention Key Issue: Managing Conflict between Marketing Channels

EMC and Evaluation of Channel Performance Likely to change Specific criteria for performing evaluations & technological means for doing so Ex) Store Traffic Measure Unlikely to change Performance expectations, criteria, & measurement of how well they are being met by channel members

What drives sales impact of online channel addition? • Steve Kim (ISU) and Sam Min (CSULB) • Question: For store-based retailers, does adding online channel lead to more sales?

Likely Drivers • Channel Disruption (Potential for Displacement)* • Timing: Chronological Time and Order of addition • Incumbent Retailer Resource: Scale of Physical store-based business • Incumbent Retailer Resource: Retailer’s Brand Equity

Analysis Results 15 • Channel Disruption (Potential for Displacement): Search good > Experience good • Timing: Chronological Time (0) and Order of channel addition (+) • Incumbent Resource: Scale of Physical store business: (-)* • Incumbent Resource: Retailer Brand Equity: (+)

Topic 6 Direct Selling Definition: the sale of a consumer product or service person-to-person, away from a fixed retail location Three key points: • Goes directly to consumers’ homes, offices, or other locations • Concerned with the sale of consumer products in consumer markets rather than industrial products • Involves salespeople meeting fact-to-face with customers

Structure & Trends in Direct Selling - Markets Served - Types of Products Sold - Firms Involved in Direct Selling - Problems & Prospects for Direct Selling

Markets Served Location of Direct Selling Channel Sales Location Percent of Sales Home 64. 4 Telephone 14. 7 Workplace 8. 7 Internet 5. 5 Temporary locations 4. 1 Other 2. 6

Types of Products Sold Major Product Categories Sold through Direct Selling Channels as a Percentage of Total Sales Product Category Percent of Total Sales Personal Care Products 26. 4 Home/Family Care Products 33. 7 Leisure/Educational Products Services/Miscellaneous/ Other 6. 5 33. 4

Firms Involved in Direct Selling Hundreds exist • Range in size from those with annual sales over $1 billion to those with sales well under $1 million • Facts • • Examples Tupperware Corp. * Avon Products, Inc. * http: //www. avon. com/ • • Cutco Cutlery Corp. Amway Corporation

Rationale for Designing Direct Selling Channels A method of distribution for providing products & services to customers But: The decision should be based on an objective analysis of the advantages or disadvantages of each channel alternative.

Variables To Consider for Direct Selling* 1) Market variables & DS channel* 2) Product variables & DS channel* 3) Company variables & DS channel 4) Intermediary variables & DS channel 5) Behavioral variables & DS channel Ex) Mary Kay in China

1) Market Variables Developments in consumer attitudes & behaviors that could make direct selling more attractive: 1. Consumers have less time available for shopping in traditional stores. 3. Consumers are seeking increased convenience in shopping. 2. Consumers are becoming more sophisticated and demand more & better product information.

2) Product Variables Products that are high quality, that are unique, or that require specialized information & advice are logical choices for direct selling: Product quality may become apparent only when consumers are informed about them in conjunction with hands-on demonstrations. Consumer satisfaction may depend on whether the consumer has proper information. Product uniqueness may become apparent only through the direct help of salespeople.

3) Company Variables Basic variables to consider: 1. Size of the company 2. Financial capacity of the company 4. Basic objectives & policies of the company 3. Managerial expertise in distribution*

4) Intermediary Variables Basic intermediary variables to consider: 1. Availability of alternatives 2. Cost of using channel alternatives 3. Services that alternatives are capable of or willing to provide

5) Behavioral Variables The “people” side of the marketing channel: Communications processes Conflict Power Role

Topic 4 Problems & Prospects for Direct Selling* 1. Lack an awareness of DS as an alternative. 2. Negative impression on DS in general. * 3. Lower availability of consumers for at-home sales calls and parties. * 4. The perceived risk by consumers is high compared to other modes of shopping. 5. Recruitment of salespeople has become difficult. *