New (and Old) Marketing Channels:

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Chapter 15

• New (and Old) Marketing Channels

Electronic Marketing Channels and Direct Selling
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Major Topics for Ch. 15

• What is EMC?
• Trends in EMC
• Structure of EMC
• Advantages and Disadvantages of EMC
• Implications of EMC
• 6. Direct Selling

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Electronic Marketing Channels
Topic 1
Computers
Technology
Internet
Impact on Design Management of Marketing
Channels
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Electronic Marketing Channels
Topic 2
Not physical availability
Internet, Web-TV, Cell Phone
The use of online media to make products
services available so that the target market with
access to enabling technologies can shop
complete the transaction via interactive
electronic means
Actually purchasing products through the use of
PCs, Web-TV, Cell Phones
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Developments Trends in EMC

Online shopping to 134 billion from
mid-1990s to the end of 2009 Online
shopping has become a routine shopping
choice PCs, peripherals, software,
books accounted for a significant portion of
total retail spending on these products
Electronic Marketing Channels
U.S. Department of Commerce
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Channel Migration
Holiday Shopping across Different Channels
Spending Distribution 2005 2002
Stores 68 72 74 78
Catalogs 5 6 6 6
Online 27 22 20 16
2004
2003
Source A.C. Nielsens Holiday E-spending Report
www.internetretailer.com
What do you do if you are a physical
store-based retailer?
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Future of Online Shopping
Online Sales as a Percentage of Total Retail Sales
Year Online as of Retail Sales Change from Previous Year
2002 1.3 19.7
2010 8.0 0.0
2011 9.0 12.5
2012 10.0 11.1
2013 10.0 0.0
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Electronic Channels on Social Network Sites

• By 2009, almost ½ of Americans had a Facebook or
  MySpace account
• Among American, age 18-33, almost ¾ were
  registered with Facebook or MySpace
• Businesses are now rapidly engaging in F-commerce
  (Facebook Commerce)

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Structure of ElectronicMarketing Channels
Topic 3

• 1. Reintermediation versus disintermediation
• Information flow versus
• product flow
• Virtual channel structure versus
• physical channel structure

Three Key Phenomena


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1. Disintermediation andReintermediation

Disintermediation
Reintermediation
Shifting, changing, or adding middlemen to the
channel
Intermediaries become superfluous because
producers gain exposure to vast numbers of
customers in cyberspace
Amazon.com Auto-By-Tel Corp. Peapod, Inc.
Dell Computer Corp.
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Disintermediation versusReintermediation

• No matter how technologically sophisticated
  the Internet becomes, the laws of economics as
  they relate to channel structure do not change.

Efficiency in the performance of distribution
tasks is what ultimately determines what form
channel structure will take.

The Internet has not eliminated middlemen, or
caused total disintermediation.
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2. Marketing Channel Flows
Product Flow
Negotiation Flow
Ownership Flow
Information Flow
Ex) Pharmaceutical
Promotion Flow
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Marketing Channels for Pharmaceuticals
Physical Distribution Flow
Information Flow
Insurer/ HMO
Manufacturer
Manufacturer
PBM
Distributor
Pharmacy
Doctor
Pharmacy
DTC
patient
patient
Pharmacy Benefit Manager (www.medco.com)
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Internet Limits as a Stand-alone Channel

• Five Channel Flows
• Some can not be
• handled by internet

• Ex) Physical Product Flow in Channel
• Cannot be digitized
• Processed slowly, often by people
• Is basis for all other flowsnegotiation,
• ownership, information, promotion

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• 3. Virtual (Online) Channel Structure Versus
  Conventional (Store) Channel Structure
• Different Market Segments
• Different Product or Services
• Complements rather than Replaces Each Other

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Advantages Disadvantages of EMC
Topic 4
Advantages of Electronic Marketing Channels

• Global scope reach
• Convenience/rapid transaction processing
• Information processing efficiency flexibility
• Data-based management relationship capabilities
• Lower sales distribution costs

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Advantages Disadvantages of EMC
Disadvantages of Electronic Marketing Channels

• Lack of contact with actual products delayed
• possession
• 2. Fulfillment logistics not at Internet speed or
  efficiency
• Clutter, confusion, cumbersomeness of Internet
• Nonpurchase motives for shopping not addressed
• Security concerns of customers

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Implications of EMC
Topic 5

• Objectives strategies of the firm EMC
• Role of EMC in the marketing mix
• Channel design EMC
• Channel management EMC
• Evaluation EMC

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Objectives Strategies of the Firm

• Role of distribution becomes more complex because
  of electronic marketing channels
• How to Integrate Online with Offline channels

Offline only ? Online only ? Offline Online
(multichannel)
Ex) My research project
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Impact on The Marketing Mix
The Internet arms large numbers of customers
with more information about products
services to level the playing field The fourth
P, place (distribution), may assume a larger role
relative to the other three variables for more
more firms
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Channel Design
The channel manager should provide
channel-surfing consumers with whatever
channels or combinations of channels they
desire a) A facet of the development of an
effective multichannel marketing strategy
b) Unbundle Channel Functions A special topic
PIC (Partially Integrated Channel)
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DUAL DISTRIBUTION WITH EMC CHANNEL STRUCTURE
OPTIONS
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DUAL DISTRIBUTION WITH EMC CHANNEL STRUCTURE
OPTIONS
(b) Manufacturer sells through third-party
online reseller (e.g, Callaway Golf selling
through buy.com)
Manufacturer (Callaway Golf)
Independent Internet Sales Channel (buy.com)
Standard Channel (pro shops, bricks mortar
sports/golf outlets)
Consumers
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DUAL DISTRIBUTION WITH ONLINE SELLING CHANNEL
STRUCTURE OPTIONS
(c) Manufacturer sells through some standard
channels that do operate their own online store,
and some that do not
Manufacturer (Simon Schuster, Publisher)
Standard Channel (bricks mortar bookstores)
Barnes Noble
Barnes Noble bricks mortar bookstores
Barnes Noble Internet Sales Channel (bn.com)
Consumers
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Channel Management
Multichannel challenge of conventional and
electronic channels The fundamental issues of
motivating channel members, building cooperation,
managing conflict, coordinating elements of the
marketing mix requires managers full
attention Key Issue Managing Conflict between
Marketing Channels
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Evaluation of Performance
Likely to change Unlikely to
change Specific criteria for
Performance expectations, performing evaluations
criteria, measurement of technological
means for how well they are being met doing
so by channel members Ex) Store
Traffic Measure
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What drives sales impact of online channel
addition?

• Steve Kim (ISU) and Sam Min (CSULB)
• Question For store-based retailers, does adding
• online channel lead to more
  sales?

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Likely Drivers

• Channel Disruption (Potential for Displacement)
• Timing Chronological Time and Order of addition
• Incumbent Retailer Resource Scale of Physical
  store-based business
• Incumbent Retailer Resource Retailers Brand
  Equity

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Analysis Results
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• Channel Disruption (Potential for Displacement)
  Search good gt Experience good
• Timing Chronological Time (0) and Order of
  channel addition ()
• Incumbent Resource Scale of Physical store
  business(-)
• Incumbent Resource Retailer Brand Equity ()
  

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Direct Selling
Topic 6
Definition the sale of a consumer product or
service person-to-person, away from a fixed
retail location
Three key points Goes directly to
consumers homes, offices, or other locations
Concerned with the sale of consumer products in
consumer markets rather than industrial products
Involves salespeople meeting fact-to-face
with customers
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Structure Trends in Direct Selling
- Markets Served - Types of Products Sold -
Firms Involved in Direct Selling - Problems
Prospects for Direct Selling


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Markets Served

Location of Direct Selling Channel Sales
Location Percent of Sales
Home 64.4
Telephone 14.7
Workplace 8.7
Internet 5.5
Temporary locations 4.1
Other 2.6
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Types of Products Sold
Major Product Categories Sold through Direct
Selling Channels as a Percentage of Total Sales
Product Category Percent of Total Sales
Personal Care Products 26.4
Home/Family Care Products 33.7
Leisure/Educational Products 6.5
Services/Miscellaneous/ Other 33.4
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Firms Involved in Direct Selling

Hundreds exist Range in size from those with
annual sales over 1 billion to those with sales
well under 1 million
Facts

Tupperware Corp. Avon Products, Inc.
http//www.avon.com/ Cutco Cutlery
Corp. Amway Corporation
Examples
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Rationale for DesigningDirect Selling Channels


A method of distribution for providing products
services to customers
But
The decision should be based on an objective
analysis of the advantages or disadvantages of
each channel alternative.
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Variables To Consider for Direct Selling

• 1) Market variables DS channel
• Product variables DS channel
• 3) Company variables DS channel
• 4) Intermediary variables DS channel
• Behavioral variables DS channel
• Ex) Mary Kay in China

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1) Market Variables





Developments in consumer attitudes
behaviors that could make direct selling more
attractive
3. Consumers are seeking increased
convenience in shopping.
1. Consumers have less time available for
shopping in traditional stores.

2. Consumers are becoming more sophisticated and
demand more better product information.
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2) Product Variables
Products that are high quality, that are unique,
or that require specialized information advice
are logical choices for direct selling
Product quality may become apparent only when
consumers are informed about them in conjunction
with hands-on demonstrations.
Consumer satisfaction may depend on whether the
consumer has proper information.
Product uniqueness may become apparent only
through the direct help of salespeople.
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3) Company Variables








Basic variables to consider
4. Basic objectives policies of the company
1. Size of the company

2. Financial capacity of the company
3. Managerial expertise in distribution
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4) Intermediary Variables












Basic intermediary variables to consider
3. Services that alternatives are capable of or
willing to provide
1. Availability of alternatives

2. Cost of using channel alternatives
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5) Behavioral Variables

















The people side of the marketing channel
Communications processes
Conflict
Role
Power
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Problems Prospectsfor Direct Selling

Topic 4

• Lack an awareness of DS as an alternative.
• Negative impression on DS in general.
• Lower availability of consumers for at-home
• sales calls and parties.
• The perceived risk by consumers is
• high compared to other modes of shopping.
• 5. Recruitment of salespeople has become
  difficult.