Improving performance through eMarketing Intelligence

The E-marketing Mix Part 1

Topics

Introduction.

E-marketing Mix - Product

E-marketing Mix - Price

References

Introduction

This month we continue our exploration of e-marketing strategy by looking at the options the Internet presents to vary the marketing mix.

I hope this will be useful if you are a student studying towards a CIM award or if you are currently developing an e-marketing strategy for your organisation. To help put it into context, I have included quite a few
links to web sites to illustrate online applications of the mix.

During the dot-com boom it perhaps became unfashionable to use the marketing mix as a way of generating e-marketing strategies, but it does still provide a sound framework for this purpose.

Additionally, the Internet provides many new pportunities for the marketer to vary the marketing mix and e-commerce has far-reaching implications for the relative importance of different elements of the mix for many markets regardless of whether an organization is involved directly in e-commerce. Remember that criticisms about
the application of the marketing mix to traditional strategy generation also hold true in this context. For instance, it can lead to short-term strategies that are not directed at developing relationships and increasing customer lifetime value. Similarly, if a single mix is developed for all segments, then this may be too simplistic.

In this review, we focus on the core 4Ps of the marketing mix, i.e. Product Price, Place, Promotion but briefly review the elements of the extended marketing mix: People, Process, Physical evidence. We start with product and price in this article and then go on to the remaining elements of the mix next month.

If you are studying, I recommend the paper by Allen and Fjermestad (2001) provides a succinct review to options for varying the marketing mix online. Alternatively, refer to Chapter 2 in Smith and Chaffey (2001) on which this summary is based.

E-marketing mix - Product

Product is the element of the marketing mix that involves researching customers needs and developing appropriate products. We will look at the online options for varying the core product: the fundamental features of
the product to meet the users needs and the extended product: the additional features and benefits beyond the core product.

Core product options

Ghosh (1998) discussed evolving product offerings using the Internet by providing what he referred to as digital value to customers. He said companies could ask the following questions:

1. Can I offer additional information or transaction
services to my existing customer base?

2. Can I address the needs of new customer segments by
repackaging my current information assets or by creating new business propositions using the Internet?

3. Can I use my ability to attract customers to generate new sources of revenue such as advertising or sales of complementary products?

4. Will my current business be significantly harmed by other companies providing some of the value I currently offer?

A further useful concept is that of the prosumer
introduced in 1980 by futurist Alvin Toffler in his book The Third Wave.

According to Toffler, the future would once again combine production with consumption. In The Third Wave, over 10 years before the web was developed, Toffler saw a world where interconnected users would collaboratively
"create" products. Alternative notions of the prosumer, all of which are applicable to e-marketing are catalogued at Logophilia WordSpy ( href="http://www.logophilia.com/WordSpy">www.logophilia.com/WordSpy) which defines prosumer as:

1. A consumer who is an amateur in a particular field, but who is knowledgeable enough to require equipment that has some professional features ("professional" + "consumer").

2. A person who helps to design or customize the products they purchase ("producer" + "consumer").

3. A person who creates goods for their own use and also possibly to sell ("producing" + "consumer").

4. A person who takes steps to correct difficulties with consumer companies or markets and to anticipate future problems

("proactive" + "consumer").

An example of the application of the prosumer concept to the Internet is provided by BMW (www.bmw.co.uk)
who used an interactive web site prior to launch of their Z3 roadster where users could design their own preferred features. The information collected was linked to a database and as BMW had previously collected data on its most loyal customers, the database could give a very accurate indication of which combinations of features were the most sought after and should therefore be put
into production.

For some products mass customisation can be used so that the customer selects the exact combination of product options they want from the web site and the product is configured accordingly. Dell Computer ( href="http://www.dell.com/">www.dell.com) and Levi ( href="http://www.levi.com/">www.levi.com) were early online adopters of this approach. Barbie.com (www.barbie.com)
has lots of games online that involve styling the dolls which can be fed through into new product development data is collected on the most popular choices.

The actual nature of the product can even be fundamentally altered. Rayport and Sviokla (1994) describe transactions where the actual product has been replaced by information about the product. For example, a
company providing oil drilling equipment changed its product focus instead to using the Internet to product tools for analysis and dissemination of information about drilling.

Alternatively the scope of the product offering may be
changed online. For example on its interactive TV service WH Smith ( href="http://www.whsmith.co.uk/">www.whsmith.co.uk) reduced its choice of products to best-selling books and CDs. On the Internet however it has expanded its product line to include computers which have not sold well in store.
Likewise Tesco.com offers computers and white goods through its online presence, although it is impractical to sell such a range of products instore.

The Internet has arguably also made bundling of products more practical. easyJet for example can readily bundle its flights and car hire through suitable design of its web site.

Extended product options

The ability to deliver interactivity and more detailed
information through the Internet are key to enhancing the extended product offering online. Product selection tools can help match product to customer.

For example Epson (www.epson.co.uk) use
interactive tools to let purchasers select the best printer for them by choosing options such as print quality and speed which then automatically reduces the number of available printer options from over 20 down to a manageable number.

Smith and Chaffey (2001) list these aspects of extended
product that can be improved online: add-on services such as gift wrapping at Amazon; product or brand endorsement such as Pepsi offering video interviews with David Beckham through their e-newsletter and web site; awards,
testimonials; customer lists; warranties; guarantees; money back offers; customer service and finally incorporating tools to help users during their use
of the product through detailed information on extranets or calculators or software models to optimise use of a product.

The Internet also offers great opportunities to get closer to the customer. The humble Feedback button can provide a surprising amount of information. Better still, by analysing consumer e-mail queries from the Internet and other channels, companies can provide better product information.

For example, easyJet (www.easyjet.com)
has a detailed set of frequently asked questions that are compiled from analysis of the hundreds of thousands of questions received online.

Traditional marketing research techniques can also be
applied online to learn more about product preferences.

The online focus group can be used to reach customers who dont have the time or are too far away to participate in a conventional focus group. Online surveys can be used to assess customer satisfaction. New techniques can also be used, for example web log analysis tools such as WebTrends can be used to assess levels of interest in
different products and features and independent comment sites such as Epinions (www.epinions.com) can be used to assess customer satisfaction.

Finally, the Internet can help achieve accelerated new
product development. Information can be shared through extranet collaboration tools such as Opentext Livelink and customer feedback can be gathered and disseminated more rapidly between a company and its partners.

E-marketing Mix - Price

There are two extreme viewpoints about how the Internet affects pricing. These are discussed by Baker et al. (2001).

The first view is that decreased prices are inevitable for commodities. The Internet increases customer knowledge through increased price transparency since it becomes much quicker to compare quoted prices by visiting
supplier web sites. Even more significant is the use of price comparison sites by consumers. Sites such as Kelkoo (www.kelkoo.com)
and Barclaycard Shopsmart (www.shopsmart.com)
give a single location that empowers the consumer to quickly find out the best price from a range of suppliers for a range of products from Books and CDs to white goods. B2B marketplaces such as Alibaba (www.alibaba.com) play a similar role in inter-organisational marketing.

The second view is that although price transparency is a great theory, the actual practice by consumers is quite different.

Research summarised by Baker et al. (2001) has indicated that many online purchasers do no not perform extensive research before purchasing. For example, it is estimated that 89% purchase books from first site and only 10% of online shoppers are aggressive bargain hunters. Turning to price comparison sites, these tend to have lower awareness amongst consumers than established brands
and successful Internet retail brands. It has proved costly for the new intermediaries to increase their brand awareness and it is difficult to offset this against revenue since they only receive a small proportion of each sale.
Shopsmart failed in the UK because it couldnt balance the cost of acquisition against affiliate revenue and was subsequently purchased by Barclaycard. There are also barriers to prevent corporate buyers using online marketplaces. Again, they may not be aware of their existence. Even if they are, they may be happy
with the status quo, and think that a human face to the supplier may be beneficial for a long term relationship and the most favourable deal. It may not be clear who you turn to when an online B2B transaction goes wrong, if
there is a problem with specification or fulfilment - is it the intermediary or the manufacturer? Online B2B purchases are also complicated by the need to involve several members of the decision making unit.

Differential pricing

What then are the options for setting pricing online?
Offering differential pricing for products purchased over the Internet has become commonplace. One of the reasons why the low cost carriers such as Ryanair and easyJet were successful in migrating their customer base online was that they offered a discount of 5 per ticket booked online. Other longer distance carriers such as Virgin Atlantic have now introduced a discount of 10 for their flights. Such discounts are based on taking out the cost of the person answering the phone and processing the order or through being able to sell direct and bypassing the channel. Vauxhall offers cars for sale online at
what it call VIP: Vauxhall Internet Prices ( href="http://buypower.vauxhall.co.uk/">http://buypower.vauxhall.co.uk).
However, if such savings are not felt to be significant, or there is a danger of channel conflict, then it is more common to peg online prices at offline levels.

Baker et al. (2001) suggest that companies should use three factors to assist in online pricing.

1. Precision. Each product has a price indifference band, where varying price has little or no impact on sales. Baker et al. (2001) report that these bands can be as wide as 17% for branded consumer beauty
products, 10% for engineered industrial components, but less than 10% for some financial products. The authors suggest that while the cost of undertaking a survey to calculate price indifference is very expensive in the real-world, it is more effective online. They give the example of Zilliant, a software supplier that, in a price discovery exercise, reduced prices on 4 products by
7%. While this increased volumes of three of those by 5 to 20%, this was not sufficient to warrant the lower prices. However, for a fourth product, sales increased by 100%. It was found that this was occurring through sales to the educational sector, so this price reduction was just introduced for customers in that sector.

2. Adaptablity. This refers to responding more
quickly to the demands of the marketplace with online pricing. For some product areas such as ticketing it may be possible to dynamically alter prices in line with demand. Tickets.com adjust concert ticket prices according to demand and has been able to achieve 45% more revenue per event as a result. The authors suggest that in this case and for other sought after items such as video games or luxury cars, the Internet can actually increase the price since there it is possible to reach more people.

3. Segmentation. This refers to pricing differently for different groups of customers. This has not traditionally been practical for B2C markets since at the point-of-sale information is not known about the customer, although it is widely practiced for B2B markets. One example of pricing by segments would be for a car manufacturer to vary promotional pricing, so that rather than offering every purchaser discount purchasing or cash-back online, it is only offered to those it is thought this is necessary to make the sale. A further example is where a company can identify regular customers and fill-in customer who only buy from the supplier when there needs cant be met elsewhere. In the latter case, higher prices could be levied.

Great care has to be taken with differential pricing online as was shown when Amazon started offering lower prices to first time buyers.

Word of this practice quickly spread and Amazon had to withdraw this approach.

Reverse B2B auctions

The jury is still out on whether online auctions will become predominant for B2B commodities. Certainly, large
reductions of 10-20% on historical pricing levels have been achieved in some sectors such as brewing, chemicals and engineering. Baker et al. (2001) suggest, however, that auctions will not become a mainstream activity, and may be seen as a passing phase since surveys in the US have shown that

       
Only 2% prefer reverse auctions for B2B products; 50% do not choose lowest bidder; 87% stay with current supplier and many have stopped experimenting

Pricing structure

Different types of pricing may be possible, on the Internet, particularly for digital, downloadable products. Software and music has traditionally been sold for a continuous right to use. The Internet offers new options such as payment per use; rental at a fixed cost per month or a lease arrangement. Bundling options may also be more possible. The use of applications service providers (ASPs) to deliver service such as web site traffic monitoring also gives new methods of volume pricing. Companies such as Sitestats (www.sitestats.com) and RedSherriff (www.redsherriff.com)
charge in price-bands based on the number of visitors to the purchasers site.

Further pricing options which could be varied online include;

  • Basic Price
  • Discounts
  • Add-Ons and Extra products
    and services

  • Guarantees and warranties
  • Refund policies

  • Order Cancellation terms

References

Allen, E. and Fjermestad, J. E-commerce marketing
strategies: a framework and case analysis. Logistics Information Management.
Volume 14
. Number 1/2 . 2001 . pp. 14-23.

Baker, W., Marn, M. and Zawada, C. (2001) Price Smarter on
the Net. Harvard Business Review. February 2001, 2-7.

Evans, P. and Wurster, T. (1999) Getting real about virtual
commerce. Harvard Business Review. 84-94.

Ghosh, S. (1998) Making business sense of the Internet, Harvard
Business Review
, MarchApril, 12735.

Rayport, J. and Sviokla, J. (1994) Managing in the
marketspace. Harvard Business Review, July, pp141-50.

Smith, P.R. and Chaffey, D. (2001) eMarketing eXcellence:
at the heart of eBusiness
. Butterworth Heinemann, Oxford, UK.

Links

       
Marketing Online ( href="http://www.marketing-online.co.uk/">www.marketing-online.co.uk)
provides a range of links for resources on strategy and development.

       
McKinsey Quarterly ( href="http://www.mckinseyquarterly.com/">www.mckinseyquarterly.com). Regular
articles on strategic approaches to e-marketing.

Note: This article is one of a series originally written between 2000 and 2003 for The Chartered Institute of Marketing What's New in Marketing Newsletter. Many of the concepts remain valid, but some more recent concepts such as Web 2.0 and social networks aren't referenced. More recent editions of my books contain more up-to-date examples and latest thinking.

For the latest on these concepts see my DaveChaffey.com blog site for E-marketing mix articles.