LECTURE4EC STRATEGIES

TRADITIONAL ECONOMICSMarginal costs decrease initially, then increaseCompetition drives prices down to marginal cost

But, if marginal costs only decrease, or are constant? P=mc=0Profits = 0, implying no entry!

Marginal Costs: Hard Drive

1988 $10.00 / MB1998 $00.10 / MB2000 $00.02 / MB2001 $00.005 / MB2012 $00.0025 / MB

INFORMATION IS NOW FREEStock prices Morningstar encyclopedia

vs. CBS Big Charts

Maps Rand McNallyvs. Google Map

Phone Bell Atlanticdirectories vs. Switchboard.com

ADDING VALUE TO INFORMATIONIf information is free, how do we capture profits?Profitability proportional to added value

AltaVista survey:Would you be willing to pay $10/mo for the ability to search the Internet for web sites relevant to you?Sure but would you pay AltaVista $10?

ADDING VALUE TO INFORMATIONAccuracy & QualityTimelinessSearchRelevanceCategorize, PersonalizeAdding Context to InformationAnalysis, Comparison

Unstable Industry Model:Traditional price competitionAlways incentive to undercut prices

Stable: Monopoly / Dominant FirmAchieved through Lock-InAchieved through Cost Leadership

Stable: Differentiated MarketAchieved through added value

Pureinformationcannotbepriced!!!CompaniesstillaskingIsitvaluable?

InformationProfitsfromaddedvalue

DirectionsHowtopriceandmanageinformation?

EC STRATEGIESn Existing Marketing

n Mass Marketing : fit to Mass Production systemn Need to let customers know productsn tools: TV, newspaper, magazine, radion One-to-Many

n From firm to customers, one-way communicationn Homogeneous customersn no interaction between customers and firms

n New media: Internetn Many-to-Many communication possiblen Two-way

n Relationship Marketingn Database Marketing Data Miningn One-to-One Marketing

n Voluntary participation

Trend Identify each customerTarget them individuallyChallengeHow to obtain information about customerHow to interact with them individuallyE-marketing ?Marketing: A set of processes and activities that facilitate exchanges of goods or services both inside and outside for-profit, non-profit and government organizations In computer providing space, making relationship between customers and firms, making interactive (two-way) communication, do marketingWhy Internet in marketing ? No limit in space and time, young and high quality customers, purchasing power and Opinion Leader, easy to access to the customer group, fee advantage

Public Relation

Promoting Sale

Getting customers information

Satisfying customers

Sales

Customer

Marketing Trend

4P What Product Which Price What Place How to PromoteProduct Characteristics of on-line products

Inforcentric product Highly Reliable Product Computer Related Product Digitalized Product Time limited Product

strategy Find products to fit on-line trade Product + information + service Providing Personalized service and product

4P AND STRATEGIES

n Providing experiencen experience goodn Free Sample or for repeat demand product, providing products

n Digitalized the productn Digitalize the customer informationn ex: airplane combine information about seat, meal, music

n Differentiationn Information is like an oyster : timen User Interface (ex: providing more powerful search capabilities)n Image Resolutionn Speed of Operationn Flexibility of Usen Capabilityn Annoyancen Supportn User Discrimination

n New productn Explorer and Netscape: publishing Beta Version at every month

PRICING STRATEGYCharacteristics of information goods Information is costly to produce but cheap to reproduce. Once the first copy of an information good has been produced, most costs are sunk and

can not be recovered. Multiple copies can be produced at roughly constant per-unit costs. There are no natural capacity limits for additional copies.Cost Leadership Saving average cost by expanding production First Mover AdvantagePersonalization By registration and observation, get customer information Personalized pricing Promotion Pricing Versioning: by customers themselves, Customized Bundling Grouping price: different characteristics group, Network Effect, Lock-in Effect

Promotion tools advertising : printing, broadcasting, poster Sale Promotion: Contest, game, lottery, coupon, discount Public Relation: seminar, sponsorship, publishing Sales Force : Salesman, exhibition show, products which have

information (ex: cosmetic, car, water purifier) Direct Marketing: mail, telemarketing

Challenge Segmented communication Utilizing traffic and word of mouth

Why Internet ? popular Communication range, quantity, Targeting, interactive,

economic Easy to measure

PROMOTION STRATEGY

Process of Promotion Set Target and objective : where to live, age, sex, occupation, income Set message: Set tools : search engine (portal), banner, e-mail Evaluation and feedbackForrester Research(2011)s questionnaire1.content: 75%2.Easy to use: 66%3.speed: 58%4.update: 54%5.Coupon and incentive: 14%6.brand: 13%7.Cutting edge tech.(12%), game(12%), Personalizing(10%)