Formulating Ec Strategy

Formulating Your E-Commerce Marketing Strategy Don Bacon, Ph.D. Daniels College of Business University of Denver

Hierarchy of Objectives Business Mission Business Objectives Marketing Objectives Marketing Strategy Source: adapted from Kotler & Armstrong, Principles of Marketing

Hierarchy of Objectives Example Business Mission Business Objectives Marketing Objectives Marketing Strategy Increase agricultural productivity Research new 3 fertilizers Raise profitability 20% Increase sales 15% Reduce costs 5% Increase product availability and promotion Cut price and call on large farms abroad Increase mkt share in domestic mkt Enter new foreign mkts Source: adapted from Kotler & Armstrong, Principles of Marketing “ Specific, Measurable” “ Actions” “ Specific, Measurable”

Mission Statements Who is your customer? (demographics, psychographics, firmographics) What benefits are you offering? How will you deliver the benefits? (The technology you will use) DCB Examples

Mission Statement Example “ Our mission is to bring better food choices to consumers through the application of advanced technology” (The NutraSweet Co., Kotler & Armstrong, Principles of Marketing, 5 th Ed ., p. 30) Benefit-oriented, not product-oriented Specific (?) A good mission statement helps avoid “mission creep” but enables a company to grow in appropriate directions

Determinants of E-Commerce Marketing Strategy Business Mission Business Objectives Marketing Objectives Marketing Strategy Target-Market Definition Specification of the Four P’s Traditional Product Promotion Price Place Market-Related Technology Issues Four P-Related Technology Issues E-Commerce

E-Commerce Marketing Strategy Opportunities Target-Market Definition Specification of the Four P’s Product Promotion Price Place Information products Online promotion Brochureware Advertising Service Online customer service Personalization/customization Distribution online Segmentation online Tracking performance

Market-Related Technology Issues Demographics Psychographics Firmographics Technographics Situational Segmentation

Traditional Market Segmentation Variables Demographics Age Gender Stage in household lifecycle Social status Geography Psychographics Demographics Values Activities Interests Opinions Possessions Firmographics SIC code Company size Revenues People Geography Contact’s title B2C B2B

E-Commerce Market Segmentation Variables Demographics Age Gender Stage in household lifecycle Social status Geography Psychographics Demographics Values Activities Interests Opinions Possessions Firmographics SIC code Company size Revenues People Geography Contact’s title Technical sophistication (Fax?) B2C B2B Computer, Internet connection, browser Online interests Likes technology Sites visited

Forrester’s Technographics Source: www.forrester.com , downloaded 2/17/00, see also Mary Modahl (2000) Now or Never Customers differ in: Attitude Income Motivation

Forrester’s Technographics Source: www.forrester.com , downloaded 2/17/00

Using Technographics Forrester surveys 250,000 North American households and uses cluster analysis to determine the 10 technographic clusters. Forrester helps you survey your customers, asking 15 key questions. Forrester tells you which technographic categories are most common among your customers. Forrester tells you what it already knows about your segments so you can enhance marketing campaigns.

Situational Segmentation Adapted from Hoffman & Novak (1996). Marketing in Hypermedia Computer-Mediated Environments: Conceptual Foundations. Journal of Marketing 60 (July), 50-68.

Market-Related Technology Issues Demographics Psychographics Firmographics Technographics Situational Segmentation Strategies can be developed for each segment

Information Products High cost of production Low cost of reproduction Implications: Differentiate information products and try to integrate the demand curve.

Demand in Differentiated Market (Capturing Value) Quantity Everyone to the left of this guy would have paid more than $X. Price $X

Demand in Differentiated Market (Capturing More Value) Quantity Marketer’s Ideal: Offer different prices to different customers (price discrimination) to maximize capture of value (revenue) Price $X Examples: Printers, airfare, cars, banner ads. Any added revenue is attractive with information products because the marginal cost is so low. $Z Added revenue $Y $A

Differentiating Information Products Convenience Comprehensiveness Manipulation Community Annoyance Speed Data Processing User Interface Image Resolution Support “ Versioning ” See Shapiro and Varian (1998). Versioning. Harvard Business Review , or Information Rules (same authors).

Top 5 Reasons Why You at Least Need Brochureware Avoid looking technologically clueless. Answer FAQs. Be accessible 24x7. Reach worldwide audience. Provide basic information about your company and products.

Site Design Basics Identify who will be visiting your site and why they will want to visit. Design a “template” that is consistent with your company image. Choose all graphics, colors, fonts, etc. to reflect your image. Include address, e-mail and phone numbers. Create a flowchart or site map that reflects the visitor benefits for the web site Convert files to html Load on your server Test, test, test Promote your site See also Janal (2000) Marketing on the Internet

Optimizing Brochureware to Bring in Leads Search the web via search engines or portals to find information and possible vendors Identify a few suppliers who appear to meet what might be your criteria Send e-mail to each supplier, asking for salesperson contact Marketing Implications: SEO, list with key portals. Include useful content on your site. Understand key criteria; attempt to influence criteria. Make it easy for prospects to contact you; follow up quickly. Self-qualified leads? What the prospect does…

Advertising Promotion action items Budget allocations across online/offline Traditional banner ads Advertising options

Action Items to Promote Your Site: Prepare good content Submit to search engines Issue and distribute press/news releases Solicit reciprocal links Buy search engine positioning (ppc engines) Try newsletter advertising Try direct mail Try opt-in e-mail Try banner advertising Try affiliate programs Try traditional media advertising (put your URL on everything!) Adapted from Boris Kontsevoi, Site Promotion Case Study, ClickZ Forum, March 24, 2000

“How is your site promotion budget allocated?” Note: 40% said “don’t know” Source: Forrester Research, Inc. (June, 1999)

Traditional Banner Ads Full banner ads are 468x60 pixels, e.g., Banners ad space is often sold based on CPM (cost per thousand impressions), typically $2-$50. Average CTR (click-through rate) is around 0.5% . Conversion rates are around 1-2%. Cost per acquisition may be around $150-200. = CPM/1000/CTR/CNVR = 10/1000/.005/.01 = $200

Advertising Options In kind Sales commission Pay per click Pay per impression Sponsorship Text links Buttons Static banners Animated banners Pop-up windows Rich media pop-ups Payment methods Ad formats Ad delivery On web site In e-mail In newsletter

Service Overview Value of service. Customer migration strategies. Customer satisfaction is related to service expectations.

Service is Part of Your “Augmented Product” Product Service Augmented product See Levitt (1980) “Marketing Success Through Differentiation – of Anything” Harvard Business Review.

Pricing and Ignorance Approximate quote from George Stigler (1961). The Economics of Information. Journal of Political Economy 69 (3). “ The difference in prices in a market are in indicator of the ignorance in the market” In commodity markets, if all prices were known to all buyers, sellers would not be able to charge different prices.

Pricing More Than Your Product Figure 12.9, Hanson (2000) Principles of Internet Marketing Do the costs of search not outweigh the benefits on the Internet? Or are books not commodities? What do book sellers offer besides books?

Drive Customers to Interact via Cost-Effective Media ( “Customer Migration”) Internet self-service Automated call center E-mail interactions Call center Individual calls Mail Face-to-face Reduced cost/interaction But recognize that you must offer customers a medium they are comfortable with (Peppers & Rogers).

Tips for Moving Customers to the Internet Ease of use, ease of use, ease of use. Pick the right functions. Roll out functions over time (don’t overwhelm your customers!). Promote your functionality. Be patient with your customers’ level of proficiency with the Internet. Some of these points came from Helen Tueffel’s (VP at Solant) presentation at the July, 2000 IQPC B2B eCustomer Care Conference in Chicago.

More Powerful Motivators for Moving to the Internet Phase 1: Incentives for use of Internet. Some services only available online Reduced service fees online (Fidelity fees) Phase 2: Disincentives for use of other media. Longer waiting times for using other media Surcharges for using other media Some of these points came from Helen Tueffel’s (VP at Solant) presentation at the July, 2000 IQPC B2B eCustomer Care Conference in Chicago.

If you want to keep them on the Internet… You better keep them satisfied!

A Satisfaction Primer The Expectancy Disconfirmation Paradigm: Dissatisfaction occurs when performance falls short of expectations (negative disconfirmation). Satisfaction occurs when performance meets or exceeds (positive disconfirmation) expectations . Delight may occur when performance positively surprises the customer by delivering the unexpected.

Customer Expectations Suggestions based on detailed customer input. Same day e-mail turnaround. Confirmation e-mail links to package tracking page . Customer product reviews, editorials from experts. No time limit on returns, vendor pays for return shipping, invoice includes return authorization. More than three shipping options; no charge for standard S&H. Source: Forrester Research Inc., adapted from report in 1to1, February 2000 Online Shopping Expectations

Typical Delays in Response to Customer E-mail Source: Peppers & Rogers Group, 1to1 , February, 2000 Delay in responding to customer e-mail among Media Metrix’s top 30 e-commerce sites (September, 1999)

Performance v. Expectations at B2B Sites Only 50% of sites enabled transactions. Only 13% had essential content at each decision point. 0% offered personalization. 1 in 5 allowed transactions in more than 3 currencies. Some sites had as many as 7 levels of click-throughs. Source: Forrester study reported in “B2B Web Sites Fail Usage Test.” EcommerceTimes , January 12, 2000.

Online Customer Service Static FAQs Dynamic FAQ database: RightNowTech (~$18,000/yr) Automatic e-mail response: EchoMail/General Interactive ($100,000+) The human touch: Call center, online chat, personal e-mail response Customer service for every budget:

Using Static FAQs Poll your customer service people to determine the most Frequently Asked Questions and the answers. Create an HTML web page with these FAQs and answers and then link the page to your site. Repeat steps 1 & 2 when you get the time.

Using Dynamic FAQ Knowledge Base on Site Search knowledge base by topic or keyword Knowledge Base delivers FAQs Solved? Yes: Happy customer No: repeat or send e-mail Source: conversations with Right Now Technologies Rightnowtech .com Armstrong floor

Using FAQ Knowledge Base via E-mail Send e-mail question System reads e-mail, sends acknowledgement Old FAQ OK? Knowledge Base delivers likely FAQs to human Update database E-mail FAQ link Yes Write new FAQ No Source: conversations with Right Now Technologies Rightnowtech .com Rightnowtech demo http://demo.rightnowtech.com/cgi-bin/du

Ben & Jerry’s 5,000 e-mails per month. Backlog of 5,000 messages. System seeded with just 12 FAQ’s. FAQ database now covers over 100 topics. Traffic down to 250 e-mails per month. No e-mail backlog. Source: Right Now Technologies

Automating E-mail Responses to Customers Customer Question Match? Special Attention? Experienc Experience Experience Proper staff can answer? Send solution to customer no yes no yes yes Source: Hanson (2000) Principles of Internet Marketing

Matching with EchoMail Incoming e-mail is automatically classified using a dictionary of keywords and word relationships according to 5 attributes: Attitude (e.g., negative, neutral, positive) Issue (e.g., billing, merchandise, legal) Product Request (e.g., nearest location) Customer (e.g., name, address) Messages are answered automatically or sent to a human for personal response. Source: Technology Review , January/February 2000, p. 45

The Human Touch Use call centers. Cross-train call center personnel to do online chat or e-mail. Good luck. Some estimate a 15% success rate.

Choosing Online Support Technologies Fixed Cost Variable Cost Call center, online chat Dynamic FAQ E-mail auto responder Static FAQ Quality? Consider how many customers you have, and how unique the customer service needs are.

U.S. Annual B2B Sales Generated by Medium Source: WEFA Group, Marketing News 7/3/2000 Billions

Personalization Customization and personalization Technologies for personalization/customization Site customization Endorsements Collaborative filtering Rules-based systems Computer assisted self-explication (CASE) Anonymous personalization?

Customized or Personalized? Customization and personalization both lead to person-specific content, but Customization is user-controlled. Personalization is marketer controlled, or database driven (“sense and respond”). Source: www.personalization.com

Personalization Adds Value For customers, personalization offers Only the relevant products/services Only the relevant information (including customized information products) individual.com The most convenient interface For the businesses, personalization offers More customer information Opportunities for price discrimination More time on site Better odds at cross-selling Higher retention rates

One Experience with Personalization On average, only 15% of buyers ever return to a site. For one company, personalization technology (collaborative filtering): Increased repeat by 27% Lengthened shopping time from 4 to 7 minutes. Increased number of products viewed from 6 to 10. Source: Andy Borland, CEO ClickZ Network, August 1999.

Customized Websites Customer specifies desired content. http://www.excite.com/ http://www.yahoo.com/ High fixed, low variable cost – good for businesses with thousands of customers with low LTV For B2B customers, marketers may build customer extranet websites, including special pricing, dedicated support, and other valuable options Low fixed, high variable cost – good for businesses with fewer customers with high LTV

Endorsement Examples Endorsements may be customer-generated: eBags customer ratings Amazon reviewers Endorsements may be company generated: Consumer Reports Ideacafe.com tech reviews Endorsements work well when all consumers have similar needs and wants.

Collaborative Filtering Also known as recommender systems, collaborative filtering involves identifying two customers with similar product preferences and offering recommendations to one based on the known ratings of the other. Examples: Jester site (joke recommendations): http://shadow. ieor . berkeley . edu /humor/ Netflix (movie recommendations): http://www. netflix .com/ratings_intro.asp? sid =4

Use Collaborative Filtering When… Perception of products is highly subjective and unrelated to other customer attributes Decision rules differ across customers A formal decision model can’t be found

Problems with Collaborative Filtering Problems with Collaborative Filtering include: 1) Prevalence of missing data and complex decision models means large samples required 2) Insufficient data at start-up 3) Customers may have to buy or rate many products before model can be used 4) Predictive performance not great

Rules-Based Systems Rules-based systems offer customers custom products and experiences based on the application of formal “if-then” like patterns. Examples include showing certain banner ads on certain pages, reminding customers of upcoming birthdays, or recommending products based on known customer needs or demographics.

Rules-Based System Example Amazon book recommends appear to use past purchase data and collaborative filtering, but do so unobtrusively and so could be considered a rules-based system.

Rules-Based Systems (cont.) Rules-based systems are used when: 1) Meaningful rules are available (from experts, deduction, or reliable inference) 2) Customer preference follow simple, predictable patterns Problems with Rules-Based systems The most predictive rules may require sensitive customer information and/or asking detailed questions (as with CASE systems).

Computer Assisted Self-Explication (CASE) Experts determine appropriate decision rules for selecting products or services Customers are asked to answer a list of questions related to the decision rule Recommendations are offered based on the customers’ answers Example: personalogic .com decision guides for cars, homes, pets, etc.

Choosing Customization and Personalization Tools Needs differentiation Attribute complexity Adapted from Figure 7.12, Hanson (2000) Internet Marketing Highly Differentiated Needs Uniform Needs CASE (Computer-Assisted Self-Explication) Rule-Based Few and quantifiable attributes Collaborative Filtering Endorsements Complex and/or qualitative or intangible attributes

“ Anonymous Personalization” Personalize your site interactivity without asking for private information. Don’t ask name, phone, email, etc. early in the relationship. Possible opening questions: Which industry is your company in? How do you plan to use a product like ours? What is your zip code? When respondents see benefit in offering a little information, they’ll be more likely to offer more information. Cliff Allen (1999) Achieving Anonymous Personalization (I&II), found through www.searchz.com

Distribution Online Issues to consider in selling online. Types of information consumers use. Benefits of intermediaries. Keeping existing channel happy.

Does Selling Direct Online Make Sense for You? Can I realize significant margins by selling direct? Will I have a sustainable competitive advantage? Can I offer most of the value currently offered by my existing distribution partners? Can I physically deliver the product cost-effectively? Can I offer the quantity and quality of information my customers typically need? If I will still need my sales force/retail outlets, do I have a plan for keeping them happy?

Types of Information What types of information do consumers need to make a decision? Primary Product Data (Product Trial) Sensory: Taste, Touch, Smell, Sight, Sound Performance: Fit/Compatibility, Function Secondary Product data Comparative v. Noncomparative Price (w/discounts) Objective v. Subjective

Take a Sniff on the Web DigiScent’s iSmell for sale by 12/2000 for $80-$120. 128 organic scents combine to form thousands of more complex smells. 700 computer-game developers have asked for software kit. Can turn in down or off. See also FirstSENX and AromaJet. Newsweek, August 28, 2000, p. 61-62.

Feel a Web Page Logitech’s iFeel will sell for $40 Buttons, menus, and graphics with the right coding will cause force-feedback in the mouse User can select from a variety of feels Newsweek, August 28, 2000, p. 61-62.

eBags Example Primary Sight: many pictures Touch: proxies with close-ups? Function: product shown in-use. Secondary Comparative: comparison tables Subjective: customer ratings ebags .com

Quality of Information Intermediaries May Provide Intermediaries enhance customer search by offering types of information that manufacturer’s typically don’t provide: Objective comparisons with other brands Subjective information If these are very important to your customers, consider selling indirect online (through and intermediary)

Other Benefits of Intermediaries 1) Reduced customer search cost (fewer contacts needed) 2) Provision of Product Information (esp. subjective) 3) Collection of customer information 4) Anticipation of customer needs 5) Communication with customers (promotion) 6) Assorting appropriate product mix

Benefits of Intermediaries (cont.) 7) Sorting (suggesting quality differences) 8) Negotiation 9) Order processing 10) Storage and movement of products 11) Financing 12) Delivery 13) Branding (assurance) Cf. Kotler’s Marketing Management , McCarthy’s Basic Marketing

Facilitating Purchase/Delivery Intermediaries No Intermediaries Buyers Sellers Buyers Sellers Intermediaries are most beneficial in complex, fragmented markets.

Keeping Existing Channel Happy Sell online at a higher price. Sell online only to regions not served by existing sales force/retail outlets. International? Train sales force to do acquisition, but use extranet for customer service/development/retention and let sales force keep the account. Train sales force how to offer value beyond what’s offered on the Internet (to selected segments?). Travel agents?

Metrics and Tracking ROI and metrics to consider for various types of sites Analyzing log files

Establishing Your Performance Measures Identify all the objectives of your site (e.g., generate leads, customer service, sell products, sell advertising, build the brand, etc.) Prioritize your objectives Identify meaningful metrics of each objective Establish meaningful goals for metrics Track metrics and compare with goals

Sample Metrics to Consider Online metrics Visitor Visits (w/in 30 minutes) Page views Ad views Hits Views of thank you page Related Offline metrics Calls to call center Sales Customer satisfaction

Metrics for Ad Vehicles If your objective is to sell ad space, track Cost per visit (subscribers and non-subscribers) Page views per visit Visits per week Repeat visit rate Also note demographics by page Roll to Avg CPM and ad views per week

Metrics for Direct Sales Sites If your objective is to sell products or services, track Cost per acquisition Visits per week Conversion rates Avg revenue per sale Customer retention rates

Metrics for Customer Service Sites If your objective is to offer cost-effective customer service, track Reduction in use of call center Reduction in use of human e-mail response Visits to customer service pages (e.g., FAQ’s) Customer satisfaction with service These objectives are also relevant to internal customer service

Analyzing Log Files Log files record all activity on your server Log files are difficult to read without help joe.cerfin.com -- [05/Dec/1999:14:03:23 -0400] “ GET /page5.html HTTP/1.0” 200 3291 “ http://www.yy.com/y.html” “ Mozilla/4.0 [en] (Win95; I)”

Software for Analyzing Log Files Consider http://www.webtrends.com Note types of reports Note definitions of key terms See also: http:// dmoz .org/Computers/Software/Internet/Site_Management/Log_Analysis/

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