Electronic channels, direct marketing and Direct selling

1
Electronic channels, direct marketing and Direct
selling

• Module 10
• Chapters 15 and 16

2
Lecture Overview

• What is direct marketing?
• When to use direct marketing
• What is an electronic marketing channel?
• 3 main considerations in determining whether to
  use e-channels
• Will e-channels be successful?
• Advantages and disadvantages
• What is direct selling?
• Trends in direct selling
• When to use direct selling

3
Direct Marketing

• Non-store sale of goods and services without the
  use of personal selling
• Designed to elicit a measurable response
• e.g. sales or membership registration
• Historically the main form of home shopping
  which accounts for about 4 of all consumption (a
  little higher in the U.S)
• Can involve-
• TV, radio, print, catalogues, brochures, letters,
  telephone and Internet
• Natural extension is the use of e-channels

4
Problems with Direct Marketing

• High operating, order processing and shipping
  costs
• Clutter amongst intense competition
• Negative associations with junk mail
• e.g. email, faxes and telemarketing during dinner
  time
• Low response rates
• 5 response rate is considered very high
• Higher response rates have higher return rates
• High perceived consumer risk
• Cannot see or try product prior to purchase

5
Opportunities to use DM exist when

• Access to mailing lists and databases provide
  customer information and allows for micro or
  niche marketing
• Access to geographically dispersed markets
• Convenient alternative for consumers
• Access to advanced technologies

6
Conditions suited to DM

• Market Factors
• Firm is serving geographically dispersed market
• Firm seeking to target niche markets
• Product Factors
• Novel, unique or very high quality
• Intermediary Factors
• Lack of suitable intermediaries
• Possible intermediaries not willing or able to
  provide required level of support
• Cost of intermediaries too high

7

• Company Factors
• Small firms with limited financial capital
• Large firms requiring alternative channel
• Large firms seeking high market penetration
• Specialised expertise in direct marketing
• When higher degree of control needed over
  distribution and customer service
• Environmental Factors
• Eg Lifestyle or technological changes create
  opportunities
• Behavioural Factors
• Requiring a channel with minimal problems of
  communication, motivation and channel conflict

8
What is an Electronic Channel

• Also known as electronic marketing channel or
  e-channel
• The use of the internet to make purchases and
  services available, so that the target market
  with access to computers or other enabling
  technologies can shop and complete the
  transaction for purchase via interactive
  electronic means (Rosenbloom 1999, p. 451)
• Estimated online sales worldwide (2000) at about
  650 billion ( / - 20) or about 5 of total
  consumption done online

9
Should an E-channel be used?

• 3 main considerations when considering the use of
  e-channels
• Channel Structure
• Order processing
• Target markets and consumer needs

10
Channel Structure

• Appearance of buying direct from manufacturers
  (disintermediation)
• More often e-channels involves the addition of
  more intermediaries (reintermediation)
• Basic principle that all functions and tasks
  still need to be performed
• Therefore, will the functions be performed more
  or less efficiently through e-channels, and will
  reintermediation be required?

11
Order processing

• Dramatic increases in
• Information flow
• Ordering
• Payment processing
• BUT..Potential ordering problems with physical
  delivery of goods
• Difficult to guarantee delivery times, or quality
  (or correctness) of product on arrival
• Internet cannot provide product flows
• Exceptions for downloadable products eg music

12
Needs and attitudes of consumers

• Which market segments should be targeted?
• How to reduce risk?
• How to replace the entertainment and social
  aspects of shopping

13
Consumer profile and trends

• Internet shoppers tend to be
• 40 49 yrs old
• Higher educated
• Middle-upper to upper incomes
• City slickers
• Main reasons for shopping include
• Convenience ?? (if you can find the site)
• Choice ?? (Woolworths has 40 000 skus)
• Cheaper?? (what about P H?)
• Fun?? (what if you like to kick the tyres?)

14
Will e-channels be successful?

• Consumer behaviour trends
• Attitudes of intermediaries
• Adoption of e-channels by producers

15
Consumer Behaviour Trends

• Profile (as discussed before) will need to widen
• Currently useful for limited types of products
• provide reasons to buy a wider range or products
• Sell complimentary products to existing range and
  use internet to create additional consumers
• Shopping patterns used
• e-tailers need make online shopping more engaging
  to compete against offline shopping
• Reasons for buying over the internet
• Requires more easily identifiable benefits

16
Attitudes of Retail Intermediaries

• Main reasons for not using internet (54)
• Product not suitable
• Small market (1)
• Inadequate technology
• Conflict with core business
• Cost

• Main reasons for using internet (12)
• Market development
• Increase sales volume
• Customer retention
• Differentiation
• Competitive positioning
• Cost reduction

17
Adoption by producers

• Main reasons for using internet (9)
• Market development
• Increase sales volume
• Customer retention
• Competitive positioning
• Cost reduction

• Main reasons for not using internet (71)
• Product not suitable
• Small market (1)
• Inadequate technology
• Conflict with core business (retailers)
• Cost

• Manufacturers who can achieve mass customisation
  will be more likely to succeed on the internet eg
  www.dell.com/
• Other companies may be restricted in the short
  term to promotional sites eg www.cocacola.com/

18
Advantages of e-Channels

• Access to worldwide markets
• Convenient and speedy transactions
• Efficient and flexible information processing
• Use of database marketing for CRM
• Reduced distribution costs

19
Disadvantages of E-channels

• Increased risk for consumer
• Lack of store atmosphere
• Delivery issues
• Cost of small order processing
• Internet clutter
• Difficult and confusing for customers
• Inadequate technologies
• Lacks social benefits of shopping
• Risk and security problems

20
Six strategic decision areas
Role in corporate strategy
Role in marketing mix
Channel design
Channel member selection
Channel management
Evaluating channel performance
21
What is Direct Selling Channel

• Non-Store Retailing defined as-
• A method of distribution of consumer goods and
  services through personal, face to face sales
  away from fixed business locations, primarily in
  the home (Direct Selling Education Foundation
  1986, p.2)
• Examples include
• door to Door sales eg insurance, Kirby and FAI
  security
• MLM companies eg Amway and Avon
• Party Plans eg Tupperware and Mary Kay
• Direct infers direct from manufacturer to
  consumer. This is true for these examples IF
• the sales people (distributors) simply
  facilitate the transaction but the delivery is
  direct to consumer
• however today these intermediaries are
  increasingly involved in product flows

22
Direct Selling Structure and Trends

• Increasing consumer acceptance and growth
• Increasing types of business using this as the
  main or secondary channel
• Businesses adding a wider scope of products from
  other manufacturers eg Amway only produces
  (brands) 20 of their products
• Increasing scope or markets served
• Consumer vs. industrial and business
• Possibly due to people having less time to spend
  at home entertaining a salesperson or sales party

23
6 Factors for using Direct Selling

• Market
• Product
• Company
• Intermediary
• Environmental
• Behavioural

24

• Market
• Time poor consumers seeking shopping convenience
• Need for personalised service and better product
  information
• Product needs explanation or demonstration
• Superior quality
• Unique and/or
• Complex item
• High involvement item requiring all decision
  makers to be present at once

25

• Company
• Firm requires high degree of control over all
  marketing mix elements
• Intermediaries
• Difficult to attain suitable intermediaries
• Cost of using intermediaries are high

26

• Environmental
• External forces conducive to direct selling
• Behavioural
• Firm is prepared, and able, to manage a people
  intensive distribution system

27
Summary

• What is Direct Marketing
• When to use direct Marketing
• What is an Electronic Marketing Channel
• 3 main considerations in determining whether to
  use e-Channels
• Factors determining the success of e-channels
• Advantages and Disadvantages
• What is Direct Selling
• Trends in Direct Selling
• When to Use Direct Selling

28
Tutorial activities

• Dell case study
• Activity 10.9, question 2 (issues for discussion
  1, page 505)
• Activity 10.11 (issues for discussion 5, page
  505)
• Activity 10.3
• Activity 10.12