Marketing Strategy in Internet Marketing

What is Internet Marketing? The previous definition can be divided into five components: A Process; Building and Maintaining Customer Relationships; Online; Exchange; and Satisfaction of Goals of Both Parties.

Seven Stages of Internet Marketing 1. Setting Corporate and Business-Unit Strategy 2. Framing the Market Opportunity 3. Formulating the Market Strategy 4. Designing the Customer Experience 5. Designing the Marketing Program 6. Crafting the Customer Interface 7. Evaluating the Results of the Marketing Program

What is Marketing Strategy? Marketing strategy has three components: Segmentation, or identifying relevant market segments with specific needs Targeting, or choosing an attractive segment consistent with a firm’s resources and goals; and Positioning, or strategically communicating the product’s benefits to the target segment.

Egghead.com Example Initially an offline software retailer, it changed its business strategy completely in 1998 by moving its entire business online. Unique assets include: Currently being the largest retail auction site on the Internet A strong brand name Strong wholesale relationship with United Stationers Business center that provides specialty services How does Egghead.com compete? Targets small and medium businesses, and government and education segments. Positions itself on three variables: value, selection and customer service. Site has over 70,000 items for sale or auction daily. Core products are technology-based, but also sells consumer electronics and various clearance items (e.g. jewelry). Merged with onsale.com in Nov 1999, an electronics superstore that has expanded into travel, jewelry and cruises. Three Variables: Value: highly competitive prices Selection: deep & broad inventory Service:well-integrated offline/ online service approach that answers quickly to customer needs. Ultimately, this three-pronged positioning is well aligned with Egghead.com’s business strategy of being “informative, convenient, and cost-effective”.

Internet Marketing Scenarios Pure-Play Scenario Firms such as Yahoo!, eBay and Egghead.com Highly likely that both online and offline marketing levers (e.g. customer e-mails and print ads) are going to be used to build a customer relationship. Processes of segmentation, targeting and positioning remain largely the same as for offline business. Brick-and-Mortar Scenario Firms such as The Gap with both offline retail stores and an online store Since offline stores preceded online store, Gap online must optimize its online marketing strategy within the context of Gap’s broader strategy – i.e. its offline positioning, image, and asset base.

Internet Marketing Strategy: Pure Play Firms Bases for Segmentation Demographic, geographic, psychographic, cognitive and behavioral. Effective segmentation is meaningful, actionable and financially attractive. Target Market Segment size and growth Segment structural attractiveness Company objectives and resources Bases for Segmentation Demographic Age, gender, occupation, ethnicity, income, family status, life stage Geographic ISP domain, country, region, city and density Psychographic Lifestyle, social class, personality Cognitive and behavioral Benefits sought, usage rate, loyalty status, attitude toward product Effective segmentation is: meaningful – help describe and explain why customers currently behave in a specific way. actionable – must allow for feasible execution financially attractive - must be economically worth going after. Target Market Segment size and growth Worthwhile financially now and future? Segment structural attractiveness Segment’s future profitability While segment may be large and growing, profits could still shrink. Company objectives and resources Consistent with company’s objectives and resources?

Internet Marketing Strategy: Pure Play Firms Positioning Features/ services Benefits Specific usage occasions User category Against another product Product-class Hybrid Positioning Plan Identify actual product positioning. Determine ideal product positioning. Develop alternative strategies for achieving ideal. Select and implement the most promising alternative. Compare new actual position with ideal. Positioning Features/ services Perceived as best in particular product or service attribute, e.g. delivery speed, style Benefits Effectively provides benefits such as happiness, fun Specific usage occasions Perceived as practical or functional for a given purpose User category Perceived as appropriate offering for a specific type of user Against another product Perceived as better than particular competitor Product-class Perceived as offering a different type of product than what consumers expect Hybrid Combination of two or more of above. Positioning Plan Identify actual product positioning Identifies criteria or benefits important to customers through interviews or questionnaires Use of perceptual maps to find out perceptions about products and for identifying insights on new product or promotion opportunities. Determine ideal product positioning How to position product more favorably. Determining ideal position depends on whether it is monosegment or multisegment positioning. Alternatively, ideal can be found by determining areas on perceptual map currently not adequately served. Develop alternative strategies for achieving ideal To achieve desired positioning, firms can either: Reposition an existing product without changing it, or Introduce a separate new product with characteristics sought for ideal. Select and implement the most promising alternative Plan must also be most consistent with company’s objectives, resources and strengths. Specific guidelines on activities: what, when, how, and who. Compare new actual position with ideal Track success of positioning move. Strategic evaluation should also reveal any new opportunities and threats.

Internet Marketing Strategy: Brick-and-Mortar Firms Segmentation for BAMs moving online No change Market expansion Market reclassification Reclassified expansion Targeting for BAMs moving online Blanket targeting Beachhead targeting Bleed-over targeting “Be different” targeting Segmentation for BAMs moving online No change Segment characteristics and size stay the same Online and offline remains largely the same. Possibly because there are few opportunities to significantly increase the size of the market and segmentation variables remain the same, e.g. specific B2B site. Market expansion Segment size, financially or otherwise, change. Might increase in size because company’s offering appeals to many consumers previously out of physical reach. Market reclassification Segment characteristics change, such that online consumer segments have distinctly different needs and tastes. Might be due to Internet’s ability t augment a company’s offering and hence create more demanding and discriminating customers. E.g. customized Gap trousers. Reclassified expansion Firms may experience a combination of two scenarios, so segments may change in both size and characteristics. Targeting for BAMs moving online Blanket targeting Target entire offline segment Firm’s online offering blankets the segment the same way it blanketed the offline segment. E.g. Schwab.com Beachhead targeting Online segment found to be smaller than offline segment, representing a more narrow band of tastes and preferences. They have the same general buying preferences as the offline segment, but show increasing preference for using the Internet. Bleed-over targeting Includes part, but not all of the offline segment. Also targets part of a distinctly new customer segment. Can include individuals previously ignored in offline targeting because of online offering now has something enticing. E.g. increased customization at Gap online attracts customers who did not shop at Gap offline because of limited size or color combinations. “Be different” targeting Choose an entirely different segment. Represents distinctly different needs and preferences from the traditional offline segment. Typically involves new brand name & position.

Internet Marketing Strategy: Brick-and-Mortar Firms Positioning for BAMs moving online Blanket positioning Beachhead positioning Bleed-over positioning “Be different” positioning Positioning for BAMs moving online Blanket positioning Target segment does not change. Good strategy would be to borrow heavily from existing offline strategies since goal is to appeal to same customers. Beachhead positioning Target segment is subsection of the larger offline segment. Positioning is similar, bit more focused toward the smaller customer group. Strategy here could be to stress more value-added advantages of the Internet. Positioning assumes that the smaller segment puts more value on the Internet’s extended capabilities for convenience and access. Bleed-over positioning Assumes the target segment is composed of both old customers and a new type of customer. Positioning would resemble the offline offering, but also make the online offering attractive to new types of customers. This will appeal to previously different segments. “Be different” positioning Repositions the offering entirely, attempting to capture the attention of a completely new target segment. This works when increased geographic reach now allows a firm to communicate with new and different customers over the Internet, giving that firm a chance to build a new position.

Marketing Strategy in the New Economy Firm The Internet has and will continue to affect marketing strategy in four broad ways: Finer gradations of segmentation Faster cycle time of marketing strategy decisions Increased accountability of marketing efforts Increased integration of marketing strategy with business strategy and operations Finer gradations of segmentation With declining costs if information gathering and processing on the Internet, firms will be able to more accurately segment customers. Firms in the new economy will be able to conduct finer gradations of segments through the use of better data gathering tools, so that the needs and types of customers can be better understood. Marketing strategy will shift closer to one-to-one marketing, as opposed to broader segment marketing. Faster cycle time of marketing strategy decisions Marketing plans can now change more quickly and flexibly – more on-the-fly – due to increased speed of gathering information. Increased accountability of marketing efforts Tracking marketing efforts becomes easier and quicker. As a result, accountability for past successes and failures will heighten the awareness and need for good Internet marketing strategy. Increased integration of marketing strategy with business strategy and operations Marketing not just confined to marketing department. It will become a world view that must permeate the whole organization to be effective.

Stage Four: Designing the Customer Experience Customer experience should correlate with the firm’s positioning and marketing strategy. Customer experience constitutes a bridge between high-level marketing (step three) and marketing program tactics (step five).