Post on 17-Jan-2016
Chapter 15Chapter 15
New (and Old) Marketing Channels: Electronic Marketing Channels and Direct Selling
Major Topics for Ch. 151.What is EMC?
2.Trends in EMC
3.Structure of EMC*
4.Advantages and Disadvantages of EMC*
5.Implications of EMC
6. Direct Selling
Electronic Marketing Electronic Marketing
ChannelsChannels
Topic 1:
TechnologyInternet
Computers
Impact on
Design & Management of Marketing Channels
Electronic Marketing Electronic Marketing ChannelsChannels
The use of online media to make products & servicesavailable so that the target market with access to
enabling technologies can shop& complete the transaction via interactive electronic means
Topic 2
Not physical availabilityInternet, Web-TV, Cell Phone
Actually purchasing products through the useof PCs, Web-TV, Cell Phones
Developments & Trends in Developments & Trends in EMCEMC
• Online shopping to $134 billion from mid-1990s to the end of 2009*
• Online shopping has become a routine shopping choice*
• PCs, peripherals, software, & booksaccounted for a significantportion of total retail spending onthese products
• Online shopping to $134 billion from mid-1990s to the end of 2009*
• Online shopping has become a routine shopping choice*
• PCs, peripherals, software, & booksaccounted for a significantportion of total retail spending onthese products
ElectronicMarketingChannels
* U.S. Department of Commerce
Channel Migration*
Spending
Distribution
2005
2002
Stores 68% 72% 74% 78%
Catalogs 5% 6% 6% 6%
Online 27% 22% 20% 16%
Source: A.C. Nielsen’s Holiday E-spending Report
2004 2003
Holiday Shopping across Different Channels
www.internetretailer.com
* What do you do if you are a physical store-based retailer?
Future of Online Shopping
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 10.0 0.0
Online Sales as a Percentage of Total Retail Sales
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)
• 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)
Structure Structure of Electronicof ElectronicMarketing Channels*Marketing Channels*
ThreeKey
Phenomena
1. Reintermediation versus disintermediation
2. Information flow versus product flow
3. Virtual channel structure versus physical channel structure
Topic 3
1. Disintermediation and1. Disintermediation andReintermediationReintermediation
Disintermediation Reintermediation
Intermediaries becomesuperfluous because producers
gain exposure to vast numbers of customers in cyberspace
Shifting, changing, or addingmiddlemen to the channel
Amazon.comAuto-By-Tel Corp.
Peapod, Inc.Dell
Computer Corp.
Disintermediation Disintermediation versusversusReintermediation*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.
2. Marketing Channel Flows2. Marketing Channel Flows
Product Flow
Promotion Flow
Information Flow*
Ownership Flow
Negotiation Flow
Ex) Pharmaceutical
Marketing Channels for Pharmaceuticals
Physical Distribution Flow Information Flow
Manufacturer
Distributor
Pharmacy
patient
Manufacturer
PharmacyDoctor
patient
Insurer/HMO
PBM*
* Pharmacy Benefit Manager (www.medco.com)
DTC
Internet Limits as a Stand-alone Internet Limits as a Stand-alone ChannelChannel
Five Channel FlowsSome can not be handled by internet
Five Channel FlowsSome 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
3. Virtual (Online) Channel Structure Versus Conventional (Store) Channel Structure
• Different Market Segments
• Different Product or Services
• Complements rather than Replaces Each Other*
Advantages & Advantages & Disadvantages of EMC*Disadvantages of EMC*
Topic 4
Advantages ofElectronic
Marketing Channels
1. Global scope & reach2. Convenience/rapid transaction processing3. Information processing efficiency & flexibility4. Data-based management & relationship
capabilities5. Lower sales & distribution costs
Disadvantages ofElectronic
Marketing Channels
1. Lack of contact with actual products & delayedpossession
2. Fulfillment logistics not at Internet speed or efficiency*
3. Clutter, confusion, & cumbersomeness of Internet
4. Nonpurchase motives for shopping not addressed*
5. Security concerns of customers
Advantages & Disadvantages of Advantages & Disadvantages of EMC*EMC*
Implications of 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
Objectives & Strategies of the Objectives & Strategies of the Firm*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
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
Impact on The Marketing MixImpact on The Marketing Mix
Channel Design*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)
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
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)
Independent Internet Sales Channel
(buy.com)
Standard Channel(pro shops, bricks &
mortar sports/golf outlets)
Consumers
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
Channel Management*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
Evaluation of PerformanceEvaluation 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
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?
0.00
0.05
0.10
0.15
0.20
0.25
98 99 100 101 102 103 104 105
Calendar Year less 1900
Sh
are
Clothes
Book & CD
Sports
Off ice
Electronics
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
Analysis Results 1515
•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: (+)
Direct SellingDirect SellingTopic 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
Structure & Trends Structure & Trends in Direct Sellingin Direct Selling
- Markets Served
- Types of Products Sold
- Firms Involved in Direct Selling
- Problems & Prospects for Direct Selling
Markets ServedMarkets Served
Location Percent of Sales
Home 64.4
Telephone 14.7
Workplace 8.7
Internet 5.5
Temporary locations 4.1
Other 2.6
Location of Direct Selling Channel Sales
Types of Products SoldTypes of Products Sold
Product Category Percent of Total Sales
Personal Care Products 26.4
Home/Family Care
Products
33.7
Leisure/Educational
Products
6.5
Services/Miscellaneous/
Other
33.4
Major Product Categories Sold through Direct SellingChannels as a Percentage of Total Sales
Firms Involved in Direct SellingFirms 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
• Tupperware Corp.*• Avon Products, Inc.* http://www.avon.com/• Cutco Cutlery Corp.• Amway Corporation
Facts
Examples
Rationale for DesigningRationale for DesigningDirect Selling ChannelsDirect Selling Channels
A method of distribution for providing products & services to customers
The decision should be based on an objective analysis of the advantages or disadvantages of each channel alternative.
But:
Variables To Consider for Direct Variables To Consider for Direct Selling*Selling*
1) Market variables & DS channel*
2)Product variables & DS channel*
3)Company variables & DS channel
4)Intermediary variables & DS channel
5)Behavioral variables & DS channel
Ex) Mary Kay in China
1) Market Variables1) Market Variables
Developments in consumer attitudes & behaviors
that could make direct selling more attractive:
1.Consumers have less
time available for shoppingin traditional stores.
2. Consumers are becoming more sophisticated
and demand more & better product information.
3. Consumers are seekingincreased convenience
in shopping.
2) Product Variables2) Product Variables
Products that are high quality, that are unique, orthat require specialized information & advice are logical
choices for direct selling:
Product quality may become apparent only when consumers
are informed about themin conjunction with hands-on
demonstrations.
Product uniqueness may become apparent only throughthe direct help of salespeople.
Consumer satisfaction maydepend on whether the consumer has proper
information.
Basic variables to consider:
2.Financial capacityof the company
3) Company Variables3) Company Variables
3. Managerial expertise
in distribution*
1.Size of the company
4.Basic objectives &
policies of the company
4) Intermediary Variables4) Intermediary Variables
Basic intermediary variables to consider:
1.
Availability ofalternatives
2.
Cost of using channelalternatives
3.Services that
alternatives arecapable of or
willing to provide
The “people” side of the marketing channel:
Conflict Communicationsprocesses
RolePower
5) Behavioral Variables5) Behavioral Variables
Problems & ProspectsProblems & Prospectsfor Direct Selling*for Direct Selling*
1. Lack an awareness of DS as an alternative.
2. Negative impression on DS in general.*
3. Lower availability of consumers for at-homesales calls and parties.*
4. The perceived risk by consumers is high compared to other modes of shopping.
5. Recruitment of salespeople has become difficult.*
Topic 4