1. Marketing Strategy & Implementation in Internet Marketing

2. What is Internet Marketing? The previous definition can be divided into five components: 1. A Process; 2. Building and Maintaining Customer Relationships; 3. Online; 4. Exchange; and 5. Satisfaction of Goals of Both Parties.

3. 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

4. Stage One: Setting Corporate and Business-Unit Strategy  Corporate strategy addresses the interrelationship between the various business units in a firm, including decisions about which units should be kept, sold, or augmented.  Business-unit strategy focuses on how a particular unit in the company attacks a market to gain competitive advantage.

5. Stage Two: Framing the Market Opportunity  Analysis of market opportunities  Initial first pass of the business concept  Go/no-go decisions about whether to add a new business unit or develop a new product line within existing business unit.  Six-step methodology to evaluate attractiveness of opportunity

6. Stage Two: Framing the Market Opportunity  Six-step methodology to evaluate attractiveness of opportunity: 1. Seeding the opportunity 2. Specifying unmet or undeserved customer needs 3. Identifying target segment 4. Declaring the company’s resource-based opportunity for advantage 5. Assessing opportunity attractiveness 6. Making final go/no-go decision.

7. Stage Three: Formulating the Market Strategy  The marketing strategy goals, resources, and sequencing of actions must be tightly aligned with the business-unit strategy.

8. What is Marketing Strategy?  Marketing strategy has three components: 1. Segmentation, or identifying relevant market segments with specific needs 2. Targeting, or choosing an attractive segment consistent with a firm’s resources and goals; and 3. Positioning, or strategically communicating the product’s benefits to the target segment.

9. 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.

10. 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.

11. 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

12. Internet Marketing Strategy: Pure Play Firms  Positioning  Features/ services  Benefits  Specific usage occasions  User category  Against another product  Product-class  Hybrid  Positioning Plan 1. Identify actual product positioning. 2. Determine ideal product positioning. 3. Develop alternative strategies for achieving ideal. 4. Select and implement the most promising alternative. 5. Compare new actual position with ideal.

13. 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

14. Internet Marketing Strategy: Brick-and-Mortar Firms  Positioning for BAMs moving online  Blanket positioning  Beachhead positioning  Bleed-over positioning  “Be different” positioning

15. Marketing Strategy in the New Economy Firm  The Internet has and will continue to affect marketing strategy in four broad ways: 1. Finer gradations of segmentation 2. Faster cycle time of marketing strategy decisions 3. Increased accountability of marketing efforts 4. Increased integration of marketing strategy with business strategy and operations

16. 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).

17. Stage Five: Designing the Marketing Program  Entails designing a particular combination of marketing actions (termed levers) to move target customers from awareness to commitment.  Framework used is the Marketspace Matrix.

18. Stage Five: Designing the Marketing Program To understand the Marketspace Matrix, the four stages of the customer relationship and the six associated classes of levers that can be employed must be defined first.  Four Stages of Customer Relationship: 1. Awareness 2. Exploration 3. Commitment 4. Dissolution

19. Stage Five: Designing the Marketing Program  Six Classes of Variables in the Internet Marketing Mix: 1. Product 2. Pricing 3. Communication 4. Community 5. Distribution 6. Branding

20. Stage Five: Designing the Marketing Program Two more important concepts, Individualization (customization) and Interactivity, need to be explored to fully understand the profound implications the Internet brings to business. 1. Individualization  The Internet enables the firm to engage in customer- specific actions – a broadcast to an audience of one.  Equally important, the customer can control the degree of customization by taking action to set the level of customization desired.

21. Stage Five: Designing the Marketing Program 2. Interactivity  Defined as the extent to which a two-way communication flow occurs between the firm and customers.  The Internet enables a level of customer dialogue that has not previously been experienced in the history of business.  Products and services can be designed in real time by the customer, maximizing both interactivity and customization.

22. Stage Five: Designing the Marketing Program The Marketspace Matrix  The Marketspace Matrix is a framework illustrating the levers that the Internet marketer may choose to use at each stage of the customer relationship.

23. The Internet’s 2is  The 2is allow firms to choose levers that can move customers through the relationship phases faster and more effectively than ever possible.  The 2is affect each category of levers differently, but the end results remain consistent across all levers.  Product, Pricing, Communications, Community and Distribution.

24. The Marketplace Matrix

25. Two Integral Components of Implementation Objectives Deliver the promised customer experience Turn strategic intent / concepts into results Objectives Maintain fit between Marketspace evolution and the company’s delivery system and product offering Build the infrastructure to deliver on the brand promise Innovate / Renew the customer experience Source: Monitor Analysis

26. Source: Modified version of materials in The Marketing Edge by Thomas V. Bonoma. 1985. New York: The Free Press. Why Does Implementation Matter? Success All that can be done to assure success has been done Success All that can be done to assure success has been done Roulette Good execution can mitigate poor strategy, forcing management to success or Same good execution can hasten failure Roulette Good execution can mitigate poor strategy, forcing management to success or Same good execution can hasten failure Trouble Poor execution hampers good strategy - Management may never become aware of strategic soundness because of execution inadequacies Trouble Poor execution hampers good strategy - Management may never become aware of strategic soundness because of execution inadequacies Failure Difficult to diagnose - bad strategy masked by poor execution More difficult to fix - two things are wrong Failure Difficult to diagnose - bad strategy masked by poor execution More difficult to fix - two things are wrong Poor Good Appropriate Inappropriate Strategy Implementation

27. Guidelines for the Marketspace Matrix  No single best strategy  Best strategies provide superior customer support  Levers should emphasize the functional, symbolic and experiential aspects of consumption experience.

28. Principles for Marketspace Matrix Design  Which lever should be used?  Choose Levers to Effect a Change  Determine Which Levers Have the Most Leverage  Consider Barriers to Advancement  Consider the Medium’s Effect on Desired Behavior  Level of Involvement Matters  Understand Consumer Learning Trends  Credibility of the Channel Matters  The Choice of Levers Must be Consistent with Positioning Choice  The Medium can be the Message – or the Product  Matrix Design Must be Adaptive

29. How should Marketing Resources be Allocated on a lever-by-Lever Basis?  How should Marketing Resources be Allocated on a lever-by-Lever Basis?  Consider Correlation of Effect  How do the Levers Interact?  Beware of Segment Alienation  Selected Levers Must be Integrated  How should the Levers be Sequenced?  There is no one silver bullet  Sequencing of Levers matters.

30. Basic Product Development Levers Basic Product  Packaging  Attributes and Features  Customer-Specified Attributes and Features  Mass-Customized Product

31. Augmented Product Development Levers  Customer Service Programs  Postsales support, customer care, & customer relationship management.  Loyalty Programs and Privileges  Availability of Complementary Products  Upgrades  Enabling Community  Additional Functionality  Fulfillment Capabilities

32. How Products Enable Customer Relationships  Two primary techniques: 1. Deploying the product development levers that are appropriate for the existing relationship and 2. Emphasizing the elements of the value proposition that are most relevant at a given stage of the relationship.

33. How Product Enable Customer Relationships Relationship StageLever(s) AWARENESS  Packaging EXPLORATION/ EXPANSION  Packaging  Product Attributes & Features  Fulfillment Capabilities  Customer Experience  Availability of complementary products  Customer-specified attributes and features  Mass Customization  Advanced Internet Functionality COMMITMENT  Upgrades  Customer-specified attributes and features  Mass Customization  Postsales Support  Loyalty Programs  Customer Experience  Enabling Community  Customer Relationship Management DISSOLUTION  Customer Care

34. Basic Pricing Strategies  Cost Plus  Target Profit Growth  Target-Return Pricing  Prestige Pricing  Price as a Sign of Quality  Cyclical Promotional Pricing (Hi-Lo)  Everyday Low Pricing  Fairness in Pricing  Promotional Low-Cost Pricing

35. Dynamic Pricing Strategies  Dynamic Pricing is one of the most significant contributions the Internet and the 2Is have made to pricing strategy.  The Internet has enhanced dynamic pricing in two ways:  Decreased Menu Costs  Interactivity

36. Auction Types  English Auctions  Reverse-Price English Auction  Dutch Auctions  First Price Sealed-Bid Auctions  Reverse First Price Sealed-Bid Auctions  Group Buying  Exchanges

37. Implementation Across the Four Relationship Stages Relationship StagePricing Levers AWARENESS  Promotions  Bundling  Frenzy Pricing  Prestige Pricing  Price as a Sign of Quality  Hi-Lo Pricing  Dynamic Pricing  Everyday Low Pricing EXPLORATION/ EXPANSION  Promotions  Justify Prices  Loyalty Programs COMMITMENT  Promotions  Tiered Loyalty Programs  Wide Variety of Pricing Programs  Affiliates  Profit-Enhancing Opportunities DISSOLUTION  Discontinue Pricing Promotions  Reconfigure Loyalty Programs  Adversely Affect Profit Programs

38. How the Internet Affects Communications  Competition and Expectations  Transformation of Communication  The 2Is  Interactive  Individual

39. Importance of Integrated Communication  Goal of marketing and communication is to convey relevant messages to the right consumers at the right time.  Synergy between messages is integrated communications.  Traditional and interactive marketing methods are converging.

40. Communication Types – Marketing Levers  Marketing communications, which includes all the points of contact that a firm has with its customers, can be grouped into four categories: 1. Mass offline 2. Personal offline 3. Mass online 4. Personal online

41. Communication Types – The Marketing Levers Mass-Offline Marketing Levers:  Broadcast Media: television, radio, outdoor & public relations  Print Media: newspapers, magazines, yellow pages, brochures, newsletters  Point-of-Purchase Displays

42. Communication Types – The Marketing Levers Personal Offline Marketing Levers:  Telemarketing  Direct Mail  Statement Stuffers  Customer Service

43. Communication Types – The Marketing Levers Mass Online:  Basic Online Tools: banners, interstitials, search engines, point-of-purchase displays  Applications of Basic Online Tools: partnerships and affiliate programs, sponsorships, chat rooms, serial marketing

44. Communication Types – The Marketing Levers Personal Online:  Personalized Commercial Websites  E-mail Marketing: viral marketing, loyalty programs, customer service

45. Communication Process 1. Identifying the Target Audience 2. Determining the Communication Objective 3. Developing the Media Plan 4. Creating the Message 5. Executing the Campaign 6. Evaluating the Effectiveness of the Campaign

46. Implementation Across the Four Relationship Stages Relationship Stage Marketing Levers AWARENESS  Online levers: online billboards, search engines, e-mail, viral marketing  Offline levers: television, magazines, radio, yellow pages, billboards/ outdoor EXPLORATION/ EXPANSION  Online levers: online billboards, search engines, e-mail, viral marketing, website, permission marketing, serial marketing  Offline levers: television, radio, newspapers, packaging COMMITMENT  Online levers: targeted email/ permission marketing, personalized pages  Online/ Offline levers: loyalty programs, customer service  Offline levers: telemarketing, direct mail permission marketing with personalized offers DISSOLUTION  Personalized pages  Termination

47. Is the Internet a Distribution Channel?  A distribution channel is the system of organizations involved in the process of making a product or service available for consumption or use.  Marketing channels therefore facilitate the exchange of goods and services between buyers and sellers.

48. How have the 2Is Revolutionized Distribution Channels The Internet:  Is a substitute for other forms of communication.  Has radically changed buyer-seller relationships.  Has changed the customer shopping experience.  Has increased the power of consumers.

49. Objectives of Channel Intermediaries 1. Efficiency: Distribution costs are reduced only if the retailers can perform the required functions more efficiently than the manufacturers could in the direct channel. 2. Effectiveness: the ability of the channel to perform functions that create value for customers.

50. Disintermediation  A strategy that involves the elimination of a channel intermediary.  Internet has become a driving force for disintermediation  Overall result is positive because channel works more closely to create value for customers.

51. Designing Channel Systems: The Distribution Levers  Intermediary Type  Direct  Traditional Retailers  Virtual Shopping Malls  Internet Exchange

52. Process: Designing Distribution Channels 1. Identify and evaluate consumer preferences by segment. 2. Design a customer-based channel system. 3. Modify channel strategy based on firm objectives and constraints. 4. Select channel intermediaries or partners. 5. Develop a channel feedback system.

53. Distribution Levers and the Four Key Stages of Customer Relationships  Awareness  Number of Intermediaries  Number of Channels/ Intermediary Type  Exploration/ Expansion  Degree of Channel Integration  Number of Channels/ Intermediary Type  Commitment  Degree of Channel Integration  Intermediary Type  Number of Channels  Intermediary Functions and Responsibilities  Dissolution  Elimination of Channel Types  Reduction in the Number of Intermediaries  Reduction in Channel Integration

54. eBay’s Application of the Marketspace Matrix

55. eBay’s Application of the Marketspace Matrix (1995-98)  eBay provides a logical first example of Marketspace Matrix in action.  Since the product – an online auction service – was completely new, its brand had little value.  Thus branding levers were inapplicable at the start.  Yet, eBay, even in its nascent phases, developed levers in nearly every category.

56. eBay’s Application of the Marketspace Matrix (1995-98)  Awareness Novelty of internet based, dynamic, auction-based pricing system Benefits to both buyers and sellers Low cost Viral marketing and word-of-mouth Strong presence at trade shows  Exploration/ Expansion Focus in one key area: website itself Easy-to-use search engine and easy-to-explore community converted visitors to customers. With more converted customers, eBay fostered exploration and expansion by the community equity that arose.  Commitment Relied primarily upon the enabling community product lever to advance users into the commitment phase.

57. eBay’s Application of the Marketspace Matrix (1998-99)  Once eBay had advanced a significant number of users into the exploration/ expansion phase, the firm needed to focus on sustaining commitment.  As the firm’s needs changed, so did its Marketspace Matrix.

58. eBay’s Application of the Marketspace Matrix (1998-99) Awareness Began first major advertising campaign in late 1998. Radio and print campaign with “You might just find it on eBay” slogan Strategic alliances with AOL.com and the now defunct Go.com Sponsored auction of famous memorabilia for free media exposure  Exploration/ Expansion Added new attributes and features Offered complementary services Improved existing services Enhanced community offerings Forums where veteran eBay users will answer questions of new users

59. eBay’s Application of the Marketspace Matrix (1998-99)  Commitment Community enabling remains a constant product lever to advance user to and sustain commitment. Loyalty program where seller can earn “Power Seller” status.  Dissolution Needed to dissolve relationships with customers who damaged the community. These were sellers who accepted bids and money and then never delivered the goods as well as buyers who bid and never paid. Relied on community and feedback forum to dissuade users from dealing with these miscreants.

60. eBay’s Application of the Marketspace Matrix (2000-present)  Having nearly perfected its community and ability to retain customers, eBay requires new buyers and sellers to continue its history of growth.  Pursued international strategy through building international sites and acquiring competitors.  To increase core business in the US, eBay has stepped up efforts to win new users.  Television campaign in late 2000.  Promote ancillary services including a bill-paying service called Billpoint which competes with PayPal, which allows anyone with an email to receive a payment.

61. eBay’s Application of the Marketspace Matrix (2000-present)  Awareness Offering price promotions to sellers to encourage them to list items for the first time – for free, provided they sign up for and accept Billpoint. Television ad campaign.  Exploration/ Expansion Expansion of product categories to include real estate and cars. Added “buy it now” option. Augment offerings, e.g. deal to provide discounted UPS shipping to all eBay users through Mail Boxes Etc.