Marketing Strategy

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Marketing Strategy

• Course Wrap Up
• Fall 2003
• Miguel Villas-Boas

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AOL vs. Freeserve

• AOL Offering interactive news, entertainment,
  information, shopping, buddy lists, e-mail
  service, electronic chat capabilities, and
  parental controls all under 30 per month.
• Late 90s Worlds largest Internet Service
  Provider (ISP) membership base. Membership fees
  represented over 2/3 of AOLs revenues.
  Advertising revenue per user 4-5 per month.
  Direct network cost per user was 5-9 per month.
• 1998 AOL was leading ISP provider in UK with
  800,000 subscribers. Subscribers in UK spent only
  a fraction of the time online that US users did
  because local telephone calls were paid per
  minute.
• September 1998 Dixons, UKs leading electronics
  retailer, offers every customer buying one of its
  computers a free CD containing a free online
  service, Freeserve. Dixons justified this as a
  way to play a dynamic role in e-commerce.
• Revenues for Freeserve A company that originated
  a call (typically British Telecom) had to share a
  portion of its revenues with the company that
  terminated the connection. A company that
  terminated connections, Energis, agreed to
  transfer a portion of its call revenue back to
  Freeserve.

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AOL vs. Freeserve

• Freeserve offered consumers unlimited internet
  access, an unlimited number of e-mail addresses,
  and 5MB of Web page capacity. Freeserve also
  launched its own home page, which initially
  contained news content, along with search
  features and content from Lycos, and retailing
  from shopping channel Scoot. Content and features
  paled in comparison with AOL.
• AOLs response Why worry? Its like Tiffanys
  saying its worried about Wal-Mart. Freeserve
  does not offer support service, added-value
  content, etc.
• December 1998 Freeserve overtook AOL Europe. By
  January 1999 Freeserve had one million customers,
  with 8,000 new subscribers signing up every day.
  By the summer of 1999 Freeserve was more than
  twice the size of AOL Europe.
• What can AOL do?

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What happened

• June 1999 AOL cut its British monthly fee of 27
  by 40.
• September 1999 AOL launched a free ISP service,
  Netscape Online for low end of the market
  (younger internet users, who were technically
  adept, and did not require much support.
  Subscribers received Netscapes latest browser,
  e-mail client, plus 20MB of free space.
• By February 2000 400K users for Netscape Online,
  200K new users for AOL, and 370K new users for
  Freeserve. Freeserve had 1.7M users and
  AOL/Netscaper 1.6M users.
• September 2000. AOL offered unlimited online
  access via a toll-free number for a fixed monthly
  fee. Freeserve matched AOL by offering an even
  lower monthly fee.
• December 6, 2000 Freeserve was sold to Wanadoo,
  Frances largest ISP, for 3.3b.

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Main Ideas

• AOL cannot use its unique resources (brand,
  content, etc) to compete with Freeserve (judo
  strategy)
• Freeserve How to establish more long-term
  sustainable advantages? Being focused?
• Understanding the competitors
• How to compete against stronger, bigger firms

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10 Main Ideas (for this course)Marketing Strategy

• Industry Analysis

Complements
Substitutes
Industry rivalry
Suppliers
Buyers
Entry
Think case Apple Computer, Markstrat
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10 Main Ideas Marketing Strategy

• 2. Pricing, Golden Rule of Pricing

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10 Main Ideas Marketing Strategy

• 3. Market Evolution. Bass Model. New products.
• Think case Sony Car Navigation Systems, Nestle
  Refrigerated Pizza

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10 Main IdeasMarketing Strategy

• 4. Buyer segmentation. Behavior segmentation.
  Think French railways.

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10 Main Ideas Marketing Strategy

• 5. Understanding customers Think perceptual
  maps, semantic scales, conjoint analysis.
  Markstrat. Constant learning.

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10 Main Ideas Marketing Strategy

• 6. RD and Product Development. Where do you want
  to be? Attractiveness of segment, competitors,
  translation of customer preferences to product
  specifications. Dynamic effects. Think Markstrat.
  Design of the organization.

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10 Main Ideas Marketing Strategy

• 7. Understanding factors affecting demand
  awareness consumer preferences
  availability. Product specifications,
  Advertising, sales force, S-shaped response
  functions, dynamics. Think Markstrat.

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10 Main Ideas Marketing Strategy

• 8. Resource allocation Golden rule.

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10 Main Ideas Marketing Strategy

• 9. Understanding competitors. Satellite
  television in UK, Bertrand supertraps, Markstrat.
  Learn faster.
• Think American Airlines case.

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10 Main Ideas Marketing Strategy

• 10. Loyalty, Lifetime Value of the Customers, and
  Customer Relationship Management. Think smart
  firms or consumers, Brita Products case, CMR case.

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10 Main Ideas Marketing Strategy

• Industry analysis. Think Apple Computer case.
• Pricing. Think Golden Rule of Pricing.
• Market evolution. Think Bass model.
• Buyer segmentation. Think French railways in 19h
  century.
• Understanding customers. Perceptual maps,
  semantic scales, conjoint analysis.
• RD and Product development. Think dictionaries,
  market attractiveness, competition.
• Decomposition of demand awareness, preferences,
  availability.
• Resource allocation. Golden rule.
• Understanding competitors. Think British
  satellite television.
• Loyalty, LTVC, and CRM. Think dynamics and
  sophisticated buyers or firms.