1. E-Marketing/6E Chapter 11
The Internet for Distribution

2. Chapter 11 Objectives After reading Chapter 11, you will be able to:
Describe the three major functions of a distribution channel.
Explain how the internet is affecting distribution channel length.
Discuss trends in supply chain management and power relationships among channel players.
Outline the major models used by online channel members.
Distinguish among e-commerce, m-commerce, social commerce, and F-commerce.
Highlight how companies can use distribution channel metrics.
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3. The Zappos Story Zappos is the world’s largest online shoe store.
Sales over $1 billion in 2009.
Part of amazon.com since November 2009.
Operates as a wholly owned subsidiary in Henderson, NV.
Success factors include a culture of outstanding customer service.
Other success factors: great search engine marketing, strong word of mouth, astute competitiveness, and repeat customers.
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4. Distribution Channel Overview
A distribution channel is a group of interdependent firms that transfer product and information from the supplier to the consumer.
Producers
Manufacturers & their Suppliers
Originators of the product or service
Intermediaries
A firm that matches buyers and sellers
May be independent or represent the parties involved
Buyers
The end user
Those that consume the product or service
Describe the three major functions of a distribution channel
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5. Distribution Channel Overview, Cont.
The structure of the channel can make or impede opportunities for marketing on the Internet.
Four major elements combine to form a firm’s channel structure
Types of channel intermediaries
Length of the channel
Functions performed by members of the channel
Physical and informational systems
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6. Online Channel Intermediaries
Wholesalers
buy products from the manufacturer and resell them to retailers.
Could be online or offline
Retailers
buy products from manufacturers or wholesalers and sell them to consumers.
Brokers
facilitate transactions between buyers and sellers.
Do not represent either party
Do not take title to the goods
Charge a transaction fee for their service
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7. Online Channel Intermediaries, Cont.
Agents
Facilitate transactions between buyers and sellers
may represent either the buyer or seller.
Manufacturer’s agents represent the seller.
Purchasing agents represent the buyer.
Do not take title to the goods
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8. E-Business Models
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9. Content Sponsorship
In this model firms create websites to attract lots of traffic and sell advertising on the website.
All the major portals, Google, Yahoo!, and MSN utilize this model.
Online magazines, newspapers… etc. use the content sponsorship model (Pandora Radio, Google).
Content sponsorship is often used in combination with other models to generate multiple revenue streams (Buy.com).
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10. Infomediary
An infomediary is an online organization that aggregates and distributes information.
Market research firms and product review sites are examples of infomediaries.
Google’s DoubleClick uses cookies to track users as they surf the Web
ePinions.com accumulate ratings and written reviews.
The original idea was to give consumers more control over how they receive marketing messages.
The benefit to:
Infomediary: the consumer information increases the value of its ad inventory
Advertisers: they can market to a highly targeted audience
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11. Intermediary Models Agent models for sellers and buyers.
Three intermediary models are in common use on the Internet:
Brokerage models
Online Exchange
Online Auction
Agent models for sellers and buyers.
Online retailing
Outline the major models used by online channel members.
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12. Intermediary Models, Cont. a. Brokerage models
The broker creates a market in which buyers and sellers negotiate and complete transactions.
Buyer convenience, speed of order execution, and transaction processing are buyer benefits.
Seller benefits are a creation of a pool of buyers
Cost saving benefits
Buyers: low prices, decreased search time and savings of energy and frustration
Sellers: lowered customer acquisition costs and transactions costs
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13. Intermediary Models, Cont. a. Brokerage models
Online Exchange: E*Trade, Schwab and Ameritrade allow customers to place trades online without a broker.
Autobytel.com is a vehicle exchange and alibaba.com is a global marketplace.
The B2B market has also produced brokerages.
Converge is the leading exchange for global electronics.
Guru.com is an exchange for professional talent.
Online Auction: Auctions are available in the B2B (uBid), B2C (Priceline), and C2C (ebay) markets.
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14. Intermediary Models, Cont. B. Agent models
Agents do represent either the buyer or the seller, depending on who pays the fee.
Agent models representing sellers include:
Selling agents such as affiliate programs (Amazon.com)
Represent a single firm, helps them sell products
Manufacturer’s agents, e.g. travel agents (Expedia)
Represent more than one seller,
In B2B called catalog aggregators (Arriba, collegesources.org)
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15. Intermediary Models, Cont. B. Agent models
Two other intermediaries that act like agents but confront easy categorization
Metamediaries Edmunds.com and TheKnot.com.
Represent a cluster of manufacturers, online retailers, and content providers e.g. car-buying market websites.
Solve problems of:
reducing search times,
providing quality assurance,
facilitating transactions for a group of related purchases,
providing relevant content and unbiased information.
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16. Intermediary Models, Cont. B. Agent models
Virtual malls: (Yahoo! Shopping, Amazon)
Host multiple online merchants, similar to an offline shopping mall, virtual malls provide multiple customer benefits:
Branding: shopping from store listed on Yahoo may be more comfortable for customers than buying from one is not.
Availability of electronic money
Availability of frequent shoppers programs (rewards)
Availability of gift registry
Availability of search facility
Recommendation services (suggestions for special event gifts)
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17. Affiliate Programs
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18. Intermediary Models, Cont. B. Agent models
Agent models representing buyers include:
Shopping agents (BizRate, PriceScan, and CNET Shopper)
Shopping agents measure value, not just price
These are called second generation shopping agents
Reverse auction (Priceline, eBay)
The buyer specifies a price and the sellers bid for the buyer’s business
Priceline was the first major player in reverse auctions.
Buyer cooperative (buyer aggregator) (Groupon and LivingSocial)
Pool many buyers together to drive down prices on the selected items
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19. Shopping Agent: CNET Shopper
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20. Intermediary Models, Cont. C. Online Retailing: E-Commerce
One of the most visible e-business models
In the e-commerce model, merchants (such as Zappos) set up storefronts online and sell to businesses and consumers.
Online companies can sell a wider and deeper assortment of products in smaller quantities than offline stores because they are not bound by space constraints (advantage).
The “long tail” refers to the ability to increase revenue by selling small quantities of large numbers of products profitably online (e.g. Netflix: DVDs).
Multichannel marketing is the use of more than one sales channels such as Web, mobile, brick & mortar, and catalog.
Omni-channel shopping describes the way consumers move seamlessly through many shopping channels
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21. What Do U.S. Consumers Buy Online?
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22. Shopping Cart Abandonment
Shopping cart abandonment is one of online retailing’s biggest problems.
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23. Intermediary Models, Cont. C. Online Retailing: M-Commerce
Mobile commerce occurs when consumers make a transaction with a smartphone or other mobile device.
M-commerce is a subset of e-commerce.
77% of U.S. population has a mobile phone; half are smartphones that enable m-commerce.
M-commerce was projected to reach $11.6 billion in 2012, 5.9% of all e-commerce sales.
A rapidly growing area of e-commerce
Near-field communication (NFC) involves two devices that communicate by touching each other or being very close
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24. Square Card Facilitates M-Commerce
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25. Intermediary Models, Cont. C. Online Retailing: Social Commerce
Social commerce is a piece of e-commerce that uses social media and consumer interactions to facilitate online sales.
Over half of social media users prefer to use Facebook to sign into a Web site followed by Google & Yahoo!. This is called social sign in.
Demonstrates the shift from corporate to user control
18-23% of Pinterest users also visited online retailers.
Product rating, recommendation and review sites allow for the sharing aspect critical to social commerce (ePinions, Tripadvisor & Amazon).
Initiated by customers via online spaces provided by businesses
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26. Intermediary Models, Cont. C. Online Retailing: Social Commerce
F-Commerce (Facebook Commerce)
A subset of social commerce
Companies use Facebook to facilitate e- commerce
Facebook is for communicating not selling, thus its not always work as well as product apps and pages
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27. Intermediary Models, Cont. C. Online Retailing
Tangible products
Tangible products are distributed through conventional channels
Digital products are still sent through traditional channels
Digital products / Content sales
The Internet serves as a medium for distribution of goods and services such as news, music, software, movies, education, etc.
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28. Intermediary Models, Cont. C. Online Retailing
Direct Distribution
Manufacturer sells directly to the consumer or business customer (e.g. Dell).
Has been successful in B2B markets
Also successful in B2C markets
Manufacturer benefits by keeping margins set
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29. Distribution Channel Length and Functions
Channel length refers to the number of intermediaries between the supplier and the consumer.
Direct distribution channels have no intermediaries.
Indirect distribution channels have one or more intermediaries.
It was predicted that the Internet would eliminate intermediaries (a process called disintermediation) but the Internet has actually created new intermediaries, called metamediaries.
Eliminating intermediaries can potentially reduce costs.
Disintermediation describes the process of eliminating traditional intermediaries.
Explain how the Internet is affecting distribution channel length.
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30. Functions of a Distribution Channel
Channel functions can be characterized as follows:
Transactional
Logistical
Facilitating
Market research
Financing
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31. TRANSACTIONAL FUNCTIONS
Transactional Functions include:
Contact with buyers
Marketing communications
Matching products to buyer’s needs.
Negotiating price.
Processing transactions.
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32. TRANSACTIONAL FUNCTIONS, Cont.
Contact with buyers
The Internet provides a new channel for making contact with buyers.
The Internet channel adds value to the contact process in several ways:
Contacts can be customized (Honda)
Provides a wide range of referral sources (search engines, shopping agents & social networks)
Always open for business (7/24)
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33. TRANSACTIONAL FUNCTIONS, Cont.
Marketing communication
Advertising and other product promotions
The Internet channel adds value to the marketing communication function in several ways:
Previously manual labor functions can be automated (airlines)
Communications can be closely monitored and changed every minute
Web analytics software for tracking a user’s behavior can be used
The Internet enhances promotional coordination among intermediaries
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34. TRANSACTIONAL FUNCTIONS, CONT.
Matching products to buyer’s needs.
Shopping agents – allow customers to compare prices and features within a product category
Collaborative filtering agents – can predict consumer preferences based on past purchase behavior
Negotiating price.
Involves offers and counteroffers
Could be in person, over the phone, via
Processing transactions.
Electronic channels lower transaction costs
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35. Logistical Functions Logistical functions include
Physical distribution activities, such as:
Transportation, Inventory storage, and Aggregation of products.
Logistical functions are often outsourced to third-party specialists such as UPS or FedEx.
Radio frequency identification (RFID) tags are used to transmit a signal to scanners.
Most online products are still distributed through conventional channels
Any content that can be digitized can be delivered electronically
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36. Logistical Functions, Cont.
Aggregating Products
Suppliers operate more efficiently when they produce a high volume of narrow range products
Consumers prefer to buy small quantities of a wide range of products
Channels intermediaries aggregate products from multiple suppliers to give consumers more choices in one location.
This type of aggregation is known as a category killer (e.g. Amazon.com)
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37. Logistical Functions, Cont.
Third-party logistics – outsourced logistics
Many companies outsource logistics to a third-party
Third-party logistics providers can manage the company’s supply chain and provide value-added services.
UPS, USPS and FedEx provide third party logistics for many firms
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38. Logistical Functions, Cont. The Last Mile Problem
Delivering small quantities cost more money
25% of deliveries require multiple delivery attempts.
30% of packages are left on doorsteps, with possibilities for theft.
Innovative firms are introducing solutions.
Smart box (FedEx).
Retail aggregator model: delivery at convenience stores or service stations.
E-stops, storefronts exists for customer package pickups.
Order online for offline retail delivery.
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39. Facilitating Functions Market Research
Market research is a major function of the distribution channel
The Internet affects the value of market research in five ways
Some information is free.
Managers and employees can conduct research from their desks.
Internet-based information tends to be timelier. more relevant and current.
Web-based information is in digital form.
Because of the amount of consumer behavior information available, E-marketers can receive detailed reports.
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40. Facilitating Functions, Cont. Financing
Financing is an important facilitating function in both consumer and business transactions
Intermediaries want to make it easy for customers to pay in order to close the sale.
Secure Electronic Transactions (SET) is required for customers to feel comfortable purchasing online
Credit card companies have formed SET as vehicle for:
Legitimizes merchants and consumers.
Protects consumers’ credit card numbers.
U.S. customers have a maximum $50 liability for purchases made with a stolen card.
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41. Distribution System
The distribution channel is actually a system of unified organizations working together to build value as products proceed through the channel to the consumer
There are 3 ways to define the scope of the channel as a system.
Distribution functions that are downstream from the manufacturer to the consumer.
The supply chain, upstream from the manufacturer, working backward to raw materials.
Consider the supply chain, manufacturer, and distribution channel as an integrated system called the value chain or integrated logistics.
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42. New Definition of Supply chain
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43. SUPPLY CHAIN MANAGEMENT
Supply chain management (SCM) refers to the coordination of the flow of material, information, and finance.
The most important flow is that of information because creation of physical product and the financing depend on the information.
Key functions of supply chain management are continuous replenishment and build to order to eliminate inventory.
Supply chain participants use enterprise resource planning (ERP) systems to manage inventory and processes.
Discuss trends in supply chain manage-ment and power relationships among channel players.
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44. Channel Management and Power
Once a channel structure is established, its viability requires a certain measure of coordination, communication, and control to avoid conflict among channel members.
A channel member must emerge to assume leadership in these measures.
Internet has increased the power of buyers by providing access to more information and to more suppliers
Also, Internet has increased the power of suppliers.
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45. Channel Management and Power, Cont.
Electronic data interchange (EDI) is effective in B2B commerce for establishing structural relationships among businesses.
EDI is based on three key variables:
The openness of the system
The transport method (internet or non- internet)
The type of technology used for implementation.
Therefore EDI goal is to create an Internet-based, open system so that suppliers and buyers can integrate their systems.
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46. Distribution Channel Metrics: B2C Market
Besides revenue, B2C metrics may include:
ROI.
Customer satisfaction levels.
Customer acquisition costs.
Conversion rates.
Average order values.
Highlight how companies can use distribution channel metrics.
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47. Distribution Channel Metrics: B2B Market
It is impossible to measure B2B revenue because it happens behind company walls.
B2B metrics may include:
Time from order to delivery.
Order fill levels.
Other activities that reflect functions performed by channel participants.
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48. Top Ten Online Retailers
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