1. Chapter 15 New (and Old) Marketing Channels:
Electronic Marketing Channels and
Direct Selling

2. Major Topics for Ch. 15 What is EMC? Trends in EMC Structure of EMC*
Advantages and Disadvantages of EMC*
Implications of EMC
6. Direct Selling

3. Electronic Marketing Channels
Topic 1:
Electronic Marketing Channels
Computers
Technology
Internet
Impact on
Design & Management of Marketing Channels

4. Electronic Marketing Channels
Topic 2
Electronic Marketing Channels
Not physical availability
Internet, Web-TV, Cell Phone
The use of online media to make products & services
available so that the target market with access to
enabling technologies can shop
& complete the transaction via
interactive electronic means
Actually purchasing products through the use
of PCs, Web-TV, Cell Phones

5. Developments & Trends in EMC
• Online shopping to $134 billion from
mid-1990s to the end of 2009*
• Online shopping has become a routine
shopping choice*
• PCs, peripherals, software, & books
accounted for a significant
portion of total retail spending on
these products
Electronic
Marketing
Channels
* U.S. Department of Commerce

6. Channel Migration* Holiday Shopping across Different Channels 2003
Spending
Distribution
2005
2002
Stores
68%
72% % %
Catalogs 5%
6% % %
Online
27%
22% % %
2004
2003
Source: A.C. Nielsen’s Holiday E-spending Report
* What do you do if you are a physical store-based retailer?

7. Future of Online Shopping
Online Sales as a Percentage of Total Retail Sales
Year
Online as % of
Retail Sales
% Change from Previous Year
2002
1.3
19.7
2010
8.0
0.0
2011
9.0
12.5
2012
10.0
11.1
2013

8. Electronic Channels on Social Network Sites
By 2009, almost ½ of Americans had a Facebook or MySpace account
Among American, age 18-33, almost ¾ were registered with Facebook or MySpace
Businesses are now rapidly engaging in F-commerce (Facebook Commerce)

9. Structure of Electronic Marketing Channels*
Topic 3
Structure of Electronic Marketing Channels*
1. Reintermediation versus disintermediation
Information flow versus
product flow
Virtual channel structure versus
physical channel structure
Three
Key
Phenomena

10. 1. Disintermediation and Reintermediation
Shifting, changing, or adding
middlemen to the channel
Intermediaries become
superfluous because producers gain exposure to vast numbers of customers in cyberspace
Amazon.com
Auto-By-Tel Corp.
Peapod, Inc.
Dell
Computer Corp.

11. Disintermediation versus Reintermediation*
No matter how technologically sophisticated the Internet becomes, the laws of economics as they relate to channel structure do not change.
Efficiency in the performance of distribution tasks is what ultimately determines what form channel structure will take. =
The Internet has not eliminated middlemen,
or caused total disintermediation.

12. 2. Marketing Channel Flows
Product Flow
Negotiation Flow
Ownership Flow
Information Flow*
Ex) Pharmaceutical
Promotion Flow

13. Marketing Channels for Pharmaceuticals
Physical Distribution Flow
Information Flow
Insurer/
HMO
Manufacturer
Manufacturer
Distributor
PBM*
Doctor
Pharmacy
Pharmacy
DTC
patient
patient
* Pharmacy Benefit Manager (

14. Internet Limits as a Stand-alone Channel
Five Channel Flows
Some can not be
handled by internet
Ex) Physical Product Flow in Channel
Cannot be digitized
• Processed slowly, often by people
• Is basis for all other flows—negotiation,
ownership, information, & promotion

15. 3. Virtual (Online) Channel Structure Versus Conventional (Store) Channel Structure
Different Market Segments
• Different Product or Services
• Complements rather than Replaces Each Other*

16. Advantages & Disadvantages of EMC*
Topic 4
Advantages & Disadvantages of EMC*
Advantages of
Electronic
Marketing Channels
Global scope & reach
Convenience/rapid transaction processing
Information processing efficiency & flexibility
Data-based management & relationship capabilities
Lower sales & distribution costs

17. Advantages & Disadvantages of EMC*
Electronic
Marketing Channels
Lack of contact with actual products & delayed
possession
2. Fulfillment logistics not at Internet speed or efficiency*
Clutter, confusion, & cumbersomeness of Internet
Nonpurchase motives for shopping not addressed*
Security concerns of customers

18. Objectives & strategies of the firm & EMC*
Implications of EMC
Topic 5
Objectives & strategies of the firm & EMC*
• Role of EMC in the marketing mix
• Channel design & EMC*
• Channel management & EMC*
• Evaluation & EMC

19. Objectives & Strategies of the Firm*
Role of distribution becomes more complex because of electronic marketing channels =
How to Integrate Online with Offline channels
* Offline only  Online only  Offline + Online (multichannel)
Ex) My research project

20. Impact on The Marketing Mix
The Internet arms large numbers of customers with more information about products & services
to level the playing field
The fourth P, place (distribution), may assume a
larger role relative to the other three variables for
more & more firms

21. Channel Design*
The channel manager should provide “channel-surfing” consumers with whatever channels or combinations of channels they desire =
a) A facet of the development of an
effective multichannel marketing strategy
b) Unbundle Channel Functions
* A special topic: PIC (Partially Integrated Channel)

22. DUAL DISTRIBUTION WITH EMC : CHANNEL STRUCTURE OPTIONS
(a)    Manufacturer has own online presence
(e.g., Tupperware)
(dotted line indicates common ownership)
Manufacturer
(Tupperware)
Owned Internet Sales Channel
(tupperware.com)
Standard Channel
(independent direct salespeople)
Consumers

23. DUAL DISTRIBUTION WITH EMC: CHANNEL STRUCTURE OPTIONS
(b) Manufacturer sells through third-party
online reseller
(e.g, Callaway Golf selling through buy.com)
Manufacturer
(Callaway Golf)
Standard Channel
(pro shops, bricks & mortar sports/golf outlets)
Independent Internet Sales Channel
(buy.com)
Consumers

24. DUAL DISTRIBUTION WITH ONLINE SELLING: CHANNEL STRUCTURE OPTIONS
(c) Manufacturer sells through some standard channels that do operate their own online store, and some that do not
Manufacturer
(Simon & Schuster, Publisher)
Standard Channel
(bricks & mortar bookstores)
Barnes & Noble
Barnes & Noble bricks & mortar bookstores
Barnes & Noble Internet Sales Channel
(bn.com)
Consumers

25. = Channel Management* Multichannel challenge of conventional and
electronic channels =
The fundamental issues of motivating channel members, building cooperation, managing conflict, & coordinating elements of the marketing mix requires manager’s full attention
Key Issue: Managing Conflict between Marketing Channels

26. Evaluation of Performance
Likely to change Unlikely to change
Specific criteria for Performance expectations,
performing evaluations & criteria, & measurement of
technological means for how well they are being met
doing so by channel members
Ex) Store Traffic Measure

27. What drives sales impact of online channel addition?
Steve Kim (ISU) and Sam Min (CSULB)
Question: For store-based retailers, does adding
online channel lead to more sales?

28. Likely Drivers Channel Disruption (Potential for Displacement)*
Timing: Chronological Time and Order of addition
Incumbent Retailer Resource: Scale of Physical store-based business
Incumbent Retailer Resource: Retailer’s Brand Equity

29. Analysis Results 15
Channel Disruption (Potential for Displacement): Search good > Experience good
Timing: Chronological Time (0) and Order of channel addition (+)
Incumbent Resource: Scale of Physical store business:(-)*
Incumbent Resource: Retailer Brand Equity: (+)
How to overcome the conflicting assets?

30. Direct Selling Definition: the sale of a consumer product or service
Topic 6
Definition: the sale of a consumer product or service
person-to-person, away from a fixed retail location
Three key points:
• Goes directly to consumers’ homes, offices, or other locations
• Concerned with the sale of consumer products in consumer markets rather than industrial products
• Involves salespeople meeting fact-to-face with customers

31. Structure & Trends in Direct Selling
- Markets Served
- Types of Products Sold
- Firms Involved in Direct Selling
- Problems & Prospects for Direct Selling

32. Markets Served Location of Direct Selling Channel Sales Location
Percent of Sales
Home
64.4
Telephone
14.7
Workplace
8.7
Internet
5.5
Temporary locations
4.1
Other
2.6

33. Types of Products Sold
Major Product Categories Sold through Direct Selling
Channels as a Percentage of Total Sales
Product Category
Percent of Total Sales
Personal Care Products
26.4
Home/Family Care
Products
33.7
Leisure/Educational
6.5
Services/Miscellaneous/
Other
33.4

34. Firms Involved in Direct Selling
• Hundreds exist
• Range in size from those with annual sales over $1 billion to those with sales well under $1 million
Facts
• Tupperware Corp.*
• Avon Products, Inc.*
• Cutco Cutlery Corp.
• Amway Corporation
Examples

35. Rationale for Designing Direct Selling Channels
A method of distribution for providing
products & services to customers
But:
The decision should be based on an objective analysis of the advantages or
disadvantages of each channel alternative.

36. Variables To Consider for Direct Selling*
1) Market variables & DS channel*
Product variables & DS channel*
3) Company variables & DS channel
4) Intermediary variables & DS channel
Behavioral variables & DS channel
Ex) Mary Kay in China

37. 1) Market Variables Developments in consumer attitudes & behaviors
that could make direct selling more attractive: 3.
Consumers are seeking
increased convenience
in shopping. 1.
Consumers have less
time available for shopping
in traditional stores. 2.
Consumers are becoming more sophisticated
and demand more & better product information.

38. 2) Product Variables
Products that are high quality, that are unique, or
that require specialized information & advice are logical
choices for direct selling:
Product quality may become
apparent only when consumers
are informed about them
in conjunction with hands-on
demonstrations.
Consumer satisfaction may
depend on whether the
consumer has proper
information.
Product uniqueness may become apparent only through
the direct help of salespeople.

39. policies of the company
3) Company Variables
Basic variables to consider: 4.
Basic objectives &
policies of the company 1.
Size of the
company
Basic objectives: degree of control 2.
Financial capacity
of the company 3.
Managerial expertise
in distribution*

40. 4) Intermediary Variables
Basic intermediary variables to consider: 3.
Services that
alternatives are
capable of or
willing to provide 1.
Availability of
alternatives 2.
Cost of
using channel
alternatives

41. 5) Behavioral Variables
The “people” side of the marketing channel:
Communications
processes
Conflict
Power
Role

42. Problems & Prospects for Direct Selling*
Topic 4
Lack an awareness of DS as an alternative.
Negative impression on DS in general.*
Lower availability of consumers for at-home
sales calls and parties.*
The perceived risk by consumers is
high compared to other modes of shopping.
5. Recruitment of salespeople has become difficult.*