3 Product development. New digital products or services can be developed that can be delivered by the Internet. These are typically information products, for example on-line trade magazine Construction Weekly has diversified to a B2B portal Construction Plus (www.constructionplus.com), which has new revenue streams. This is innovative use of the Internet.
4 Diversification. In this sector, new products are developed which are sold into new markets.
For example, Construction Plusnow has a more international orientation.
Strategy should also exploit your distinctive competitive advantage. Play to your strengths.
Strategy is also is influenced by both the prioritization of objectives (sell, serve, speak, save and sizzle) and, of course, the amount of resources available.
Decision 6. Positioning and differentiation strategies
Companies can position their products relative to competitor offerings according to four main variables: product quality, service quality, price and fulfilment time. As mentioned earlier, Deiseet al. (2000) suggest it is useful to review these as an equation of how they combine to influence customer perceptions of value or brand.
Customer value (brand perception) = Product quality×Service quality
Price×Fulfilment time
Strategies should review the extent to which increases in product and service quality can be matched by decreases in price and fulfilment time.
Chaston (2000) argues that there are four options for strategic focus to position a com- pany in the on-line marketplace. He says that these should build on existing strengths, but can use the on-line facilities to enhance the positioning as follows:
䊉 Product performance excellence. Enhance by providing on-line product customization.
䊉 Price performance excellence. Use the facilities of the Internet to offer favourable pricing to loyal customers or to reduce prices where demand is low (for example, British Midland airlines use auctions to sell underused capacity on flights).
䊉 Transactional excellence. A software and hardware e-tailer can offer transactional excellence through combining pricing information with dynamic availability information on products listing number in stock, number on order and when expected.
䊉 Relationship excellence. For example,
personalization features to enable customers to review sales order history and place repeat orders.
Plant (2000) also identifies four different posi- tional e-strategic directions which he refers to
as technology leadership, service leadership, market leadership and brand leadership. The author acknowledges that these aren’t exclu- sive. It is interesting that this author does not see price differentiation as important, rather on-line he sees brand and service as important to success.
The differential advantage and positioning of on-line services can be clarified and commu- nicated internally and externally by developing an on-line value proposition (OVP) or Internet value proposition (IVP). This is similar to a unique selling proposition, but is developed for e-commerce services. In developing an IVP, managers should identify:
䊉 A clear differentiation of the Internet proposition from competitors based on product features or service quality.
䊉 Target market segment(s) that the proposition will appeal to.
䊉 How the proposition will be communicated to site visitors and in all marketing
communications. Developing a strap line can help this.
䊉 How the proposition is delivered across different parts of the buying process.
䊉 How the proposition will be delivered and supported by resources. Is the proposition genuine? Will resources be internal or external?
Ideally, the e-commerce site should have an additional value proposition to further differ- entiate the company’s products or services.
Having a clear on-line value proposition has several benefits:
䊉 It helps distinguish an e-commerce site from its competitors (this should be a website design objective).
䊉 It helps provide a focus to marketing efforts and company staff are clear about the purpose of the site.
䊉 If the proposition is clear it can be used for PR and word of mouth recommendations may be made about the company. For example, the
clear proposition of Amazon has used is that prices are discounted and that a wide range of titles are available.
䊉 It can be linked to the normal product propositions of a company or its product.
Tactics
Tactics are the details of strategy. E-marketing tactics define the different e-marketing tools to be used and their sequence or stages. The main tools used to implement the e-marketing tactics are:
1 The website and integrated database.
2 Customer relationship management tools, principally the integrated database.
3 Opt-in e-mail, again linked to the CRM database.
4 On-line communication tools such as banner advertising, sponsorship, links and PR.
5 Traditional off-line communication tools such as advertising and PR.
One approach to defining e-marketing tactics, which we will use here, is to re-examine the options that e-marketing provides through these tools for varying the marketing mix. We will focus on the ‘4Ps’ of product, price, place and promotion, defined around the start of the 1960s by Canadian Jerome McCarthy (1960), together with the extended mix of the Amer- ican academics, Booms and Bitner (1981). They considered the extra Ps crucial in the delivery of services – people, processes and physical evidence.
Some feel that for interactive marketing the 5Is (Peppers and Rogers, 1997) should replace the 7Ps in the information age. The 5Is do not supplant the 7Ps, but rather are complementary to them, since the 5Is define the process needed, whereas the 7Ps are the variables which the marketer controls.
These are:
䊉 Identification– customer specifics.
䊉 Individualization– tailored for lifetime purchases.
䊉 Interaction– dialogue to learn about customers’
needs.
䊉 Integration– of knowledge of customers into all parts of the company.
䊉 Integrity– develop trust through non-intrusion, as in permission marketing.
Although the mix provides a useful framework for marketers, other factors also need to be considered. Decisions on the mix are not made until marketing strategy first determines target markets and required brand positionings. New marketers also need to know how to manage alliances or partnerships and build customer relationships to build lifetime value through using customer knowledge stored in databases.
We will now review the implications of the new media for the different elements of the market- ing mix.
Product
The on-line world offers a host of new opportun- ities and prompts these product-related questions:
䊉 What benefits do you deliver to your customers?
䊉 Can they be delivered on-line?
䊉 What other benefits might your customers like?
䊉 Can these benefits be delivered on-line?
䊉 What is your business? Can it be delivered on-line?
Ghosh (1998) suggested companies should con- sider how to modify product and add digital value to customers. These are huge questions that can reshape your whole business. He urged companies to ask:
䊉 Can I afford additional information on or transaction services to my existing customer base?
䊉 Can I address the needs of new customer segments by repackaging my current information assets or by creating new business propositions using the Internet?
䊉 Can I use my ability to attract customers to generate new sources of revenue such as advertising or sales of complementary products?
䊉 Will my current business be significantly harmed by other companies providing some of the value I currently offer?
He suggests you need to analyse each feature of your product or service and ask how each of these features can be improved or adapted on- line. Developing these on-line services should be customer-led by asking what information the ideal target customers seek. How can a company excel at giving them this on-line?
Communities of customers can be tapped into to help answer this question. This is the idea of the ‘prosumer’ – the proactive consumer. The prosumer concept was introduced in 1980 by futurist Alvin Toffler in his book The Third Wave. According to Toffler, the future would once again combine production with consump- tion. In The Third Wave, Toffler saw a world where interconnected users would collabor- atively ‘create’ products. Note that he foresaw this over 10 years before the web was invented!
These changes to products can be sub- stantial – one such example is Hughes Chris- tenson, an oil drilling tool company who discovered they could provide a more lucrative on-line oil drilling advisory service.
The different elements of extended product can also be highlighted or delivered on-line.
Often, extended product contributes greatly to quality. Think about these aspects of extended product which can be highlighted or delivered on-line:
䊉 Endorsements.
䊉 Awards.
䊉 Testimonies.
䊉 Customer lists.
䊉 Customer comments.
䊉 Warranties.
䊉 Guarantees.
䊉 Money-back offers.
䊉 Customer service (see ‘People’ and ‘Process’).
Extended product also includes incorporating tools to help users during their use of the product. For example, engineers can be pro- vided with technical diagrams and updates on regulations to assist them with their work.
Price
The changes to pricing and price models introduced by the advent of the Internet have been significant.
New buying models require new pricing approaches, which have forced marketers to radically rethink their pricing strategies. There have been many experiments, some successful, others less so. Examples include customer unions such as LetsBuyit (www.letsbuyit.com) and ‘name your price’ services such as Priceline (www.priceline.com), transparent pricing and global sourcing (particularly by giant procure- ment mergers like Ford and Chrysler).
A growth in competition is caused partly by global suppliers and partly by globalized customers searching via the web to add further pressure on prices. Many on-line companies enjoy lower margins, with more efficient web- enabled databases and processes which cut out the middleman and his margin. These on-line cost savings can be passed to customers to give further downward pressure. Take the car mar- ket: at launch, several new on-line car retailers such as Virgin Cars (www.virgincars.com) and Jamjar (www.jamjar.com) promised 30 per cent savings.
Pricing is also under pressure through the trend towards commoditization. Once buyers can (a) specify exactly what they want and (b) identify suppliers, they can run reverse auctions.
Price transparencyis another factor. As prices are published on the web, buyer comparison of prices is more rapid than ever before. Storing prices digitally in databases also enables shop- ping bots to find the best price. This customer empowerment creates further downward pres- sure on prices.
Prices are complex; options for the price package include:
䊉 Basic price.
䊉 Discounts.
䊉 Add-ons and extra products and services.
䊉 Guarantees and warranties.
䊉 Refund policies.
䊉 Order cancellation terms
䊉 Revoke action buttons.
Ironically, the money-rich and time-poor cus- tomers in B2C markets may be much slower purchasing on-line than buyers in B2B markets, where transaction values are often higher and savings more significant. B2B marketplaces, known as exchanges or hubs, and auctions will grow in significance. An increasing volume of routine and repetitive buying will be carried out in the B2B exchanges that survive the initial competition. Major corporations are already buying through on-line exchanges and auc- tions. Healthcare company GlaxoSmithKline started using on-line reverse auctions in 2000 to drive down the price of its supplies. For example, it bought supplies of a basic solvent for a price 15 per cent lower than the day’s spot price in the commodity market, and Queree (2000) reported that on other purchases of highly specified solvents and chemicals, SmithKline Beecham is regularly beating its own historic pricing by between 7 and 25 per cent. Clearly, such new forms of buying have major implications for suppliers, requiring them to be able to participate in these exchan- ges and review the impact on their margin and cost structure.
A final consideration is the move from fixed prices to rental, and leasing prices. Cars, computers, flight simulators and now even music can be hired or leased.
Place
Place involves the place of purchase, distribu- tion and, in some cases, consumption. Some products exploit all three aspects of place on- line, for example digitizable products such as software, media and entertainment. Esther
Choose Off-line
Choose On-line
Buy Buy
Fulfil Fulfilment (digital)
Dyson has drawn this analogy with the elec- tronic marketspace:
You put Coke machines in places where you think people might want to drink a Coke. On the Internet you put Amazon buttons in places where there might be people inclined to buy books.
But it’s not just digitizable products and ser- vices – all products and services can extend themselves on-line by considering their on-line representation for place of purchase and dis- tribution. Other products, such as cars, are partially sold on-line and eventually bought off-line using mixed-mode buying, where some activities of the buying process are completed off-line and some on-line.
Off-line marketing communications and on-line marketing communications through the website should integrate with different buying modes, as shown in Figure 25.8. Common buying modes include:
䊉 On-line purchase. Some customers want to search, compare and buy on-line. Does your
website accommodate all stages of the buying process? Few products can be delivered on-line, so fulfilment is usually off-line.
䊉 On-line browse and off-line purchase–
mixed-mode buying. This is when customers like to browse, look or research on-line, and eventually purchase off-linein a real store or in a real meeting. Some of these customers might like to browse on-line but purchase via fax or telephone because of security and privacy issues. Does your site have fax forms and telephone numbers for placing orders or taking further enquiries? Does your site integrate with other communications channels?
Some sites also have ‘call-back facilities’, which allow visitors to request a telephone call from a salesperson to complete the purchase.
Another tactic related to place is an organi- zation’s on-line representation. Berryman et al.
(1998) highlighted the importance of place in e-commerce transactions when they identified the three different locations for on-line B2B purchases shown in Figure 25.9. When com-
Figure 25.8 Alternative buying modes
Supplier Intermediary Customer Transactions at intermediary site:
e.g. RFPs, bids and auctions through neutral intermediary
Transactions at supplier site:
e.g. Traditional purchase at supplier website
Transactions at customer site:
e.g. RFPs, bids and auctions
panies think about making their products available on-line, the tendency is to think only in terms of selling direct from their website (a).
However, other alternatives for selling prod- ucts are from a neutral marketplace (b), such as CommerceOne (www.commerceone.net), and also through going direct to the customer (c) – an example of this is a B2B auction such as that described for GlaxoSmithKline in the previous section, where the supplier goes to the custom- er’s site to bid.
A few examples of other concepts of place which have been changed on-line are as follows:
䊉 Disintermediation. This is removing the middleman to deal direct with customers instead of through agents, distributors and wholesalers. Note that this can create channel conflict as middlemen feel the squeeze. For example, Hewlett-Packard sell a lot of equipment to hospitals. But when hospitals started going directly to the HP site firstly for information and secondly to place orders, it posed a big question: do we pay commission to the sales representative for this?
䊉 Re-intermediation. This is the emergence of new types of middlemen who are brokers, such as Bizrate that unite buyers with sellers.
䊉 Infomediation. A related concept where
middlemen hold data or information to benefit customers and suppliers.
䊉 Channel confluence. This has occurred where distribution channels start to offer the same deal to the end customer.
䊉 Peer-to-peer services. Music swapping services such as Napster and Gnutella opened up an entirely new approach to music distribution with both supplier and middleman removed completely providing a great threat, but also opportunity to the music industry.
䊉 Affiliation. Affiliate programmes can turn customers into salespeople. Many consider salespeople as part of distribution. Others see them as part of the communications mix.
Excellent distribution requires a deep under- standing of when and where customers want products and services. Partnership skills are also required, as much distribution is externally sourced, whether order fulfilment, warehous- ing, logistics or transport.
Promotion
The Internet can be used to extend and inte- grate all communications tools, as summarized in Table 25.3.
Although websites can be considered a separate communications tool, they are perhaps best thought of as an integrator of all 10 tools shown in the table.
The following are offered as guidelines for effective promotion tactics (see Table 25.4):
Figure 25.9 Alternative representation locations for on-line purchases
Table 25.3 On-line executions of different communications tools
Communications tool On-line executions
1 Advertising Banner ads, search engine registration
2 Selling Virtual sales staff, affiliate marketing, web rings, links 3 Sales promotion Incentives, rewards, loyalty schemes
4 PR On-line editorial, e-zines, newsletters, discussion groups, portals 5 Sponsorship Sponsoring an on-line event, site or service
6 Direct mail Opt-in e-mail and web response
7 Exhibitions Virtual exhibitions
8 Merchandising Shopping malls, e-tailing, the interface
9 Packaging Real packaging is displayed on-line
10 Word of mouth Viral, affiliate marketing, e-mail a friend, web rings, links
Table 25.4 Summary of the strengths and weaknesses of different communications tools for promoting an on-line presence
Promotion technique Main strengths Main weaknesses
Search engine registration and advertising
Large on-line reach – used by high proportion of web users. Visitors are self-selecting. Relatively low cost, but increasing.
Works best for specialist products rather than generic products, e.g. insurance.
Cost – search engine optimization is continuous as techniques change.
Link-building campaigns
Relatively low cost and good targeting. Setting up a large number of links can be time consuming.
Affiliate campaigns Payment is by results (e.g. 10% of sale goes to referring site).
Further payment to affiliate manager required for large-scale campaigns.
Banner Main intention to achieve visit, i.e. direct response model. Useful role in branding also.
Response rates have declined historically to banner blindness.
Sponsorship Most effective if low-cost, long-term co-branding arrangement with synergistic site.
May increase mind-share, but does not directly lead to sales.
E-mail marketing Push medium – can’t be ignored in users’
in-box. Can be used for direct response link to website.
Requires opt-in list for effectiveness.
Better for customer retention than acquisition? Message diluted amongst other e-mails.
Viral marketing With effective creative marketing, possible to reach a large number at relatively low cost.
Risks damaging brand, since unsolicited messages may be received.
PR Relatively low cost vehicle for PR. Many alternatives for innovation.
Off-line PR may give higher impact and reach.
Traditional off-line advertising (TV, Print, etc.)
Larger reach than most on-line techniques.
Greater creativity possible leading to greater impact. Can use direct response or website.
Targeting arguably less easy than on-line.
Typically high cost of acquisition.