® Tony Gauvin, UMFK, 2007 ELC 310 Day 18 A New Start

©2006 Prentice Hall Agenda Marketing Plans are corrected –1 A, 1 B, 1 C and 1 partial submission Quiz 3 Corrected –1 A, 1 B and 2 C’s Grades left (37%) –1 8% –2 Case Study 13% (6.5% each) –1 Written Case Study and 16% Today –Introduction –How to present Case study –Guidance for written case study –MotherNature.com –Understand Customer Needs and Behaviors

® Tony Gauvin, UMFK, 2007 Rest of Schedule Today –Introduction –MotherNature.com –How to present Case study –Guidance for written case study –Understand Customer Needs and Behaviors Nov 11 Veteran’s Day – No class Nov 14 –Dell Online (Owen) –Formulate a strategy to fill needs Nov 18 –Insite Marketing Technologies (Steve) –Segmentation and Positioning Nov 21 –Terra Lycos (Randy) –New Products Nov 25 –MarketSoft Corporation (Emlyn) –Communication and Selling Dec 2 –OSRAM Sylvania (Owen) –Pricing and Distribution Dec 5 –Logistics.com A & B (Steve) –Build a Trusting Relationship with Customers Dec 9 –Travelocity (Randy) –The Future of Digital Marketing Dec 12 –Citibank Online (Emlyn) Dec 1 PM –Quiz #4 –Written Case Study & Presentations Due

® Tony Gauvin, UMFK, 2007 Introduction Some broad assumptions –While the Internet and computer has changed how marketing is done, the underlying principles of marketing remain the same. –The digital age brought Efficiency and effectiveness Change in consumer behaviors and increased consumer power Threats to existing practices New opportunities –CRM –Trust based marketing

® Tony Gauvin, UMFK, 2007 marketing “Recognizing customer needs and fulfilling them” “Satisfy Customer needs without overspending company resources” “Great matchmaker between the company and it customer, matching needs with products and services”

® Tony Gauvin, UMFK, 2007 Digital Marketing Digital marketing includes –CRM & ERP –Sales force automation –Wireless technologies –Marketing automation software –Decision support systems Digital Marketing Drivers –Fast computers –Databases –Networks

® Tony Gauvin, UMFK, 2007 Why is digital marketing important 1.Introduces an entirely new channel to sell and market products 2.Allows new pricing options and individual promotions to customer 3.Enable hot media communications 4.Offers opportunities to find new product needs and launch new products 5.Supports improved distribution and service 6.Changed the balance of power

® Tony Gauvin, UMFK, 2007 Lessons from the bubble 1 st generation digital marketing –High hopes –Land grabs –Infatuation with the Internet technologies –Disruptive technologies fueled stock prices –GO Fast & BE first –Bottomless wells of equity 2 nd generation –Real benefits and real returns to existing companies –A transformation of existing marketing practices –Strategic

® Tony Gauvin, UMFK, 2007 What works What doesn’t Large Volume branded sites –Amazon Transaction fee models –EBay Clicks and Mortar –Barnes & noble Infrastructure –Dell, Cisco, Intel Pure-Play –CAC too high Advertising models –Revenue too low Exchanges –Insufficient value proposition –Chicken and egg problem

® Tony Gauvin, UMFK, 2007 Lessons learned 1.Deliver Fundamental value Value = benefits - costs 2.Create operational excellence Customer orientation 3.Build financial sustainability Revenues must exceed costs and deliver acceptable returns to investors

® Tony Gauvin, UMFK, 2007 Objectives Understanding customer needs and behavior Formulate a strategy to fill needs Implement effectively and efficiently Build trusting relationship with customers

® Tony Gauvin, UMFK, 2007 Structure of Text book Concept  Case illustrating concept –Chap 1 (intro)  MotherNature.com How customers make decisions – Chap 3  Dell Formulating a strategy –Chap 5  Insite Marketing technology Target and positioning –Chap 7  TerraLycos

® Tony Gauvin, UMFK, 2007 Structure of Text book New product development –Chap 9  Market Soft Communications –Chap 11  OSRAM SYLVANIA Pricing and distribution –Chap 13  Logistics.com CRM –Chap 15  Travelocity The future of digital marketing –Chap 17  Citibank

What is a case study? Describes a firms situation at some point in time –Most of these case studies are taken from the time period following the burst of the Internet Bubble ( ) –Analysis must reflect the correct time period –You have the benefit of hindsight Contains mostly fact with some opinion Puts the reader on the scene –Allows learning by doing

Case Study Analysis Deliverables –30 min oral presentation in front of class Overview of Company Facts of the case Discussion of e-marketing goal or strategy Analysis of case based on the previous chapter’s topic Discussion of perceived success or failure of e-Marketing goal or strategy –5 min question and answer period with classmates and Instructor As a minimum the student should be able to answer the Questions at the end of each case study –A PowerPoint presentation corresponding to the Oral Presentation

Expectations Student should be able to demonstrate a mastery of the material covered in odd numbered chapters of the Urban text and understand how the Case Study under analysis fits into the framework established in previous chapters. Students should have read the case studies being presented by the other students and be able to ask intelligent questions of the presenter of the case study. Every case study should prompt a class discussion of the issues raised in the Case Study

Preparing Case Analysis Need for Practicality –Cases are incomplete –Make reasonable assumptions and DOCUMENT your assumptions Need for Justification –Support your decisions Need for Realism –Be realistic Need for Specificity –What, why, when, how, where and who –Business people (and business professors) dislike generalities and vagueness Need for Originality –Be original…there is no perfect answer –If it were that easy everyone could do it!

Class Discussion Read the case –Take notes Perform Analysis Make recommendations Conduct Research –The better you are at research the easier the analysis goes Prepare PowerPoint and presentation Get ready for Cross-Examination –Peers Everyone should read all the cases! –Instructor

Making the presentation Organize with PowerPoints and graphics –Give overview –Inform the audience if it is a team presentation Who does what Control your voice Manage Body language Do not read your notes or the power points-be fluid Use lots of visuals Be enthusiastic! Answer questions at the end

Research Tips Your best resources are the UMFK Digital Databases –Business and company resource center –Business source premier –Newspapers (proquest) –Value Line research center –Wall Street Journal –Academic Search Premier –Census gateway –Econlite –Fed in print Other resources – – – – –Investor relations web site of the company – Bad resources –Web searches –Friends and colleagues –Tonyg.umfk.maine.edu

Writing a case study You are being asked to prepare a case study on a company or firm that has undergone a marketing challenge and has answered that challenge using web based technologies. There are two methods to conducting research for a case study. The first is often called secondary research, in which the researcher (in this case you ) researches printed documentation in magazines, books, texts, other case study and company documentation in order to derive the information required to create the case studies. The second and preferred method is to conduct primary research. Primary research requires a dialogue with personnel in the company being researched to discover the facts for the case study. Unfortunately there is insufficient time in the course to conduct primary research so the expectation is that secondary research will be conducted to create these case studies.

Format of written Case Company Overview – Description of the Industry or market segment – Relative placement within the industry – Management Structure – Chief Competitors – etc Marketing Challenges faced by company – If possible try to determine the research methodology used by the company to identify challenge – If possible try to determine the Marketing model used by the company Response to market challenges –Technologies employed –Determination of relative success –Correlation of response with the marketing model employed Evaluation of the company response using the Four-Step Flow Diagram on page 7 of the Urban text. –Identify actions taken to fulfill each of the four steps –Identify technologies and methodologies used for each step –Identify missed opportunities –Identify failed implementations A short (3-6) list of thought provoking questions that would help the reader of the case study understand the issues involved in the case study

Writing A case study Hints Pick the right company –Big success or big failure is easier –Make sure there is enough creditable information to write the case If the company stills exists contact them for more information or ask questions of senior members via Case study are about facts –Leave your opinion out of the study –You can always “slant” the case by choosing which facts to include or exclude.

Case Study Writing Tips 1.Keep your audience in mind: Remember that you are writing for students or discussants who may not be familiar with the back- ground, details, and terminology of the situation. Keep jargon to a minimum. 2.Use short-story-writing techniques: A case has flesh-and-blood characters who should be intriguing. Each story element should move the narrative forward. 3.Openings: Grab the reader with a character facing his or her biggest problem: set the scene for the confrontations, the frustrations, and the main conflicts. 4.Present situations and scenes without any attempt at analysis: Scenes must follow a logical order and should illustrate a point, concept, or issue that relates to the problems that the writer wants to have analyzed. Do not give any signals that one solution might be preferred. 5.Provide relevant details: After an opening that sets up the situation, provide relevant details about goals, strategies, dilemmas, issues, conflicts, roadblocks, appropriate research, relevant financial information, people, and relationships. Be stingy with numbers; they must help solve the problems, not confuse readers or send them off on unproductive analytic tangents. 6.Use as much dialogue as possible: Make the characters come alive with dialogue. Straight narrative is boring. 7.Endings: Leave the reader with a clear picture of the major problems--either ask or imply "what is to be done now?"

Case study resources s/casestudies/students/writing.htmhttp://college.hmco.com/business/resource s/casestudies/students/writing.htm udies/ht/HowToCaseStudy.htmhttp://businessmajors.about.com/od/casest udies/ht/HowToCaseStudy.htm

® Tony Gauvin, UMFK, 2007 Case Study

® Tony Gauvin, UMFK, 2007 Overview Introduction Company Overview History The opportunity Strategy Marketing issues Prior efforts End results Questions

® Tony Gauvin, UMFK, 2007 Introduction 1999 Christmas retail ecommerce experienced exponential sales growth New CMO (since Feb. 1999) sets 3 goals for MotherNature.com, one of the first online ventures for health market –Attract and retain customers –Develop high ROMI (return on marketing investment) –Quantify CLTC (customer life time value calculation)

® Tony Gauvin, UMFK, 2007 Company Overview Leading retail and information site for VSM (vitamins, supplements and minerals) Head quartered in Concord, MA with distribution center in Springfield, MA

® Tony Gauvin, UMFK, 2007 History Founded Dec 1995 as Mother Nature’s General Store as online 1998 focus on growth and desire to be market leader –Raised $6.5 millions in VC funds –Hires CEO Michael Brach (HBS and HLS) –Changes name to MotherNature.com 1999 raised $42 million from other VC’s –Hires CMO Steinberg End of 1999 goes public –Raises $53 million at IPO Poised for large growth

® Tony Gauvin, UMFK, 2007 Key Issues Core benefit proposition –The core benefit proposition of MotherNature.com is one source for health- related needs, convenience, privacy, information, advice and easy searchability. Compared to traditional retail outlets, MotherNature.com allowed customers to search their site for any product in the privacy of their own home. The site catered to environmentally conscious consumers who were interested in obtaining organic products

® Tony Gauvin, UMFK, 2007 Key Issues Good –Market is growing at a rate of 13% per year; –Vitamin supplement market is growing at a rate of 52% per year; –Expected number of people online by 2003 is 1.76 million; –Low shipping costs for health-related products; –Customers would be frequent, repeat purchasers; –Brand awareness matters to customers in this market. Bad –Need for advertising campaign to increase awareness and trust in the MotherNature.com brand –Customer Acquisition costs are (too) high

® Tony Gauvin, UMFK, 2007 Strategy Advertising –Promote brand….national TV campaign Brand –Trusted authority in VSM Repeat Customers –Inherent Affiliates Service Global Growth

® Tony Gauvin, UMFK, 2007 Marketing issues Attract, convert and retain on-line customers –On-line and off-line approaches Achieve high ROMI –Use CLTV Qualify CLTV –CLTV spread sheetCLTV spread sheet

® Tony Gauvin, UMFK, 2007 Prior marketing efforts Dec 1999 –Traditional media campaign in targeted cities –Online through SEO, permission marketing, s from incentive programs –Public relations events –Data mining

® Tony Gauvin, UMFK, 2007 Marketing results Building Brand cost big $$$ –13 million spent mostly on TV ADS Take on a condescending tone with the consumer. MotherNature is condescending to the people that she interacts with in the commercials – model with foot fungus, men with sexual disorders, people in an office with memory problems. These commercials, though funny, undermine one of MotherNature.com’s core benefits – no embarrassment. Because the protagonist in the commercials is making fun of various ailments, it makes customers feel less comfortable about going online to purchase products; Makes customers appear dumb. This is a variation of the problem mentioned above. For example, in the commercial with the model, it is obvious that MotherNature feels that the model is not very smart. No customer wants to associate him/herself with a dumb consumer; Doesn’t explicitly say what they’re selling. Though the commercials may be humorous, they are unclear about what product is being sold. After watching several commercials, it is likely that people would not know what MotherNature.com sells. Though very reminiscent of the flashy and attention-grabbing commercials of the dot.com era, these advertisements do not send clear messages.

® Tony Gauvin, UMFK, 2007 Other ways (less $) to brand Banner ads on other sites; Direct Marketing – this is less expensive in Cost Per Customer Attracted; Promotions – coupons, free samples; Advertisements at sporting events

® Tony Gauvin, UMFK, 2007 Financial analysis March 31, 2000 Balance Sheet: MotherNature.com has $34.7M in cash, but is burning through it quickly. In the quarter ending March 31, 2000, there was an operating loss of $16.5M; March 31, 2000 Quarterly Income Statement: MotherNature.com has increased its selling and marketing expense from $2.56M in 1999 to $13.64M in This is a huge increase; Gross Margin is 28%, (calculated as (Sales- COGS)/Sales), but this is before the $13.64M in marketing costs.

® Tony Gauvin, UMFK, 2007 Other possibilities Slower Growth – If MotherNature.com did not make such aggressive growth targets, then they could decrease their marketing spend and plan for slower growth; Loyalty Programs – Loyalty programs could be created to attract and retain customers. Loyalty is a perpetual problem for online companies, where search costs are low and switching costs are low for consumers. If MotherNature.com were to find a way to attract their customers to return to their site, then they could improve their return on investment; Partners – Perhaps, partnering with another more well-known company could increase traffic to their site and increase their brand awareness, without the huge marketing investment; Catalogues – Currently, MotherNature.com products are only available through their online store. Perhaps, by introducing catalogues as a way to increase sales, they may capture additional customers; Determine target market numbers – MotherNature.com clearly was focused on capturing the “green” customer segment. Before entering this space, they should be aware of what the customer segment looks like, how many potential customers there are, what those customers’ needs are and how best to reach them;

® Tony Gauvin, UMFK, 2007 Other possibilities Increase word-of-mouth exposure – By giving current customers incentives for referring friends to shop online, perhaps MotherNature.com could increase their customer base; Satisfaction guaranteed/Money Back Guarantee – Buying health products online does not appeal to some. Because these products will be used on your body or ingested, the products take on a large amount of significance. Trust is key. By offering a money back guarantee, you are signaling to the customer that you believe in your product. And it may give the customer that extra push that’s needed to make the sale. Increase conversion rate – People may browse the MotherNature.com site, but then not purchase anything. Why not? Perhaps, by including trust seals on the website, you will motivate more customers to try your products. Make recommendations – Try to increase the relationship between you and the online customer. If a customer is browsing the website, you could include a question box, where customers can input the type of problem they’re experiencing or the type of product that they’re looking for. Then by offering personal advice, you can build a relationship with the customer and increase conversion rates.

® Tony Gauvin, UMFK, 2007 Big problems The main problems that MotherNature.com faces are: –It is selling a trust based product. Selling a trust based product requires building a relationship which is difficult online. Selling such a product through traditional channels can inspire more confidence in a customer because the customer can interact with salespeople, ask questions etc. Selling vitamins and health products online is much more impersonal and could be perceived as risky by customers. –MotherNature.com needs to build a strong brand. But building a brand requires lots of dollars.

® Tony Gauvin, UMFK, 2007 End result MotherNature.com converted to B2B, but was unsuccessful. Value of the firm was less than the cash balance remaining of $20 million. In May 2000, MotherNature.com returned the residual cash balance to stockholders. As of 2003, Mother Nature operates as a separate site and is reputably profitable (with no advertising and only word of mouth and some direct mail promotion). The current company bought the software rights for a “very small price” after Mother Nature closed up shop and disposed of its assets.

® Tony Gauvin, UMFK, 2007 Questions  In the battle of Green($) vs. Green (environmentally friendly), how can MotherNature.com strike a balance that will maintain its image as a trusted brand while actively seeking customers and strategic partners to help it grow? What must the company NOT do? In this context, what kinds of marketing programs would help MotherNature.com beat its competitors? What innovative strategies (promotions, alliances, web site modifications, segmentation, product expansion) could the company develop that would help it make a profit while not breaking the marketing budget?

® Tony Gauvin, UMFK, 2007 Questions  Imagine that you are a member of MotherNature.com’s Board of Directors at the board meeting on April 7, You understand the challenges facing the company and must now evaluate the options. Your money and the fate of the company are on the line. What options will you support?

Understand Customer Needs and Behavior Chapter 3

Two parts Understand the customer decision process –Pricing –Distribution –Service –Advertising Understand consumer needs –Design new products and services

Decision making model Process by which the customer reaches a purchase decision –Information processing model Input  decide  output –How do consumers Obtain information? Interpret and consolidate information to reach a decision? Learn from the experience? Influence others?

Information Processing Model Input Make consumer aware and get their attention Create desire to purchase and reduce search costs Decision Making Process Input both from short and long-term memory Use heuristics to eliminate (or include) choices Choose (or not) from remaining choices Output Consumers gain more information from usage update memory change heuristics Vendor should capture post purchase experience

Customer Decision Flow Chart What starts process?Sources of Input? Role of past experience?Ads/catalogs/ ? Friends make input? Sources of Information: friends/media/web/store? Active search? How much time? Where to shop? What to learn? Compare products? Role of price/quality evaluation? Need to touch and feel? Impact of brand and trust? How do buyers gain confidence? Special Offers? Security/privacy assurance needed? Guarantees/refund policies? Push to action? Word of mouth to friends/community?Lifetime service? Relationship contract?Delivers promised value

Multi-person industrial buying Specifying –Define need –specify attributes and performance requirements Gatekeeping –Qualify suppliers Budgeting –Allocate funds Generating Alternatives –Identify solutions, products and qualified bidders Evaluating –Consider proposals and bids bases on specifications Selecting –Pick best Approving –Ok to buy

How to identify consumer needs (market research) 1.Talk to your customers –Focus groups, surveys –Works better with industrial clients 2.Concept tests –Consumer evaluate prototypes 3.Lead Users –Customers that know their needs and have already created solutions Avon skin-so-soft 4.Idea generation techniques –See next slide 5.Formal marketing research –Conjoint analysis –Listening–in (chapter 9)

Idea generation flow