© Copyright 2006, Thomson South-Western, a division of the Thomson Corporation Internet Marketing & e-Commerce Ward Hanson Kirthi Kalyanam Requests for permission to copy any part of the material should be addressed to: PERMISSIONS DEPARTMENT THOMSON BUSINESS and ECONOMICS 5109 Natorp Boulevard Mason, OH Phone: (800)

© Copyright 2006, Thomson South-Western, a division of the Thomson Corporation Part Three: Chapter 14 Consumer Channels “For traditional manufacturers, channel conflict is the thorniest issue of all on the Internet.” Mary Modahl, Now or Never: How Companies Must Change Today to Win the Battle for Internet Consumers

© Copyright 2006, Thomson South-Western, a division of the Thomson Corporation Consumer Channels and the Internet Marketing channels are sets of interdependent organizations that make product or services available for purchase, consumption, use

© Copyright 2006, Thomson South-Western, a division of the Thomson Corporation Consumer Channels and the Internet Marketing channels are sets of interdependent organizations that make product or services available for purchase, consumption, use Direct distribution channels generally are simplest and most straightforward

© Copyright 2006, Thomson South-Western, a division of the Thomson Corporation Consumer Channels and the Internet Marketing channels are sets of interdependent organizations that make product or services available for purchase, consumption, use Direct distribution channels generally are simplest and most straightforward But retail intermediaries can reduce effort for producers and consumers

© Copyright 2006, Thomson South-Western, a division of the Thomson Corporation Consumer Channels and the Internet Typical business-to-consumer channels

© Copyright 2006, Thomson South-Western, a division of the Thomson Corporation Consumer Channels and the Internet Different consumer shopping needs are best met through different channels – Consumer desire for information can be easily met with direct online information – Consumer desire to touch and try on articles of clothing best met with intermediary retailer

© Copyright 2006, Thomson South-Western, a division of the Thomson Corporation Consumer Channels and the Internet Using the iPACE framework in channel design: The impact of the Internet on channel services

© Copyright 2006, Thomson South-Western, a division of the Thomson Corporation Consumer Channels and the Internet Presales support Selling through online intermediaries Selling direct and channel conflict Reaching new locations Selling the “Long Tail” Versioning Fixed price and auctions Opaque liquidators Existing Customers Expanding Markets Closeouts Additional online channel opportunities

© Copyright 2006, Thomson South-Western, a division of the Thomson Corporation Existing Customers Online, before the sale information creates more comprehensive, transparent view of the marketplace – Manufacturer’s web site offers detailed information, configuration possibilities but raises questions about credibility – Third-party sites offer greater credibility and more flexibility

© Copyright 2006, Thomson South-Western, a division of the Thomson Corporation Existing Customers Online connections inform the consumer channel

© Copyright 2006, Thomson South-Western, a division of the Thomson Corporation Existing Customers Supporting online intermediaries – Web-ready merchandise – Supply chain coordination – Authorization policies for distribution – Minimum Advertised Prices (MAP)

© Copyright 2006, Thomson South-Western, a division of the Thomson Corporation Existing Customers Encouraging affiliate networks – Unique to online selling – Drive substantial portion of online sales

© Copyright 2006, Thomson South-Western, a division of the Thomson Corporation Existing Customers Affiliates can generate sales leads for commissions

© Copyright 2006, Thomson South-Western, a division of the Thomson Corporation Direct Sales Advantages to direct online selling – Better able to meet consumer needs – Opportunity to expand into new profit pool – Improved customer knowledge – Hedge against uncertainty, crises at intermediary level

© Copyright 2006, Thomson South-Western, a division of the Thomson Corporation Direct Sales Main sources of channel conflict – Divergent goals – Disputes over responsibility – Differing perceptions of reality Poor channel performance, retaliation – Stopping sale of products – Undermining products – Developing alternate supply sources

© Copyright 2006, Thomson South-Western, a division of the Thomson Corporation Direct Sales Balancing direct sales benefits and channel conflict

© Copyright 2006, Thomson South-Western, a division of the Thomson Corporation Direct Sales Transition and internal opposition – Appeal of graduated approach – Online price setting can be key source of channel conflict (MSRP vs. MAP vs. innovative pricing plans) – Creating direct access agreement – Restructuring organization and reporting systems

© Copyright 2006, Thomson South-Western, a division of the Thomson Corporation Direct Sales How Hewlett Packard transitioned to Internet direct sales

© Copyright 2006, Thomson South-Western, a division of the Thomson Corporation Direct Sales Lessons from Hewlett Packard transition to direct sales – Follow the customer Learn by participating Small, discrete, clear steps

© Copyright 2006, Thomson South-Western, a division of the Thomson Corporation Direct Sales Lessons from Hewlett Packard transition to direct sales – Follow the customer Learn by participating Small, discrete, clear steps – Manage the risk Clear, consistent communications Remain focused on customer Direct selling prices crucial Compartmentalize information

© Copyright 2006, Thomson South-Western, a division of the Thomson Corporation Expanding Markets Geographic expansion safer than new product or increasing consumption by current customers – Falling transactional costs online reduce distribution barriers – Broader selection, lower prices at traditional outlets through B2B expansion – Hidden costs from time differences, language barriers, legal implications

© Copyright 2006, Thomson South-Western, a division of the Thomson Corporation Expanding Markets Assortment expansion as Internet distribution resolves sales and distribution hurdles for some products – Selling the “Long Tail” – “Versioning” to allow core product to reach wider audience at differing price points

© Copyright 2006, Thomson South-Western, a division of the Thomson Corporation Online Closeouts Reduced inefficiencies in closeout markets through online auctions and closeout online retailers Challenge of preventing cannibalization of regular channel sales

© Copyright 2006, Thomson South-Western, a division of the Thomson Corporation Online Closeouts Traditional vs. Internet channel flow for closeout customers