1

Summary

I. Introduction

1.1.Economics

1.2.Marketing

1.3.Internet Marketing

1.4.Marketing versus Internet Marketing

II. The Internet Marketing Mix

2.1.PRODUCT

2.1.1. Definition

2.1.2. Classification

2.1.3. How products enable customer relationship

2.1.4. E-Bay example

2.2.PRICING

2.2.1. Definition

2.2.2. The Pricing Process

2.2.3. Implementation across the four relationship stages

2.2.4. E-Bay example

2.3.COMMUNICATION

2.3.1. Definition

2.3.2. The Communication Process

2.3.3. Implementation across the four relationship stages in the E-Bay

example

2.4.DISTRIBUTION

2.4.1. Definition

2.4.2. The Distribution Process

2.4.3. Distribution levers and the four key stages of customer relationship

2.4.4. E-Bay as a distribution channel

III. Building competitive advantage through Internet Marketing

IV. Internet Marketing in the times of economical crisis

- Case Study: South Pacific real estate agency, Romania, 2009

V. Bibliography

2

Preface

This papers objective is to offer the reader an introductory course into the Internet Marketing

subject. It is a structured gathering of information which passes the reader from the basics of

economics and marketing to the advanced strategies of Internet Marketing.

The main Case Study is E-Bay. References and explanations can be found out at the end of

each subchapter in chapter II, as they are linked specifically to the subjects commented in

each subchapter.

The final Case Study is based on the information that I personally gathered from the CEO of

Brightness Advertising himself, Bogdan Manea Dragulin.

I chose Internet Marketing because I personally consider it to be the future of marketing. I

think it represents the most efficient way of communication and distribution, in a century

when information and the rapid spread of information represent the core of every human

activity, especially business.

3

The enemy increaseth every day:

We, at the height, are ready to decline.

There is a tide in the affairs of men

Which, taken at the flood, leads on to fortune;

Omitted, all the voyage of their life

Is bound in shallows and in miseries.

On such a full sea are we now afloat,

And we must take the current when it serves,

Or lose our ventures.

William Shakespeare Julius Caesar

I. Introduction

1.1. Economics1. The term economics comes from the Ancient

Greek (oikonomia, "management of a household, administration")

from (oikos, "house") + (nomos, "custom" or "law"), hence "rules of the

house(hold)". As family is the core of society, household is the core of economy.

Both households and societies face many decisions. Economically, they must allocate

its scarce resources among its various members, individuals, taking into account each

ones abilities, desires and needs.

The management of a households (or, at a larger scale, society) resources is

important because resources are scarce. Scarcity means that society has limited

1 Principles of Economics, N. Gregory Mankiw, 5th Edition, South-Western Cengage Learning, 2009, Ch. 1,

Pag. 3-6.

4

resources (natural characteristic) and therefore cannot produce all the goods and

services people wish to have. Just as each member of a household cannot get

everything he/she wants, each individual in a society cannot obtain the highest and

most desirable standard of living to which he/she might aspire.

Economics is the study of how society manages its scarce resources. Economists

study how people make decisions depending on their needs, desires, aspirations (e.g.

how much they work, what they buy, how much they save or how they invest their

savings). Another part of the economic study is how people interact with each other

(e.g. the relationship between the sellers and the buyers of a good determines the price

at which that specific good is sold or the quantity of the good sold). Finally, at a larger

scale, economists study trends that influence the economy as a whole: the rate at

which prices are rising, the percentage of population that cannot find work etc, find

the reasons of these indicators fluctuation and come up with solutions for stabilizing

them, all for societys and hence, households welfare.

Because the behaviour of an economy reflects the behaviour of the individuals who

make up the economy, the individual decision-making process represents the first and

one of the most important principle of economics.

~There aint no such thing as a free lunch.~

In order to get one thing that he/she likes/needs, an individual usually has to give up

another thing that he/she likes or needs less. Making decisions means trading off one

goal against another. It requires comparing the costs and benefits of alternative

courses of action. The opportunity cost of an item or action is what an individual

gives up to get that item. It is also important to specify that economists normally

assume that individuals are rational people that systematically and purposefully do

the best they can in order to achieve their objectives, given the available

opportunities. The objectives of an individual are psychologically based on his/hers

needs. Below is a diagram which best describes and prioritizes a rational individuals

needs. (Fig. 1)

5

Fig.1. Maslows Hierarchy of Needs.2

The (economic) environment of these decisions is named a market economy. The

main players are firms and households. Firms decide whom to hire and what to

produce, while households decide which firms to work for and what to buy with their

incomes.

The challenge in a market economy is for firms to maximize their profits and for

consumers to maximize the satisfaction of their needs.

1.2. Marketing is the process by which companies create value for customers and build

strong customer relationships in order to capture value from customers in return.

Broadly defined, marketing is a social and managerial process by which individuals

and organizations obtain what they need and want through creating and exchanging

value between each other. In a narrower business context, marketing refers to building

2 Maslow's hierarchy of needs is a theory in psychology, proposed by Abraham Maslow in his 1943 paper A

Theory of Human Motivation. Maslow subsequently extended the idea to include his observations of humans'

innate curiosity. His theories parallel many other theories of human developmental psychology, all of which

focus on describing the stages of growth in humans.

6

profitable exchange relationships with customers. It is about meeting human and

social needs profitably.3

Fig.2 represents a simple marketing system, a basic diagram of how marketing works

as a process.

Fig.2. A Simple Marketing System4

Marketing is the process of planning and executing the conception, pricing,

promotion and distribution of ideas, goods and services to create exchanges that

satisfy individual and organizational goals.5

Based on the definition summarized above:

Marketing is a process. A process is a particular method of doing an activity,

structured as an algorithm with steps or operations. The classical marketing algorithm

includes: market analysis, market planning, implementation and control.

a) Market analysis refers to the research of opportunities throughout the market,

upon which a firm can develop and capitalize.

b) Market planning requires:

- Segmentation the process of dividing a market into distinct groups of buyers

who have different needs, characteristics or behaviours, who might require

3 Principles of Marketing, Philip Kotler, Gary Armstrong, 12th Edition, Pearson Prentice Hall, 2008, Ch.1,

Pag.5 4 Marketing Management, Philip Kotler, 11th Edition, Prentice Hall, 2003

5 Internet Marketing: Building Advantage in the Networked Economy, Rafi Mohammed, Robert J. Fisher, B.J.

Jaworski, Aileen M. Cahill, McGraw-Hill Higher Education, 2002, Ch.1, Pag. 3

7

separate products or marketing programs. (market segment a group of

consumers who respond in a similar way to a given set of marketing efforts.)

- Market targeting is the process of evaluating each market segments

attractiveness and selecting one or more segments to enter. A company should

target segments in which it can profitably generate the greatest customer

value and sustain in over time.

- Positioning and Differentiation After a company has decided which market

segments to enter, it must decide how it will differentiate its market offering

for each targeted segment and what positions it wants to occupy in those

segments. A products position is the place the product occupies relative to

competitors in consumers minds. Marketers want to develop unique market

positions for their products because if a product is perceived to be exactly like

others on the market, consumers would have no reason to buy it.

- The Design of the Marketing Mix is the set of controllable, tactical

marketing tools that the firm combines in order to produce the desirable

feedback from the targeted market segment. These tools exist under four

groups of variables: product, price, place and promotion, known as the four

Ps. Fig.36 represents the marketing tools under each P.

Fig.3. The Four Ps of The Marketing Mix

6 Source: http://attainmarketing.com/blog/2010/02/developing-and-implementing-a-customer-focused-

marketing-strategy-a-recipe-for-success/

8

c) Market implementation includes the systems and processes to penetrate the

market with the specific marketing program.

d) Marketing control refers to the informal and formal mechanisms that marketing

managers can use to keep the marketing program on its course.

Analysis, planning, implementation and control collectively provide the algorithm for

marketing managers to follow in the design and execution of marketing programs.

It is about Exchange. Marketing is not successful unless two parties exchange

something of value. The buyer may exchange time, money or services, while the

seller must exchange something of value to the buyer. The traditional retail context

provides the simplest illustration of this principle. A given consumer exchanges

money for a particular good or service. However, exchange can also be nonmonetary:

bartering, volunteering services and political donations.

It Is Intended to Satisfy Individual and Organizational Needs. The aim of marketing is

to provide a satisfactory outcome for both the firm and the customer. The most

satisfied customer is the one that gets the good or services from the firm for free. But,

this way, the firm is not likely to have a long life. The challenge that modern

marketing rises is the simultaneous satisfaction of the customers, the firm and its

shareholders. So, in the long run, the firm must have a positive cash flow, must show

a clear path to profitability for investors to maintain confidence, while its customers

are more satisfied by its goods/services than the ones of its competition.

9

1.3. Internet Marketing

The Internet is a tidal wave. It will wash over nearly all industries drowning those

who dont learn to swim in its waves, Bill Gates, CEO Microsoft.

Even though it is not long ago that the Internet was the exclusive domain of scientists

and computer experts, in the last decades it has emerged as a device which many

people in the industrialized world cannot imagine being without. More and more

people have started to use the Internet. With the emergence of the Internet and its

associated technology-enabled, screen-to face interfaces (e.g. mobile phones,

interactive television), a new era of marketing has emerged. It is seen as natural to

surf the web for information and to use various online services.

What is still not natural is to pay for the offered content. While there are still high

growth rates in the Business-to-Business (B2B) segment, in the Business-to-Customer

(B2C) area enthusiastic early expectations have not, up to now been fulfilled. The

Internet is often seen as an immense costless source of information rather than as a

distribution channel for payable physical and virtual or non-material products and

services in the B2C segment.

Practitioners as well as academics believe that the possibilities of doing business on

the Internet are revolutionary and will transform known business structures and

strategies. However, after many Internet firms could not justify the very high

investors expectations in the recent past, the question as to how they can perform

successfully in the future is highly relevant. A better recognition of the possibilities of

how competitive advantages can be realized in the area of the Internet would help

firms to come to a convincing value evaluation, taking into account that different

kinds of firms with different value-creation potentials to exist. (see chapter III)

In the 1960s social movements arose which questioned traditional forms of authority

and sought new ways of defining and expressing individual freedom. There was the

expectation that future growth in existing markets would be restricted largely to the

effects of population growth and the replacement of goods and products at the end of

their effective life. To avoid the prospect of limited future growth, some firms started

10

major rationalizations and tried to achieve a greater penetration of existing markets as

well as investing in the development of new products and entered new markets,

predominantly by direct foreign investment. Increasing foreign aid, as well as

decreasing transportation costs can be seen as factors that extended the willingness of

business firms either to internationalize their activities or to increase the scope of their

international activities. The immense improvements with regard to communication

technology worked in the same direction and helped business enterprises to increase

the capacity to control and coordinate activities in geographically dispersed locations.

The business environment for firms since the early 1960s has been more and more

posited to various and intensifying changes, e.g. in the field of transportation and

communication, and confronted with the speed of technological innovations. One

facet of these changes is certainly due to the various possibilities offered by the

Internet itself. This novel facet of the Internet cannot be ignored and must be taken

into consideration when thinking about the creation of competitive advantages for

firms doing business on the Internet.

Firms doing business in the Internet environment have attracted much interest in

recent years. However, it does not seem possible to come to general conclusions with

regard to the realization of competitive advantages for all firms doing business on the

Internet, because very different firms do very different things via the web. A clear

understanding about types of firms competing in this area has to be created in order to

explain which firms are included here and achieve a clearer image of these firms. One

possibility to achieve such clarification is to segment Internet activities into

different groups of firms which produce different outputs (services or products with

various characteristics).

In the first step, four different output categories for Internet firms can be

differentiated7:

1. Physical products. Internet firms such as Amazon.com or libri.de offer physical

products, such as books or CDs. Traditional booksellers like Barnes and Noble

also sell their books via the web (as well as in stores). Physical products such as

cars (sold by cars.com, carsdirect.com, autobytel.com) or childrens toys (sold by

7 Strategic Management and Online Selling, Susanne Royer, Routledge Taylor & Francis Group, 2005, Ch. 1,

Pag. 7-10

11

etoys.com, toysrus.com or mytoys.de) are also offered via the Internet. Further

examples in this category are firms selling furniture (sunlandimports.com),

consumer electronics (abtelectronics.com) or clothes (the-clothesstore.com) via

the Internet. Firms in this group use the Internet to distribute physical or material

products and to show and market their products (in virtual showrooms). After

buying such a product, the consumer receives delivery of a physical product that

could also be bought in a real-world store. The product has to be physically

transported to the customer.

2. Real world services. These services can be arranged via the web but cannot be

directly consumed via the Internet. Examples would be a booking process for a

hotel room, which can be finalized via the Internet nevertheless the service itself

obviously is consumed at the actual location of the hotel. Other examples in this

category are the booking of flights or car rental via the Internet. Firms offering

such real world services via the Internet are, for example, expedia.com,

Travelocity.com and T-online-travel.de in ithe area of flight and travel services, as

well as sixt.com, europcar.com and avis.com in the area of car rental. For the

provider, the Internet complements or substitutes other established means of

marketing their services and fulfilling adherent transactions.

3. Non-material products. These products do not require physical transport; they can

be directly consumed via the Internet. Examples include downloadable

software, music and computer games. Firms offering non-material products via

the Internet are, for example, Adobe Systems (publishing PC software), McAfee

Security (anti-virus PC software) and Apple with iTunes Music Store

(downloadable music). The products are delivered and initially consumed via the

Internet.

4. Non-material service. These services are directly consumed on the Internet.

Web services are, for example, search possibilities in data-bases (the Genios

database of the German Handelsblatt, the ProQuest database to access various

academic journal articles and the Gettyone.com database to search and download

various images and pictures), search functions for news delivery with regard to

stock prices as well as direct opportunities to trade stocks (offered by

ameritrade.com, cortalconsors.de and etrade.com) or home banking functionalities

(as offered by banks like CitiBank and Deutsche Bank).

12

Non-material products and services are difficult to differentiate from each other.

Non-material or intangible products could be defined as products that are digitally

transferred to the customers PC and afterward saved on customers PC (e.g. virus

scanners, games, music). Non-material services could be defined as services that

can be used via the PC online but are usually not saved on the customers PC (e.g.

searches in online databases).

Because most non-material products and services have been delivered free in the

past, it seems difficult to charge the customers for them today. This situation

implies that there are real difficulties involved in attempting to create value and

competitive advantage for firms offering such products and services via the

Internet. Internet publishers or portals have to struggle with a high cost for their

web presence and, at the same time, decreasing income from advertisements on

their sites. These firms are different from the other groups in especially one

relevant respect, namely that their products and services are directly consumed via

the web. Some ideas of building a competitive advantage strategy will be

suggested in this paper.

The telephone took four decades to reach 50 million people. The Internet has

managed this within four years as digital technologies provide such efficient

channels for business and consumer interactions transactions. The Internet has

come a long way in a very short time as a mainstream business tool.

1.4. Marketing vs. Internet Marketing

If traditional marketing is about creating exchanges that simultaneously satisfy the

firm and customers, Internet Marketing is the process of building and maintaining

customer relationships through online activities to facilitate the exchange of ideas,

products, and services that satisfy the goals of both parties.

13

Like a traditional-marketing program, an Internet-marketing program involves a

process. The seven stages of the Internet-marketing program process are setting

corporate and business-unit strategy, framing the market opportunity, formulating the

marketing strategy, designing the customer experience, designing the marketing

program, crafting the customer interface and evaluating the results of the marketing

program. These seven stages must be coordinated and internally consistent. While the

process can be described in a simple linear fashion, the marketing strategist often has

to loop back and forth during the seven stages.

The goal of marketing is to build and create lasting customer relationships. Hence, the

focal point shifts from finding customers to nurturing a sufficient number of

committed, loyal customers. Successful marketing programs move target customers

through three stages of relationship building: awareness, exploration and

commitment. It is important to stress that the goal of Internet marketing is not simply

building relationships with online customers. Rather, the goal is to build offline as

well as online relationships. The Internet Marketing program may well be part of a

broader campaign to satisfy customers who use both online and offline services.

By definition, Internet Marketing deals with levers that are available in the world of

the Internet. However, as noted above, the success of an Internet marketing program

may rest with traditional, offline marketing tools.

At the core of both online and offline marketing programs is the concept of exchange.

In both the online and offline worlds, exchange is still the heart of marketing. In the

new economy, firms must be very sensitive to cross-channel exchanges. That is, an

online marketing program must be evaluated according to its overall exchange impact

not just the online exchange impact. Hence, online marketing may produce

exchanges in retail stores. Firms must be increasingly sensitive to these cross-channel

effects if they are to measure the independent effects of online and offline marketing

programs.

14

II. The Internet Marketing Mix

2.1. PRODUCT

2.1.1. Definition

Products are goods (tangible or intangible) that become subject of a transaction

(economical exchange). Through this exchange, buyers satisfy their needs/wants.

Also, it provides the seller with revenue or with the so-called customer good

will8 that will eventually (ideally) provide revenue on the short-run or on the

long-run.

2.1.2. Classification

There are two general types of products:

a. Physical goods (tangible)

b. Services (intangible)

The characteristics of these products are divided into three categories:

a. The core benefit

b. The basic product

c. The augmented product

General types of products:

a. Physical goods.

The Physical Product (tangible good) is that good that is produced and

exchanged between parties. The attributes of a physical product include:

quality, features, styling, brand and packaging.

The main difference between tangible and intangible goods is that buyers

more easily comprehend their benefits and can be directly experienced or

8 Internet Marketing: Building Advantage in the Networked Economy, Rafi Mohammed, Robert J. Fisher, B.J.

Jaworski, Aileen M. Cahill, McGraw-Hill Higher Education, 2002, Ch.8, p. 270

15

tested. In cases when a customer cannot test the product before purchase,

marketers provide guarantees through advertising and packaging. Therefore, a

tangible good is usually more easily marketed than an intangible good.

b. Services.

Services (intangible good) are defined as actions or work that the seller offers

to the buyer for the purpose of transaction (in order to achieve either revenue

or increased customer goodwill). There are many categories of services,

varying from artistic performances, delivery of information, medical services

etc.

A service may be either a stand-alone offering, e.g. medical services, or it may

be directly linked to a physical product, e.g. warranties and maintenance

agreements used to augment a physical product and enhance the value of the

good, in order to satisfy the customer needs.

In the case of Internet marketing, the discussion is mostly about intangible goods.

However, there are websites that sell physical products; but, in reality, they simply

sell an augmented service through which the purchase of the final, tangible product is

made possible.

For example, when purchasing a book from Amazon.com the basic product is the

physical book. However, the reason a person will buy from Amazon.com is the

augmented service offering that the Internet provides for book sales, such as: the

convenience of ordering from home, the valuable information offered in online

literary and customer reviews, the ability to search a database of potential books and

the price savings that are a result of a sales channel that does not require a physical

presence.9

The classic attributes of service offerings are: intangibility, simultaneity,

heterogeneity, perishability. The Internet has come to change the limitations of these

attributes, as it will be shown next:

9 Internet Marketing: Building Advantage in the Networked Economy, Rafi Mohammed, Robert J. Fisher, B.J.

Jaworski, Aileen M. Cahill, McGraw-Hill Higher Education, 2002, Ch. 8, p.271

16

Intangibility. When an individual is considering the purchase of an intangible

product, it usually has a difficult time in the decision making because these goods

cannot be tested before purchase. Customers are delivered abstract concepts and they

dont know what they are getting until they are actually served. Because there is no

physical evidence of the service, marketers are obliged to regularly remind the

customer of the advantages and benefits of the service, so that the demand will not

diminish over time. The Internet can provide evidence so that the service may seem

more tangible by: offering virtual tours, video clips, mass customization (it will be

explained later on in this paper), discussion groups where customers that have already

experienced the service share their feedback, photographs and other advanced

technologies.

Simultaneity. In a physical transaction, usually the customer and the seller need to

come together at the same time for the exchange of products to take place. But, the

Internet has overcome this limitation as the delivery of services is technologically

enabled and time concurrence is no more needed. The websites are available 24 hours

a day, 7 days a week and any customer from any corner of the world is able to buy

any good or service via the Internet. This communication channel has overcome the

limits of time and space of the transaction and no other channel can compete with

that.

Heterogeneity. Usually, services have the attribute of being customized, depending

on each customer. For example, a doctor diagnoses the patient individually and gives

him a customized treatment depending on the patients condition. This personalization

is usually manpower intensive and it is almost impossible to be reproduced on a mass

production level. However, the Internet has overcome this limitation as well. For

example, on websites like E-Jobs.ro or news sites, each user has the opportunity to

choose the categories of services, in this case job offers and news, with which they

want to be provided. If theyre interested in Marketing jobs or in Sport News, with a

touch of a click, they can customize their daily alert e-mails. (If you are interested

only in sports, why buy the entire physical daily newspaper?)

Not only do customers perceive this process as a breakthrough technology that better

meets their needs, but the service provider also recognizes the potential cost savings

gained by the customer doing most of the work associated with personalization. It is a

17

win-win situation where the service is performed not only by the provider but also by

the customer.

Perishability. The perishability of services is an issue that has lead to many market

inefficiencies, based upon the disequilibrium between supply and demand on any

market area. The Internet has provided sellers an extra opportunity of liquidating

excess inventories by interacting directly with the customers and let them know of

these inventories, usually sold at discount prices. The Internet provides real time

communication which helps sellers to get rid of the inventories in a shorter period of

time than through a classic communication channel, this way the costs of keeping

them are more likely to be diminished.

Product characteristics:

a. The Core Benefit

The core benefit is the most important, the fundamental value of the product. This

is the value assumed by the buyer when he/she decides over the acquisition of the

product, in order to achieve the goal which is satisfying the buyers need.

For example, the core benefit of any automobile is transportation.

b. The Basic Product

The basic product includes all offering associated with the core benefit. For

example, in the case of an automobile, the basic product includes: radio, tires,

breaks, engine, windshields, lights etc. So, the basic product refers to everything a

customer would expect in order to buying that respective good/service. Basic

products differ from each other by the unique brand. To increase the

differentiation between them theres the opportunity of augmenting a product.

c. The Augmented Product

The augmented product usually offers benefits through services and

includes aspects such as installation, instruction, delivery, warranty, after-sale

services, credit facilities, repair and maintenance, spare parts availability and

other related services

18

Augmented product

Basic product

Physical

benefits

Core product

Services Core

benefits benefits

Fig. 4. Levels of product and associated benefits10

2.1.3. How products enable customer relationship

Fig. 5. 11

10

International Marketing, Prof. Univ. Dr. Luminita Nicolescu, Ch. 9 11

Internet Marketing: Building Advantage in the Networked Economy, Rafi Mohammed, Robert J. Fisher, B.J. Jaworski, Aileen M. Cahill, McGraw-Hill Higher Education, 2002, Ch. 8, p. 306

19

The objective of the Awareness phase is to make the product known throughout the

customers. This means, to make the customer be aware of the core benefits of the

product and to associate them with the product itself. Packaging is a tool used in order

to enhance communication and it represents the products identification. Presentation

includes consumer reports and consumer safety, confirmed by consumers that gave

already tried the product and experienced its benefits. These are fundamental for

customers in order to evolve in the exploration phase, where he investigates on his

own about the products benefits.

The objective of the Exploration phase is to prove de relevance of the product

offering to the prospective customer and to get him/her to try the product.

Packaging is important in this phase because, considering the brand, the customer

decides whether to embrace or reject the product.

If the communication is focused on the attributes and features of the product then the

customer understands how the unique blend of them will satisfy his/her needs and will

know how to differentiate this particular product from its competitors.

Fulfillment capabilities, such as instant and efficient delivery helps the customer

experience become highly reinforcing. It is essential not to miss the moment and to

make the product available when the user actually needs it and is motivated to buy it,

otherwise its interest in the product may decrease.

The whole customer experience during the exploration phase is important because it

will have an impact later on and it represents the reason whether the customer decides

to commit to the brand/product or not.

The marketing objective for the Expansion part of this phase is the loyalty and

eventually commitment of the customer.

The availability of complementary products enhances the value of a company,

increases its relevance and facilitates an eventual long-term relationship with the

customer (which is more probable to lead to a committed relationship). An example

may be the companies that produce cars or computers and also provide computer parts

and car components in case of replacement.

The customer-specified attributes and features allow a customer to create a product

that individually fits his needs and desires. This feature enhances the chances that the

20

customer commits to this company, as he/she invests personal time into customizing

the product.

Mass customization represents a modular production process in which many

combinations of customer-specified attributes and features can be manufactured

quickly and cost effectively. An example may be the car companies which provide

this online option of car configuration.

After a customer enters the Commitment stage, the companys objective is to

maintain this commitment on the long-term. The loyalty of the customer means more

secure profit for the company. The Paredo Principle refers to the fact that 20% of the

loyal customers can account for 80% or even more of a companys profits. The

product levers used in order to achieve the commitment stage are much the same as

those used to increase a companys share of customers.

Upgrades are used in order to demonstrate that a company is also committed to this

relationship. The implementation of a new version of the product assures the customer

that its insights are taken into consideration and all the companys work is in the sense

of constantly meeting their needs.

Customer-specified attributes and features are effective not only in the expansion

phase but also in the commitment stage. One size product or a unique product is

barely likely to suit all customers needs. Hence, the promise of a customized product

deepens the customer commitment to the company.

Mass customization is a tool by which the customer gets the product he has already

customized. The customers needs are this way truly satisfied. When a company can

offer a customer an individually customized product, the buyer is very likely to

engage in a long-term relationship with the company. The Internet has facilitated

these tools in the last decade, many companies websites provide this option.

Fig 6 shows this option on the Mercedes-Benz website in Romania.

21

Fig. 6.

Postsales support refers to the addition of customer value. It usually has the form of a

platform which facilitates customer-company dialogue.

The loyalty programs are in fact, reward and recognition programs for customers

commitment. Customers receive augmented benefits which also enhance the chances

of long-term commitment.

Customer experience marketing is essential to a committed relationship because each

company-customer experience is unique and it isnt easy to be replicated by

competitors. As long as the experience is meaningful, grateful and positive, the

customer is very likely to remain loyal to the company.

Enabling community helps both new and loyal customers in the way that it represents

a guarantee for the new ones that the benefits of the product are the desired ones, so

that they are likely to become loyal as well, and also the already committed customers

which experience the excitement of belonging and being connected; therefore,

committed customers can create a cycle in which new customers become committed

customers.

22

Customer relationship management (CRM) is the ultimate tool of maintaining a tight

customer-company relationship. It provides the company with updates of customer

needs so that they know how to satisfy them properly.

Customer care departments represent a part of the company which is concerned with

the eventual problems that the customer may experience while trying the already

purchased product. If these departments are well informed they can turn a potential

problem into a pleasant customer experience. This is a tool through which not only

the commitment increases but also the companys reputation.

The Dissolution stage of a relationship starts when a company is no more able to

maintain a customers commitment. There are also tools that a company can use in

order to avoid dissolution, like customer care. The company tries to understand the

reasons of the customers renouncing of their products/services and begin to offer

them new products/services that should meet their new needs. Also, in case of failure,

the company usually keeps the customers e-mail address in a database for a certain

period of time and continue to send them updates in the companys offer.

2.1.4. E-Bay Example

E-Bay has successfully leveraged product development levers to move users through

the four stages, thereby increasing the level of relationship intensity with it users.

The attributes and features of the service promote exploration. The sites fast and

reliable search engine makes it easy for people to find the items they are looking for.

E-bays wide variety of categories also allows users to browse through a large amount

of information.

E-Bay also relies on a positive, well-designed customer experience. Bidding can even

be thrilling, as many auctions end in the final seconds. Also, bidders receive e-mails

in which they are encouraged to bid more. E-bay represents an interactive in the

form of bidding and unique (personalizes e-mails) website.

E-Bay also makes complementary products available for its customers, increasing the

chances that they explore the website. It also recommends cost effective

23

complementary products and guarantee the return of the product if it doesnt meet

their needs. Another complementary product is the electronic bill-paying service

which enhances the transaction between the users.

The most important lever in the Commitment stage is enabling community. Actually

this is what makes E-Bay a successful business. The online community is one of the

largest in the world; it provides feedback forums and responses to community

demands of goods. Customer-specific attributes and features consist of customer

access to their own purchases and rankings. Sellers also can track their current

auctions. Upgrades and improvements to the site (technical, customer-facing features,

services) are constantly included and help building up the customer relationship.

In the Dissolution phase, it is important for E-Bay that users do not detract or drive

other users away. The website has included certain attributes and features that help to

control and, if needed, dissolve the relationship with problematic customers. It

involves terminating customers who detract from the overall product by harming the

community.

2.2. PRICING

2.2.1. Definition

International pricing is one of the most critical and complex issues that a firm

faces. Price is the only marketing mix element that creates revenue, while all the

others entail costs. This characteristic of pricing makes it a very important strategic

marketing instrument. Price is the money or other considerations (including other

goods and services) exchanged for the ownership or use of a good or service .

From the consumer point of view, price is used to indicate value when it is paired

with the perceived quality of a product or service. Value can be defined as the ratio

of perceived value to price. The relationship shows that for a given price, as

perceived quality increases, value increases too. For some products, the price itself

influences the perception of quality and the value to consumer. It is the case of

products for which the consumers think that the higher the price the higher the

quality. How consumers make value assessments is not fully understood, but they

24

usually make comparative value assessments by judging the worth and the

desirability of the product or service relative to substitutes that satisfy the same

need.12

2.2.2. The pricing process

The process of pricing is divided into five steps that firms use in order to set up prices

for their products. These steps are13

:

1. Set pricing goal.

2. Differentiate value relative to substitute products.

3. Strategically select target customer segments.

4. Predict strategic pricing/competitor reaction.

5. Select a pricing structure and price point.

1. Because pricing is the only tool in the marketing mix that provides revenue, the

price is set depending on the period of time to pass until the revenue starts to

increase. So, the strategies are: long-term profit maximization, short-term profit

maximization and target pricing.

a. The long-term profit maximization is a strategy that functions under the

assumption that the firm wants to maximize its profit in the long-term. It may

be seen as an investment made by firms which have a rather constant profit in

the present and is in conditions to develop constantly. So, as market conditions

change, it is likely for these firms to adapt the strategy ongoing.

b. The short-term profit maximization is a strategy usually adopted by firms that

are on the edge of bankruptcy and are struggling to survive on the short-term.

It means that, desperate for revenue, companies significantly drop prices in

order to remain in the business.

c. Target pricing is a strategy adopted by firms which have other fundamental

goals, not profit maximization. These goals may be: increase in market share,

return on investment, etc. In the case of gaining market share, for example,

companies often use tools as discount prices or special offers, or invest in

12

International Marketing, Prof. Univ. Dr. Luminita Nicolescu, Ch. 11 13

Internet Marketing: Building Advantage in the Networked Economy, Rafi Mohammed, Robert J. Fisher, B.J. Jaworski, Aileen M. Cahill, McGraw-Hill Higher Education, 2002, Ch. 9, p. 355

25

advertising, in order to cover the first 2 stages in the customer relationship:

awareness and exploration.

2. Differentiate value relative to substitute products.

The price of a product should reveal how much the consumer values the product

and not the actual cost of the product. The reference price should be the

competitors price, the price of the substitute products. The challenge is to find out

how much a consumer is willing to pay for the respective product, in comparison

with its substitute product. For example, if a new developed product is launched

on the market, even if the innovation cost is low, the company should take into

account the value of the respective product for the consumer and not the

additional innovation cost. This way, the products price may increase

significantly if the innovation saves consumers time or other expenses.

How much the customers value the product may be found out through market

research, statistical reports and product experts.

Also, an important factor into the differentiated value of a product is the effect of

the brand. A well-known brand that has already won consumer trust can offer the

same product as its unbranded competitors, yet charge a premium. Trust, tradition

in manufacture, world recognition etc, represent factors that make the good sold

an augmented product which not only meets the initial needs of the customer but

also additional ones. For example, take a customer which has a disposable income

of $10 and needs a T-shirt. In the position of choosing between a $7 Nike T-shirt

and a $4 no-name T-shirt, he would most likely choose to buy the Nike T-shirt

even if it costs almost double. Also, brands have a psychological impact over the

customer, as purchasing branded good may increase the customers positioning

through society.

3. Strategically select target customer segments.

Customer segments or target market means identifying the exact type of people

that are likely to become customers. This determines the price of the product in

the sense that, by identifying the target market, a company is also aware of the

average disposable income of the people.

26

For example, Unilevers range of detergents include these 2 brands, on the

Romanian market: Ariel and Dero. At a first view, you may think that Unilever

has two brands that compete to one another. In fact, this is the demonstration of

how target market influence prices. Ariel is destined for high-income people and

has a higher price, it is known as a luxury brand, while Dero has as a target, the

medium to low income people, being sold at a lower price, known as a normal

brand.

4. Strategic pricing/ Competitor reaction.

When setting up a price strategy, the competitions reaction must be taken into

account, because the introduction on the market of a substitute product will affect

the demand of the already existing ones. Companies must closely watch the

reactions of both competitors and consumers after the launching of the product

with the established price.

Before launching the product, a company must anticipate reactions of the

competition and refine, depending on that, the price strategy chosen.

The competition may react in one of the following ways:

a. Accept. This reaction is generally unlikely to happen, when competitors just

accept the new products price and do not adjust in any way their own

products price.

b. Minimally react which means minimally adjusting the price of their products.

c. Strongly react which means significantly changing their products price and

potentially start a price war.

27

5. Select a pricing structure and price point

Fig. 7

No Pricing

Flexibility

Corporate

Mandate

High Initial

Demand

Correlated

Demand

Dynamic

Pricing

Price as Mk

Strategy

Price at market; Target return

pricing;

Target profit

return;

Fairness pricing

Bundling;

Frenzy pricing;

Price

discrimination

over time;

Bundling;

Volume

discount pricing;

Two-part

pricing;

English auction;

Reverse-price

English auction;

Dutch auction

(regular & E-

Bay type);

First-price

sealed-bid

auction (regular

and Priceline

type);

Reverse first-

price sealed-bid

auction;

Group buying;

Electronic

exchange;

Prestige;

Sign of quality;

Promotional;

Hi-Lo Pricing Select Retail

Pricing Strategy

Everyday Low

Pricing

Select Pricing Strategy

28

2.2.3. Implementation across the four relationship stages

Fig. 8

Click-through promotions

Web-referral promotions

Bricks-and-clicks promotions

Web price discount

Bundle

Frenzy pricing

Prestige

Price as a sign of quality

Hi-Lo pricing

Dynamic pricing

Everyday Low Pricing (EDLP)

Targeted promotions

Future price promotions

Justify prices

Loyalty programs

Tiered loyalty programs

Wide variety of pricing plans

Become affiliates

Profit-enhancing programs

Volume discount promotions

Targeted promotions

Future price promotions

Fairness

Two-part pricing

EDLP

Discontinue pricing

promotions

Reconfigure loyalty

programs

Decrease profit

programs

Awareness

i) Promotions

(a) Click-through promotions. Banner ads can provide the user discount prices

for various products, by only clicking them.

(b) Web referral promotions. By using other communication channels, like

television, radio, print, mail, package, the firm can redirect the consumer

to a website link where he/she can get price discounts.

(c) Bricks-and-clicks promotions. A firm can encourage consumers to access

the website by offering them online coupons to print, which is validated at

the selling point and provides the consumer a price discount.

(d) Web price discounts. Even if the firm has physical representation through

shops, online sold products can have a 5% discount in the price, if

purchased via Internet. Examples are books, medicines or airplane tickets.

Awareness Exploration/

Expansion

Commitment Dissolution

29

ii) Bundling. Being sold in bundles, new products are made known more quickly by

the consumer.

iii) Frenzy pricing. Buying frenzies occur whenever demand exceeds supply. It is an

Awareness tool because the frenzies are usually subjects of media and of

consumer word-of-mouth. For example, the ultimate buying frenzy concerns the

product IPhone and wherever the high number of purchases becomes subject of

the media, Apple gains awareness. This type of communication is called publicity.

iv) Prestige pricing and Price as a sign of quality is an awareness tool which gives

the firm the chance to sell products at a higher price, in case it has a trustworthy

and recognized brand.

v) Hi-Lo pricing. Whether the price is established as being extremely low or

outrageously high, compared to the competition price, it stimulates awareness.

vi) Dynamic prices. In B2C cases, auctions and group buying, interactivity of any

kind creates awareness.

vii) Everyday low pricing. EDLP usually works out in the case of retailers which may

even build up its brand on everyday low prices.

Exploration/Expansion

i) Promotions

(a) Targeted price promotions. It is a tool that a firm uses in order to guide the

consumers to particular products. By using price as a way to demonstrate

the understanding of the consumer needs, it may lead to a long-term

relationship between consumer and producer.

(b) Future price promotions. By delivering coupons which will be validated in

the near future, the firm ensures that the customer gets more information

about the product which will increase the chance of purchase.

ii) Justify prices. Even if it isnt a clear pricing tool, justifying the price and giving

information about the product on the website, it represents a kind of guarantee and

a source of gaining the trust of the customer. This is very likely to lead to a

customer-company relationship.

iii) Loyalty programs. Through this tool, customers are encouraged to the permanent

use of the product, in order to receive and benefit of discounts and other

30

advantages. This way, customers and induced to explore a deeper product

relationship.

Commitment

i) Promotions.

(a) Volume discount promotions. In case of non-perishable goods, customers

usually have the will to purchase a larger quantity of goods at a lower

price. Given that online firms can easily track consumer purchases, they

can encourage commitment by offering volume discounts to customers.

(b) Two-part pricing. By using a high fixed fee and a low variable fee pricing

structure, firms induce consumers to remain committed. After paying the

high fixed fee, one is likely to remain customer because they are charged

only the low variable fee. By changing the firm, it implies paying another

high fixed fee.

ii) Tiered loyalty programs. This tool is used to provide loyal customers with

different advantages that make him/her difficult to switch the company. Air travel

companies are a good example. Customers that travel more the 100 000 km per

year are rewarded with significant discount prices for future tickets (up to 50%),

first-class services etc.

iii) Wide variety of pricing programs. For most products there is a wide range of

consumers that have different product needs. In the product needs, the amount of

money available for the customer to pay differs. So, companies have developed

different pricing programs in order for the customer to choose the one that fits his

needs best. Mobile phone providers use this tool frequently and make up different

offers which may include both the service and the mobile phone.

iv) Affiliates. By becoming affiliates, committed customers can financially benefit by

advocating the product to others. Many firms offer refer a friend programs that

provide price discounts to current committed customers that recommend the

product to a friend. In the case the latter becomes a committed customer, the

referral customer may benefit of further advantages.

v) Profit-enhancing opportunities. Websites that provide dynamic prices, such as E-

Bay, through auctions and interactivity, also offer feedback forums, where

customers discuss and write their opinions on the product already purchased. The

feedback gives the seller reputation, and for the buyer it represents a source of

31

trust/distrust into the respective sellers products. This tool represents a source of

profit maximization for the seller as it has the form of advertising, which is cost-

free for the seller. This will be discussed deeper in the Case Study chapter.

Dissolution

i) Discontinue pricing promotions. The Internet provides the firms the option of

tracking down consumer purchase. This way it is easier to find out which category

of buyers is more profitable, and hence, target a market segment. So, the firm can

easily discontinue the activity of price promotions to buyers that prove to be

unprofitable. It is more of a cost-cutting tool, which has as a consequence, the

decrease of the price.

ii) Reconfigure loyalty programs. On the same basis as before, firms can also

discontinue loyalty programs to unprofitable customers.

iii) Adversely affect profit programs. The interactive websites may encounter the

problem of sellers with poor community feedback which may negatively affect the

brand. A firms control is not only over the consumers, but also over the seller

who upload their products on the website, and it can discontinue the relationship.

2.2.4. E-Bay Example

E-Bay does not charge individuals for browsing, bidding, or buying items.

Instead, the auction site generates revenue through fees for listing and selling

items.

Listing related fees

Users upload their products for a minimum insertion fee which can vary from 30

cents to $3.30. The website provides the seller advertising templates, such as;

uploading photos, space for product details, consumer feedback options etc. The

insertion fees are nonrefundable and may vary depending on the cost of the

product, on the minimum bid, the degree of visibility on the website, longer

duration, or on the type of listing chosen. There are three types of listing available:

Regular listings, which are based only on the minimum bid for a product. (in case

of real-estate, there is a flat insertion fee of $50.)

32

Reserve-price auction listings. The seller is given the change to decide over a

reserve price which represents the minimum starting bid price. If no buyer takes

this price, the product will not be sold. For this option, to the insertion fee are

added 50 cents for items under $25 and $1 for items over $25.

Dutch-auction listings. This is an option that provides the seller the chance to sell

a larger quantity of the product under the same item listed.

Final-value fees are calculated after the product is sold. It is based on the final

price of the product which is the closing bid. In Dutch auctions, the fee is also

based on the final value, but in this case the final value is the lowest successful

bid multiplied by the quantity of items sold.

Fig. 9

Final Value Final Value Fee

$0-$25 5.0% of the final value

$25-$1000 5.0% of the initial $25 ($1.25) plus

2.5% of the amount above $25

Over $1000 5.0% of the initial $25 ($1.25) plus

2.5% of the initial $25-$1000 ($24.38)

plus 1.25% of the amount above $1000

To ensure the fairness of auctions, E-Bay has implemented the following

procedures:

Fraud protection. It protects its auctions in case an item is not received or

is less than advertised. Bidders are refund with up to $200.

Abuse control over the auction process.

It offers escrow service.

It offers the online option of resolving disputes between buyer and seller

with the help of a professional mediator.

33

2.3. COMMUNICATION

2.3.1. Definition

Communication is a major part of the international marketing activities. It is not

enough to produce and make available a product or a service, it is also necessary to

provide information that buyers need in order to make purchasing decisions.

Communication takes place through the promotional activity. The function of

promotion at international level is similar to that in a domestic market, as the firm

communicates with its customers and other different audiences with the objectives

either to inform, to persuade or to remind, in the attempt to achieve the corporate

goals.14

2.3.2. The Communication Process

In order to build and execute a successful marketing communication campaign, a

firm needs to establish the best strategy. The basic communication process involves

six stages15

:

(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

The process has an integrated nature, as every communication campaign includes

both online and offline channels. But, as this paper regards online marketing, we

will assume before detailing the process phases, that offline marketing simply

represent additional channels which redirects the consumer to the online channel.

So, the communication process will be detailed considering only the online media

types of promotion.

(1) Identifying the target audience

Likewise the pricing strategy, the promotion strategy cannot be set until the

strategist knows exactly to whom he is addressing. Internet has developed the

consumer targeting, by making it easier to access and less expensive, through

consumer behavior tracking. By keeping track of web pages visited, time spent

on specific websites, ads and links clicked on, purchases made and so on,

marketers have an extremely valuable database of information. Also, the

personal information of the user, requested as login to different websites,

14

International Marketing, Phd. Luminita Nicolescu, Ch. 11 15

Internet Marketing: Building Advantage in the Networked Economy, Rafi Mohammed, Robert J. Fisher, B.J. Jaworski, Aileen M. Cahill, McGraw-Hill Higher Education, 2002, Ch. 10, p. 395

34

complete the information in the database, with contact information. This way, a

personal profile of the consumer is made up, which provides more information

than any demographic physical research.

After determining the target market, the strategist chooses which way to send

the message to the customers including: which media to use, which selling

point to stress, and what sort of personality to give to the message.

(2) Determine the Communication Objective

The objective must be set clear, in any case. It should be focused on developing

one of the four stages of the customer-company relationship, depending on the

period of time that the product is present on the market, the degree of product

awareness, whether customers are used to buy the product or not, or if

customers renounce quickly after the first purchase.

In the development of the communication process, the clearly-set objective

must be closely followed until the end, and not missed by any chance.

Many Internet websites have fallen apart because they didnt have a continuous

communication program, which passes the consumer through all the stages.

The firm should look ahead and fit into its plans the future campaigns that will

be necessary to follow up with objectives focused on a continuous progression

along the customer stages.

(3) Develop the Media Plan

The media plan must meet some criteria in order that the message gets to the

targeted market segment.

(a) It must be consistent with the audience. To reach students, advertising in

universities, schools and Internet seems appropriate. To reach housewives,

supermarkets, television and radio may be the right channels.

(b) It must be consistent with the communication objective. (influenced by the

relationship stage which needs to be developed)

(c) It must be integrated. Both offline and online levers should combine in the

way of expressing a homogenous message and image.

Also, depending on the target market, advertisers choose particular moments,

spaces and environments to send the message. For example, television ratings

indicate advertisers when to spot the commercial. On the Internet, visitors

profile indicate which ads to place and where.

(4) Create the message

In the creation of the message there must be considered different aspects: the

theme, which has to be in the way that the targeted customers react to, it has to

go along with the overall brand personality and flexible to the next stages of

customer relationship. Another aspect is the medium of communication chosen;

if its television, then the message must have a visual motion impact, if its

35

print, than it has to have a punch line for impact and a suggestive and stimulant

picture. On the Internet, banner ads have more chances of success if they are

interactive. It stimulates users attention and it becomes more exciting to click

on.

After the message is created and is combined in different media channels, it is

tested on a sample of targeted people. After it passes the tests, it is finally ready

to move on to the execution.

(5) Execute the campaign

This phase consists in hiring advertising agencies to help see rest of the

campaign through, making the media buy, and distributing the message.

Making the media buy refers to buying the media space for the message,

whether it is space on the Internet, TV, radio, newspapers, outdoor/indoor print.

The basic measure of a media space is the number of impressions purchased

which means the number of times that the ad has been visualized. Also,

frequency is another important measure which refers to the number of times the

ad has been seen by a single customer.

Making the buy on the Internet is generally based on CPM (cost per thousands

impressions) as well. But, there are also other measures, like cost per click-

through, which is a result measured from the tracking of online consumer

behavior. Cost per transaction is a measure which refers to the selling of an ad

space depending on the number of users which have purchased the good after

clicking on the banner.

(6) Evaluate the effectiveness of the campaign

After the message is distributed, the next step is the evaluation process. This is

where tracking consumer behavior online starts again.

Depending on the feedback received, online software permits the modification

of the message ongoing. This real-time versus lag-time difference highlights

one of the most staggering contrasts between online and offline marketing

communications.

Profiles of online media types

Medium Definition Advantages Disadvantages

Banner Ads Electronic

billboards

Link directly to

buying opportunity;

easy to measure

effectiveness; wide

reach; potential for

effective targeting

Low attention and

click-through rates;

short life; limited

pass-along audience;

very high clutter;

fleeting exposure

Interstitials

(pop-ups)

An ad that runs

between pages on

a website

Catch users

attention; link to

buying opportunity

Can annoy users;

limited pass-along

audience

36

Search

Engines

Websites that

provide

information

referred to a

keyword typed by

the user

Good credibility;

guarantee of

position available;

significant audience

High competition;

information

overload; limited

pass-along

Affiliate

Programs

A relationship

between two or

more websites

which share each

others banner ads

or references

Inexpensive;

potential for wide

exposure; credibility

and trust; qualified

audience

Clutter

Chat Rooms A website where

individuals who

want to discuss a

certain topic

gather online and

communicate with

each other in real

time.

Potential for

effective targeting

Narrow reach; high

clutter

Loyalty

Programs

Reward and

recognition

programs for loyal

customers

Generates

substantial

demographic

information

Must acquire

customer first

Opt-in e-

Mail

Someone is given

the option to

receive "bulk" e-

mail, that is, e-

mail that is sent to

many people at

the same time.

High demographic

selectivity;

flexibility;

inexpensive; proven

high click-through

rates

Requires substantial

user base before

effective; high clutter

Mass e-Mail = Opt-in e-Mail,

without being

asked for

permission

High reach;

inexpensive;

flexible

Low attention and

significant

resentment (spam

image)

Viral

Marketing

Products or

offerings that are

passed from user

to user.

Typically

inexpensive;

potentially

enormous reach;

high credibility; has

personal touch

Extremely difficult to

execute

Customer

Service

Buyer-seller

interactivity on

issues that may

appear in the

purchase.

Interested parties

asking for help, thus

high targeting

value; generates

loyal customers

Very expensive to

provide

comprehensive

telephone, e-mail,

and online support

37

2.3.3. Implementation across the four relationship stages in the E-Bay

example.

Since its founding in 1995, E-Bay has utilized various strategies of

communication. Its awareness started to grow with word-of-mouth, until it

utilized viral marketing. The latter has as a consequence a phenomenal

growth in both kinds of users (sellers and buyers). E-Bays successful story

is based on the efficient communication strategy applied on the four stages

of customer-company relationship.

Awareness

It all started with literally spreading the word. E-Bay sent representatives

with laptops who physically showed people what they can operate on

this website. By 1999, E-Bay had more than 120 shows per year and

people were already spreading the word. Also, much publicity was made

by media which was reporting about the E-Bay phenomenon.

In 1998, E-Bay launched its first major marketing campaign, which

contained three components:

Strategic alliances with online partners: E-Bay bought substantial

advertising space on AOL, and partnered with Go.com

Development of free media exposure: E-Bay sponsored bidding on

Mark McGwires and Sammy Sosas homerun baseballs, and a

charity auction with notable television personality Rosie ODonnell.

Print and radio campaigns started in October 1998 with the slogan

You just might find it on eBay, which aired on more than 12 000

radio stations across the US.

Another trick that EBay used was taking advantage of the frenzy buying

of Furby toys in 1998. Because the toys were short on supply, EBay

dedicated its homepage to these toys, facilitating the purchase. They also

bought Furby keywords from that times most important search engines

like Yahoo.com, Infoseek.com, GoTo.com. The niche placements

seemed to be cost effective therefore EBay positioned itself as the

ultimate source of buying and selling Furbies.

EBay did not attempt to advertise on television until the end of 2000,

which interestingly coincided with a sharp downturn in the use of

television ads by Internet companies. EBay did this to sharpen the image

of worlds greatest garage sale.

38

Exploration/Expansion

The most important tool that EBay firstly used in order to attract people

to the website was word-of-mouth in the form of You wont believe

what I found on EBay! Ive been looking for that for years!.

EBay signed contracts of millions of dollars for banner ads with websites

like AOL and Go.com which led to substantial click-through. Customers

were also redirected from offline sources to access the website.

EBay itself encouraged exploration. Once you access the website, there

are many link and options and instructions which are easy to follow and

interesting to click-through. A search option is also available, so that its

very easy for any buyer to search only the products that hes interested

in, which represents a measure of personalization.

The interactivity is a fundamental attribute of EBay which uses personal

feedback from users, both buyers and sellers, through discussion forums

in order to attract new customers.

Commitment

In this phase, EBay chose to keep the community vibrant by constantly

attracting new buyers and sellers and by introducing new facilities that

increase the value of the website to its users.

Once being a committed customer, it is difficult to switch to another

auction website, because of the initial fees (discussed in the Pricing

Chapter).

By constantly adding new buyers and diversifying the supply, eBay

makes relationships durable and consistent.

By tracking down items bought, EBay keeps in touch constantly with the

buyers by sending them newsletters promoting new products arrivals that

are linked to the previous purchases (either substitute or complementary

goods).

Dissolution

Sellers that have negative feedback from previous buyers are likely to

become subject of dissolution with the website. Also, fraud buyers can

exist too. The anonymity and the absence of legal provisions make

people to not complete the payment.

EBay is constantly trying to manage and control its system and image

better and does not let its brand be dominated by pranksters that do not

accomplish the auction activities.

39

2.4. DISTRIBUTION

2.4.1. Definition

When planning for international markets, distribution plays a very important

role. Sometimes distribution may be the biggest constraint to successful

marketing as getting the product to the target market can be a costly process

if barriers in a distribution structure cannot be overcome. Distribution channels

differ to a great extent from one country to another on a number of dimensions,

due to influencing factors such as culture, tradition, customs, legal requirements.

There are, however a number of things that are common to all channels

regardless the product category or the market.16

One fundamental debate today is whether the Internet is simply another

channel of distribution or whether it represents a business revolution. On one

hand, it seems unlikely that all consumers will someday buy personal

computers, clothing, books and groceries over the Internet. Some consumers

will always want to touch, feel, hear, smell or taste the merchandise before

purchase. Others wont wait for the next-day delivery, and some will want

the personal touch of a retail salesperson and a physical shopping

environment. On the other hand, it is impossible to overstate the Internets

impact on distribution. The Internet has transformed the industry structure

for personal computers, books, CDs, clothing, travel, health services and a

host of other products. The Internet provides much more than low cost and

convenience to customers it enables firms to interact with millions of

customers on an individual and real-time basis. Never before have

organizations been so closely linked with their suppliers and customers. The

result is a blurring of the boundaries between firms and their environments.

2.4.2. Distribution Process

(1) Identify and evaluate consumer preferences by segment

With the consumer target settled, the distribution channel is established

depending on it. The goal is that combining the four elements in the

marketing mix, the consumer needs to be met at maximum point. Even if

16

International Marketing, Phd. Luminita Nicolescu, Ch. 10

40

the Internet provides the option of delivering personalized items, the

process of distribution is much the same online and offline, single or

bulk products.

(2) Design a customer-based channel system

A relationship customer needs a clear understanding of the distribution

channel and of the facilitation of delivery and payment. They need a

channel system based on continuous interaction by a firm which deeply

understands their personal needs. The firm should attempt to redirect

these customers to the offline channels to ensure that they are not

frustrated or confused by the online systems. Every attempt should be

made to include ways for these customers to gain help or find offline

support while or after they navigate the website.

For example, if I want to purchase an item from EBay, I need further

information from my personal bank in order to facilitate the transaction.

In Romania, there are some rules by which online transactions are taking

place. The customer has to have an individual card (other than the wage

card) on which he/she can place as much money they want in order to

spend on online transactions. This way, the bank ensures that no

accidental transaction happens so that the customer may complaint

about. Upload on the respective card the fixed amount of money that

youre disposed to use on online purchases.

(3) Modify channel strategy based on firm objectives and constraints

After creating an ideal distribution channel system based on consumer

needs, the firm now must evaluate the possibilities it has to access these

channels. There may appear different problems like potential conflicts

with the intermediaries, human resources constraints or financial

barriers. To discover the best way to choose, a firm should consider three

types of objectives: economic, adaptive and control.

From the economic point of view, online channels require financial

support as well, even if it seems cheaper; the website design and

maintenance, the customer service available 24/7, the integration

between the production, logistical and sales systems. These costs should

be considered in direct relationship with the revenue that the usage of the

respective channel provides to the firm. (in this case, Internet)

41

The adaptability of the system is particularly important in fast-moving

industries. It involves the strength of the firm to move, combine and

switch between distribution channels, in order to follow constantly the

consumers steps.

The control objective is inextricably linked to adaptability. In case of

choosing retailers as principal distribution channel, it is very important

to permanently check the availability of your products and to adapt after

the consumers. This means a permanent connection with the retailer,

which, as an intermediary it usually makes more difficult the connection

to the customer. Thats why, if a firm wants deep control of the

relationship with the customer, it has to choose the direct channels.

(4) Select channel intermediaries or partners

When selecting a channel intermediary or partner, a firm must take into

consideration the following aspects: the reputation, the financial

strength, sales performance, compensation plans, marketing support,

pricing strategy (whether it suits the firms strategy), customer service

(whether they care about the customer welfare).

There are four types of intermediaries which are likely to become parts

of the B2B channel are:

(i) Distributors that have highly specialized routines and capabilities

in both markets and technologies.

(ii) Large, general-line distributors that stress viability over

efficiency.

(iii) Specialized niche distributors that enter the market near the end

of the consolidation period.

(iv) Distributors that have been consolidation triggers through rapid

acquisition and growth.17

(5) Develop a channel feedback system

As in any other business environment, the B2B section also has risks. If

intermediaries fail on the market, it automatically affects the firm. So, a

good distribution strategy should also include feedback and a backup

17

Internet Marketing: Building Advantage in the Networked Economy, Rafi Mohammed, Robert J. Fisher, B.J. Jaworski, Aileen M. Cahill, McGraw-Hill Higher Education, 2002, Ch. 12, p. 494

42

system.

The feedback system refers on closely following the activity of the

intermediary, measuring it with different financial indicators like: profit

margins (net profits/new sales), asset turnover (new sales/total assets),

return on assets (ROA=net profits/total assets), and return on investment

(ROI=net profits/net worth).

The backup system should be previously established, by choosing

alternative intermediaries and by closely following the activity on the

distribution market.

2.4.3. Distribution levers and the four key stages of customer relationships

Awareness. The first distribution levers that increase customer

awareness are multiplying access points and distribution channels.

- Number of intermediaries. In the online world, it is easier to develop an

intensive distribution strategy because of the Internets massive reach.

Participation in affiliate programs and positioning banner ads in

multiple locations can provide access to the website by a single click.

Affiliate programs create a high level of distribution intensity which is

analogous to an offline firm that adds retail outlets.

- Number of channels/Intermediary type. The number of channels may be

increased by using an integrated combination between online and

offline channels. Usually, firm go from offline to online, this way

completing the distribution strategy.

Exploration/Expansion. Channels that create more value for customers

increase consumer interest and exploration.

- Degree of channel integration. The number of channels. Integration

increases the level of customer service which makes the firm more

attractive as a relationship partner. Also, the online channel provides the

customer more information about the firm than the offline channels. It

represents a trustworthy and easy to access source of information which

also increases customer exploration. Also, the more channels are being

integrated, the more the chances increase into achieving the stage goal.

Commitment. It is fundamental in order to achieve this stage goal to

43

implement properly the distribution channels. The delivery of the

products is absolutely essential so that the customer is satisfied. Online

channels are usually regarded as less trustworthy than offline channels,

simply because the customer cannot physically touch the product before

transaction.

- Intermediary type. In order to commit, the customer must purchase the

product from a trustworthy source. So, it is preferable for the firm to

distribute their products through official selling points and less through

retailers.

- Intermediary functions and responsibilities. Retailers, salespersons and

other distribution channels may be engaged in the commitment of the

customer, by offering them additional information at the place of the

purchase, through trainings, which represent a cost, but in the end, the

final result may be transformed into profit.

Dissolution. In the case when a firm is not satisfied by the kind of

customers it reaches, it may reduce the number and types of distribution

channels. For example, Ferrari even allows itself de privilege to choose

the customers. This happens because, providing luxury cars, in a small

number, each driver participates at the entire Ferrari image. If the

customer doesnt fit the prescription, the item is not sold. Or, if the

items are sold and then the company realizes that the customers are

inappropriate, they may begin to cut loose the distribution of the cars in

the respective area.

2.4.4. E-Bay as a distribution channel

As a business, E-Bay has actually the form of a distribution channel. It

basically intermediates transactions between buyers and sellers. It is

classified as a broker, which does not hold responsibility for the goods

offered at auction, for collecting payments or for transport. The only goal it

has is to maintain the integrity of the process of auction and, what makes it

successful, to facilitate the distribution process (this is where it collects its

profits from). It plays a very important role in the business activity of small

firms, as it represents the cheapest and most effective distribution channel.

E-Bay has developed a number of services in order to maintain a secure and

44

reliable electronic exchange:

- e-Stamp. It represents a relationship with the US Postal Service from

which E-Bay sellers benefit of online printable stamps, valid at any

post-office. Also, the