You are on page 1of 49

Summary

I.

Introduction 1.1.Economics 1.2.Marketing 1.3.Internet Marketing 1.4.Marketing versus Internet Marketing

II.

The Internet Marketing Mix 2.1.PRODUCT 2.1.1. Definition 2.1.2. Classification 2.1.3. How products enable customer relationship 2.1.4. E-Bay example 2.2.PRICING 2.2.1. 2.2.2. 2.2.3. 2.2.4.

Definition The Pricing Process Implementation across the four relationship stages E-Bay example

2.3.COMMUNICATION 2.3.1. Definition 2.3.2. The Communication Process 2.3.3. Implementation across the four relationship stages in the E-Bay example 2.4.DISTRIBUTION 2.4.1. Definition 2.4.2. The Distribution Process 2.4.3. Distribution levers and the four key stages of customer relationship 2.4.4. E-Bay as a distribution channel III. IV. Building competitive advantage through Internet Marketing Internet Marketing in the times of economical crisis - Case Study: South Pacific real estate agency, Romania, 2009 Bibliography

V.

Preface
This papers objective is to offer the reader an introductory course into the Internet Marketing subject. It is a structured gathering of information which passes the reader from the basics of economics and marketing to the advanced strategies of Internet Marketing. The main Case Study is E-Bay. References and explanations can be found out at the end of each subchapter in chapter II, as they are linked specifically to the subjects commented in each subchapter. The final Case Study is based on the information that I personally gathered from the CEO of Brightness Advertising himself, Bogdan Manea Dragulin. I chose Internet Marketing because I personally consider it to be the future of marketing. I think it represents the most efficient way of communication and distribution, in a century when information and the rapid spread of information represent the core of every human activity, especially business.

The enemy increaseth every day: We, at the height, are ready to decline. There is a tide in the affairs of men Which, taken at the flood, leads on to fortune; Omitted, all the voyage of their life Is bound in shallows and in miseries. On such a full sea are we now afloat, And we must take the current when it serves, Or lose our ventures. William Shakespeare Julius Caesar

I. 1.1.

Introduction Economics1.
The term economics comes of a from household, the Ancient administration")

Greek (oikonomia, "management

from (oikos, "house") + (nomos, "custom" or "law"), hence "rules of the house(hold)". As family is the core of society, household is the core of economy. Both households and societies face many decisions. Economically, they must allocate its scarce resources among its various members, individuals, taking into account each ones abilities, desires and needs. The management of a households (or, at a larger scale, society) resources is important because resources are scarce. Scarcity means that society has limited
1

Principles of Economics, N. Gregory Mankiw, 5 th Edition, South-Western Cengage Learning, 2009, Ch. 1, Pag. 3-6.

resources (natural characteristic) and therefore cannot produce all the goods and services people wish to have. Just as each member of a household cannot get everything he/she wants, each individual in a society cannot obtain the highest and most desirable standard of living to which he/she might aspire. Economics is the study of how society manages its scarce resources. Economists study how people make decisions depending on their needs, desires, aspirations (e.g. how much they work, what they buy, how much they save or how they invest their savings). Another part of the economic study is how people interact with each other (e.g. the relationship between the sellers and the buyers of a good determines the price at which that specific good is sold or the quantity of the good sold). Finally, at a larger scale, economists study trends that influence the economy as a whole: the rate at which prices are rising, the percentage of population that cannot find work etc, find the reasons of these indicators fluctuation and come up with solutions for stabilizing them, all for societys and hence, households welfare. Because the behaviour of an economy reflects the behaviour of the individuals who make up the economy, the individual decision-making process represents the first and one of the most important principle of economics.

~There aint no such thing as a free lunch.~

In order to get one thing that he/she likes/needs, an individual usually has to give up another thing that he/she likes or needs less. Making decisions means trading off one goal against another. It requires comparing the costs and benefits of alternative courses of action. The opportunity cost of an item or action is what an individual gives up to get that item. It is also important to specify that economists normally assume that individuals are rational people that systematically and purposefully do the best they can in order to achieve their objectives, given the available opportunities. The objectives of an individual are psychologically based on his/hers needs. Below is a diagram which best describes and prioritizes a rational individuals needs. (Fig. 1)

Fig.1. Maslows Hierarchy of Needs.2

The (economic) environment of these decisions is named a market economy. The main players are firms and households. Firms decide whom to hire and what to produce, while households decide which firms to work for and what to buy with their incomes. The challenge in a market economy is for firms to maximize their profits and for consumers to maximize the satisfaction of their needs.

1.2.

Marketing is the process by which companies create value for customers and build
strong customer relationships in order to capture value from customers in return. Broadly defined, marketing is a social and managerial process by which individuals and organizations obtain what they need and want through creating and exchanging value between each other. In a narrower business context, marketing refers to building

Maslow's hierarchy of needs is a theory in psychology, proposed by Abraham Maslow in his 1943 paper A Theory of Human Motivation. Maslow subsequently extended the idea to include his observations of humans' innate curiosity. His theories parallel many other theories of human developmental psychology, all of which focus on describing the stages of growth in humans.

profitable exchange relationships with customers. It is about meeting human and social needs profitably.
3

Fig.2 represents a simple marketing system, a basic diagram of how marketing works as a process.

Fig.2. A Simple Marketing System4

Marketing is the process of planning and executing the conception, pricing, promotion and distribution of ideas, goods and services to create exchanges that satisfy individual and organizational goals.5 Based on the definition summarized above: Marketing is a process. A process is a particular method of doing an activity, structured as an algorithm with steps or operations. The classical marketing algorithm includes: market analysis, market planning, implementation and control. a) Market analysis refers to the research of opportunities throughout the market, upon which a firm can develop and capitalize. b) Market planning requires: Segmentation the process of dividing a market into distinct groups of buyers who have different needs, characteristics or behaviours, who might require
3

Principles of Marketing, Philip Kotler, Gary Armstrong, 12 th Edition, Pearson Prentice Hall, 2008, Ch.1, Pag.5 4 Marketing Management, Philip Kotler, 11th Edition, Prentice Hall, 2003 5 Internet Marketing: Building Advantage in the Networked Economy, Rafi Mohammed, Robert J. Fisher, B.J. Jaworski, Aileen M. Cahill, McGraw-Hill Higher Education, 2002, Ch.1, Pag. 3

separate products or marketing programs. (market segment a group of consumers who respond in a similar way to a given set of marketing efforts.) Market targeting is the process of evaluating each market segments attractiveness and selecting one or more segments to enter. A company should target segments in which it can profitably generate the greatest customer value and sustain in over time. Positioning and Differentiation After a company has decided which market segments to enter, it must decide how it will differentiate its market offering for each targeted segment and what positions it wants to occupy in those segments. A products position is the place the product occupies relative to competitors in consumers minds. Marketers want to develop unique market positions for their products because if a product is perceived to be exactly like others on the market, consumers would have no reason to buy it. The Design of the Marketing Mix is the set of controllable, tactical marketing tools that the firm combines in order to produce the desirable feedback from the targeted market segment. These tools exist under four groups of variables: product, price, place and promotion, known as the four Ps. Fig.36 represents the marketing tools under each P.

Fig.3. The Four Ps of The Marketing Mix

Source: http://attainmarketing.com/blog/2010/02/developing-and-implementing-a-customer-focusedmarketing-strategy-a-recipe-for-success/

c) Market implementation includes the systems and processes to penetrate the market with the specific marketing program. d) Marketing control refers to the informal and formal mechanisms that marketing managers can use to keep the marketing program on its course.

Analysis, planning, implementation and control collectively provide the algorithm for marketing managers to follow in the design and execution of marketing programs.

It is about Exchange. Marketing is not successful unless two parties exchange something of value. The buyer may exchange time, money or services, while the seller must exchange something of value to the buyer. The traditional retail context provides the simplest illustration of this principle. A given consumer exchanges money for a particular good or service. However, exchange can also be nonmonetary: bartering, volunteering services and political donations.

It Is Intended to Satisfy Individual and Organizational Needs. The aim of marketing is to provide a satisfactory outcome for both the firm and the customer. The most satisfied customer is the one that gets the good or services from the firm for free. But, this way, the firm is not likely to have a long life. The challenge that modern marketing rises is the simultaneous satisfaction of the customers, the firm and its shareholders. So, in the long run, the firm must have a positive cash flow, must show a clear path to profitability for investors to maintain confidence, while its customers are more satisfied by its goods/services than the ones of its competition.

1.3.

Internet Marketing

The Internet is a tidal wave. It will wash over nearly all industries drowning those who dont learn to swim in its waves, Bill Gates, CEO Microsoft.

Even though it is not long ago that the Internet was the exclusive domain of scientists and computer experts, in the last decades it has emerged as a device which many people in the industrialized world cannot imagine being without. More and more people have started to use the Internet. With the emergence of the Internet and its associated technology-enabled, screen-to face interfaces (e.g. mobile phones, interactive television), a new era of marketing has emerged. It is seen as natural to surf the web for information and to use various online services. What is still not natural is to pay for the offered content. While there are still high growth rates in the Business-to-Business (B2B) segment, in the Business-to-Customer (B2C) area enthusiastic early expectations have not, up to now been fulfilled. The Internet is often seen as an immense costless source of information rather than as a distribution channel for payable physical and virtual or non-material products and services in the B2C segment. Practitioners as well as academics believe that the possibilities of doing business on the Internet are revolutionary and will transform known business structures and strategies. However, after many Internet firms could not justify the very high investors expectations in the recent past, the question as to how they can perform successfully in the future is highly relevant. A better recognition of the possibilities of how competitive advantages can be realized in the area of the Internet would help firms to come to a convincing value evaluation, taking into account that different kinds of firms with different value-creation potentials to exist. (see chapter III) In the 1960s social movements arose which questioned traditional forms of authority and sought new ways of defining and expressing individual freedom. There was the expectation that future growth in existing markets would be restricted largely to the effects of population growth and the replacement of goods and products at the end of their effective life. To avoid the prospect of limited future growth, some firms started

major rationalizations and tried to achieve a greater penetration of existing markets as well as investing in the development of new products and entered new markets, predominantly by direct foreign investment. Increasing foreign aid, as well as decreasing transportation costs can be seen as factors that extended the willingness of business firms either to internationalize their activities or to increase the scope of their international activities. The immense improvements with regard to communication technology worked in the same direction and helped business enterprises to increase the capacity to control and coordinate activities in geographically dispersed locations. The business environment for firms since the early 1960s has been more and more posited to various and intensifying changes, e.g. in the field of transportation and communication, and confronted with the speed of technological innovations. One facet of these changes is certainly due to the various possibilities offered by the Internet itself. This novel facet of the Internet cannot be ignored and must be taken into consideration when thinking about the creation of competitive advantages for firms doing business on the Internet. Firms doing business in the Internet environment have attracted much interest in recent years. However, it does not seem possible to come to general conclusions with regard to the realization of competitive advantages for all firms doing business on the Internet, because very different firms do very different things via the web. A clear understanding about types of firms competing in this area has to be created in order to explain which firms are included here and achieve a clearer image of these firms. One possibility to achieve such clarification is to segment Internet activities into different groups of firms which produce different outputs (services or products with various characteristics). In the first step, four different output categories for Internet firms can be differentiated7: 1. Physical products. Internet firms such as Amazon.com or libri.de offer physical products, such as books or CDs. Traditional booksellers like Barnes and Noble also sell their books via the web (as well as in stores). Physical products such as cars (sold by cars.com, carsdirect.com, autobytel.com) or childrens toys (sold by
7

Strategic Management and Online Selling, Susanne Royer, Routledge Taylor & Francis Group, 2005, Ch. 1, Pag. 7-10

10

etoys.com, toysrus.com or mytoys.de) are also offered via the Internet. Further examples in this category are firms selling furniture (sunlandimports.com), consumer electronics (abtelectronics.com) or clothes (the-clothesstore.com) via the Internet. Firms in this group use the Internet to distribute physical or material products and to show and market their products (in virtual showrooms). After buying such a product, the consumer receives delivery of a physical product that could also be bought in a real-world store. The product has to be physically transported to the customer. 2. Real world services. These services can be arranged via the web but cannot be directly consumed via the Internet. Examples would be a booking process for a hotel room, which can be finalized via the Internet nevertheless the service itself obviously is consumed at the actual location of the hotel. Other examples in this category are the booking of flights or car rental via the Internet. Firms offering such real world services via the Internet are, for example, expedia.com, Travelocity.com and T-online-travel.de in ithe area of flight and travel services, as well as sixt.com, europcar.com and avis.com in the area of car rental. For the provider, the Internet complements or substitutes other established means of marketing their services and fulfilling adherent transactions. 3. Non-material products. These products do not require physical transport; they can be directly consumed via the Internet. Examples include downloadable software, music and computer games. Firms offering non-material products via the Internet are, for example, Adobe Systems (publishing PC software), McAfee Security (anti-virus PC software) and Apple with iTunes Music Store (downloadable music). The products are delivered and initially consumed via the Internet. 4. Non-material service. These services are directly consumed on the Internet. Web services are, for example, search possibilities in data-bases (the Genios database of the German Handelsblatt, the ProQuest database to access various academic journal articles and the Gettyone.com database to search and download various images and pictures), search functions for news delivery with regard to stock prices as well as direct opportunities to trade stocks (offered by ameritrade.com, cortalconsors.de and etrade.com) or home banking functionalities (as offered by banks like CitiBank and Deutsche Bank).

11

Non-material products and services are difficult to differentiate from each other. Non-material or intangible products could be defined as products that are digitally transferred to the customers PC and afterward saved on customers PC (e.g. virus scanners, games, music). Non-material services could be defined as services that can be used via the PC online but are usually not saved on the customers PC (e.g. searches in online databases). Because most non-material products and services have been delivered free in the past, it seems difficult to charge the customers for them today. This situation implies that there are real difficulties involved in attempting to create value and competitive advantage for firms offering such products and services via the Internet. Internet publishers or portals have to struggle with a high cost for their web presence and, at the same time, decreasing income from advertisements on their sites. These firms are different from the other groups in especially one relevant respect, namely that their products and services are directly consumed via the web. Some ideas of building a competitive advantage strategy will be suggested in this paper. The telephone took four decades to reach 50 million people. The Internet has managed this within four years as digital technologies provide such efficient channels for business and consumer interactions transactions. The Internet has come a long way in a very short time as a mainstream business tool.

1.4.

Marketing vs. Internet Marketing

If traditional marketing is about creating exchanges that simultaneously satisfy the firm and customers, Internet Marketing is the process of building and maintaining customer relationships through online activities to facilitate the exchange of ideas, products, and services that satisfy the goals of both parties.

12

Like a traditional-marketing program, an Internet-marketing program involves a process. The seven stages of the Internet-marketing program process are setting corporate and business-unit strategy, framing the market opportunity, formulating the marketing strategy, designing the customer experience, designing the marketing program, crafting the customer interface and evaluating the results of the marketing program. These seven stages must be coordinated and internally consistent. While the process can be described in a simple linear fashion, the marketing strategist often has to loop back and forth during the seven stages. The goal of marketing is to build and create lasting customer relationships. Hence, the focal point shifts from finding customers to nurturing a sufficient number of committed, loyal customers. Successful marketing programs move target customers through three stages of relationship building: awareness, exploration and commitment. It is important to stress that the goal of Internet marketing is not simply building relationships with online customers. Rather, the goal is to build offline as well as online relationships. The Internet Marketing program may well be part of a broader campaign to satisfy customers who use both online and offline services. By definition, Internet Marketing deals with levers that are available in the world of the Internet. However, as noted above, the success of an Internet marketing program may rest with traditional, offline marketing tools. At the core of both online and offline marketing programs is the concept of exchange. In both the online and offline worlds, exchange is still the heart of marketing. In the new economy, firms must be very sensitive to cross-channel exchanges. That is, an online marketing program must be evaluated according to its overall exchange impact not just the online exchange impact. Hence, online marketing may produce exchanges in retail stores. Firms must be increasingly sensitive to these cross-channel effects if they are to measure the independent effects of online and offline marketing programs.

13

II. The Internet Marketing Mix

2.1. PRODUCT
2.1.1. Definition Products are goods (tangible or intangible) that become subject of a transaction (economical exchange). Through this exchange, buyers satisfy their needs/wants. Also, it provides the seller with revenue or with the so-called customer good will8 that will eventually (ideally) provide revenue on the short-run or on the long-run.

2.1.2. Classification

There are two general types of products: a. Physical goods (tangible) b. Services (intangible)

The characteristics of these products are divided into three categories: a. The core benefit b. The basic product c. The augmented product

General types of products: a. Physical goods. The Physical Product (tangible good) is that good that is produced and exchanged between parties. The attributes of a physical product include: quality, features, styling, brand and packaging. The main difference between tangible and intangible goods is that buyers more easily comprehend their benefits and can be directly experienced or
8

Internet Marketing: Building Advantage in the Networked Economy, Rafi Mohammed, Robert J. Fisher, B.J. Jaworski, Aileen M. Cahill, McGraw-Hill Higher Education, 2002, Ch.8, p. 270

14

tested. In cases when a customer cannot test the product before purchase, marketers provide guarantees through advertising and packaging. Therefore, a tangible good is usually more easily marketed than an intangible good.

b. Services. Services (intangible good) are defined as actions or work that the seller offers to the buyer for the purpose of transaction (in order to achieve either revenue or increased customer goodwill). There are many categories of services, varying from artistic performances, delivery of information, medical services etc. A service may be either a stand-alone offering, e.g. medical services, or it may be directly linked to a physical product, e.g. warranties and maintenance agreements used to augment a physical product and enhance the value of the good, in order to satisfy the customer needs.

In the case of Internet marketing, the discussion is mostly about intangible goods. However, there are websites that sell physical products; but, in reality, they simply sell an augmented service through which the purchase of the final, tangible product is made possible. For example, when purchasing a book from Amazon.com the basic product is the physical book. However, the reason a person will buy from Amazon.com is the augmented service offering that the Internet provides for book sales, such as: the convenience of ordering from home, the valuable information offered in online literary and customer reviews, the ability to search a database of potential books and the price savings that are a result of a sales channel that does not require a physical presence.9 The classic attributes of service offerings are: intangibility, simultaneity, heterogeneity, perishability. The Internet has come to change the limitations of these attributes, as it will be shown next:

Internet Marketing: Building Advantage in the Networked Economy, Rafi Mohammed, Robert J. Fisher, B.J. Jaworski, Aileen M. Cahill, McGraw-Hill Higher Education, 2002, Ch. 8, p.271

15

Intangibility. When an individual is considering the purchase of an intangible product, it usually has a difficult time in the decision making because these goods cannot be tested before purchase. Customers are delivered abstract concepts and they dont know what they are getting until they are actually served. Because there is no physical evidence of the service, marketers are obliged to regularly remind the customer of the advantages and benefits of the service, so that the demand will not diminish over time. The Internet can provide evidence so that the service may seem more tangible by: offering virtual tours, video clips, mass customization (it will be explained later on in this paper), discussion groups where customers that have already experienced the service share their feedback, photographs and other advanced technologies.

Simultaneity. In a physical transaction, usually the customer and the seller need to come together at the same time for the exchange of products to take place. But, the Internet has overcome this limitation as the delivery of services is technologically enabled and time concurrence is no more needed. The websites are available 24 hours a day, 7 days a week and any customer from any corner of the world is able to buy any good or service via the Internet. This communication channel has overcome the limits of time and space of the transaction and no other channel can compete with that.

Heterogeneity. Usually, services have the attribute of being customized, depending on each customer. For example, a doctor diagnoses the patient individually and gives him a customized treatment depending on the patients condition. This personalization is usually manpower intensive and it is almost impossible to be reproduced on a mass production level. However, the Internet has overcome this limitation as well. For example, on websites like E-Jobs.ro or news sites, each user has the opportunity to choose the categories of services, in this case job offers and news, with which they want to be provided. If theyre interested in Marketing jobs or in Sport News, with a touch of a click, they can customize their daily alert e-mails. (If you are interested only in sports, why buy the entire physical daily newspaper?) Not only do customers perceive this process as a breakthrough technology that better meets their needs, but the service provider also recognizes the potential cost savings gained by the customer doing most of the work associated with personalization. It is a

16

win-win situation where the service is performed not only by the provider but also by the customer.

Perishability. The perishability of services is an issue that has lead to many market inefficiencies, based upon the disequilibrium between supply and demand on any market area. The Internet has provided sellers an extra opportunity of liquidating excess inventories by interacting directly with the customers and let them know of these inventories, usually sold at discount prices. The Internet provides real time communication which helps sellers to get rid of the inventories in a shorter period of time than through a classic communication channel, this way the costs of keeping them are more likely to be diminished.

Product characteristics:

a. The Core Benefit The core benefit is the most important, the fundamental value of the product. This is the value assumed by the buyer when he/she decides over the acquisition of the product, in order to achieve the goal which is satisfying the buyers need. For example, the core benefit of any automobile is transportation.

b. The Basic Product The basic product includes all offering associated with the core benefit. For example, in the case of an automobile, the basic product includes: radio, tires, breaks, engine, windshields, lights etc. So, the basic product refers to everything a customer would expect in order to buying that respective good/service. Basic products differ from each other by the unique brand. To increase the differentiation between them theres the opportunity of augmenting a product. c. The Augmented Product The augmented product usually offers benefits through services and includes aspects such as installation, instruction, delivery, warranty, after-sale services, credit facilities, repair and maintenance, spare parts availability and other related services

17

Augmented product

Basic product Physical benefits Core product Services


benefits Core benefits

Fig. 4. Levels of product and associated benefits10 2.1.3. How products enable customer relationship Fig. 5. 11

10

International Marketing, Prof. Univ. Dr. Luminita Nicolescu, Ch. 9 Internet Marketing: Building Advantage in the Networked Economy, Rafi Mohammed, Robert J. Fisher, B.J. Jaworski, Aileen M. Cahill, McGraw-Hill Higher Education, 2002, Ch. 8, p. 306
11

18

The objective of the Awareness phase is to make the product known throughout the customers. This means, to make the customer be aware of the core benefits of the product and to associate them with the product itself. Packaging is a tool used in order to enhance communication and it represents the products identification. Presentation includes consumer reports and consumer safety, confirmed by consumers that gave already tried the product and experienced its benefits. These are fundamental for customers in order to evolve in the exploration phase, where he investigates on his own about the products benefits. The objective of the Exploration phase is to prove de relevance of the product offering to the prospective customer and to get him/her to try the product. Packaging is important in this phase because, considering the brand, the customer decides whether to embrace or reject the product. If the communication is focused on the attributes and features of the product then the customer understands how the unique blend of them will satisfy his/her needs and will know how to differentiate this particular product from its competitors. Fulfillment capabilities, such as instant and efficient delivery helps the customer experience become highly reinforcing. It is essential not to miss the moment and to make the product available when the user actually needs it and is motivated to buy it, otherwise its interest in the product may decrease. The whole customer experience during the exploration phase is important because it will have an impact later on and it represents the reason whether the customer decides to commit to the brand/product or not.

The marketing objective for the Expansion part of this phase is the loyalty and eventually commitment of the customer. The availability of complementary products enhances the value of a company, increases its relevance and facilitates an eventual long-term relationship with the customer (which is more probable to lead to a committed relationship). An example may be the companies that produce cars or computers and also provide computer parts and car components in case of replacement. The customer-specified attributes and features allow a customer to create a product that individually fits his needs and desires. This feature enhances the chances that the

19

customer commits to this company, as he/she invests personal time into customizing the product. Mass customization represents a modular production process in which many combinations of customer-specified attributes and features can be manufactured quickly and cost effectively. An example may be the car companies which provide this online option of car configuration. After a customer enters the Commitment stage, the companys objective is to maintain this commitment on the long-term. The loyalty of the customer means more secure profit for the company. The Paredo Principle refers to the fact that 20% of the loyal customers can account for 80% or even more of a companys profits. The product levers used in order to achieve the commitment stage are much the same as those used to increase a companys share of customers. Upgrades are used in order to demonstrate that a company is also committed to this relationship. The implementation of a new version of the product assures the customer that its insights are taken into consideration and all the companys work is in the sense of constantly meeting their needs. Customer-specified attributes and features are effective not only in the expansion phase but also in the commitment stage. One size product or a unique product is barely likely to suit all customers needs. Hence, the promise of a customized product deepens the customer commitment to the company. Mass customization is a tool by which the customer gets the product he has already customized. The customers needs are this way truly satisfied. When a company can offer a customer an individually customized product, the buyer is very likely to engage in a long-term relationship with the company. The Internet has facilitated these tools in the last decade, many companies websites provide this option. Fig 6 shows this option on the Mercedes-Benz website in Romania.

20

Fig. 6.

Postsales support refers to the addition of customer value. It usually has the form of a platform which facilitates customer-company dialogue. The loyalty programs are in fact, reward and recognition programs for customers commitment. Customers receive augmented benefits which also enhance the chances of long-term commitment. Customer experience marketing is essential to a committed relationship because each company-customer experience is unique and it isnt easy to be replicated by competitors. As long as the experience is meaningful, grateful and positive, the customer is very likely to remain loyal to the company. Enabling community helps both new and loyal customers in the way that it represents a guarantee for the new ones that the benefits of the product are the desired ones, so that they are likely to become loyal as well, and also the already committed customers which experience the excitement of belonging and being connected; therefore, committed customers can create a cycle in which new customers become committed customers.

21

Customer relationship management (CRM) is the ultimate tool of maintaining a tight customer-company relationship. It provides the company with updates of customer needs so that they know how to satisfy them properly. Customer care departments represent a part of the company which is concerned with the eventual problems that the customer may experience while trying the already purchased product. If these departments are well informed they can turn a potential problem into a pleasant customer experience. This is a tool through which not only the commitment increases but also the companys reputation.

The Dissolution stage of a relationship starts when a company is no more able to maintain a customers commitment. There are also tools that a company can use in order to avoid dissolution, like customer care. The company tries to understand the reasons of the customers renouncing of their products/services and begin to offer them new products/services that should meet their new needs. Also, in case of failure, the company usually keeps the customers e-mail address in a database for a certain period of time and continue to send them updates in the companys offer.

2.1.4. E-Bay Example E-Bay has successfully leveraged product development levers to move users through the four stages, thereby increasing the level of relationship intensity with it users. The attributes and features of the service promote exploration. The sites fast and reliable search engine makes it easy for people to find the items they are looking for. E-bays wide variety of categories also allows users to browse through a large amount of information. E-Bay also relies on a positive, well-designed customer experience. Bidding can even be thrilling, as many auctions end in the final seconds. Also, bidders receive e-mails in which they are encouraged to bid more. E-bay represents an interactive in the form of bidding and unique (personalizes e-mails) website. E-Bay also makes complementary products available for its customers, increasing the chances that they explore the website. It also recommends cost effective

22

complementary products and guarantee the return of the product if it doesnt meet their needs. Another complementary product is the electronic bill-paying service which enhances the transaction between the users. The most important lever in the Commitment stage is enabling community. Actually this is what makes E-Bay a successful business. The online community is one of the largest in the world; it provides feedback forums and responses to community demands of goods. Customer-specific attributes and features consist of customer access to their own purchases and rankings. Sellers also can track their current auctions. Upgrades and improvements to the site (technical, customer-facing features, services) are constantly included and help building up the customer relationship. In the Dissolution phase, it is important for E-Bay that users do not detract or drive other users away. The website has included certain attributes and features that help to control and, if needed, dissolve the relationship with problematic customers. It involves terminating customers who detract from the overall product by harming the community.

2.2. PRICING
2.2.1. Definition International pricing is one of the most critical and complex issues that a firm faces. Price is the only marketing mix element that creates revenue, while all the others entail costs. This characteristic of pricing makes it a very important strategic marketing instrument. Price is the money or other considerations (including other goods and services) exchanged for the ownership or use of a good or service . From the consumer point of view, price is used to indicate value when it is paired with the perceived quality of a product or service. Value can be defined as the ratio of perceived value to price. The relationship shows that for a given price, as perceived quality increases, value increases too. For some products, the price itself influences the perception of quality and the value to consumer. It is the case of products for which the consumers think that the higher the price the higher the quality. How consumers make value assessments is not fully understood, but they

23

usually make comparative value assessments by judging the worth and the desirability of the product or service relative to substitutes that satisfy the same need.12

2.2.2. The pricing process The process of pricing is divided into five steps that firms use in order to set up prices for their products. These steps are13: 1. Set pricing goal. 2. Differentiate value relative to substitute products. 3. Strategically select target customer segments. 4. Predict strategic pricing/competitor reaction. 5. Select a pricing structure and price point.

1. Because pricing is the only tool in the marketing mix that provides revenue, the price is set depending on the period of time to pass until the revenue starts to increase. So, the strategies are: long-term profit maximization, short-term profit maximization and target pricing. a. The long-term profit maximization is a strategy that functions under the assumption that the firm wants to maximize its profit in the long-term. It may be seen as an investment made by firms which have a rather constant profit in the present and is in conditions to develop constantly. So, as market conditions change, it is likely for these firms to adapt the strategy ongoing. b. The short-term profit maximization is a strategy usually adopted by firms that are on the edge of bankruptcy and are struggling to survive on the short-term. It means that, desperate for revenue, companies significantly drop prices in order to remain in the business. c. Target pricing is a strategy adopted by firms which have other fundamental goals, not profit maximization. These goals may be: increase in market share, return on investment, etc. In the case of gaining market share, for example, companies often use tools as discount prices or special offers, or invest in
12 13

International Marketing, Prof. Univ. Dr. Luminita Nicolescu, Ch. 11 Internet Marketing: Building Advantage in the Networked Economy, Rafi Mohammed, Robert J. Fisher, B.J. Jaworski, Aileen M. Cahill, McGraw-Hill Higher Education, 2002, Ch. 9, p. 355

24

advertising, in order to cover the first 2 stages in the customer relationship: awareness and exploration.

2. Differentiate value relative to substitute products. The price of a product should reveal how much the consumer values the product and not the actual cost of the product. The reference price should be the competitors price, the price of the substitute products. The challenge is to find out how much a consumer is willing to pay for the respective product, in comparison with its substitute product. For example, if a new developed product is launched on the market, even if the innovation cost is low, the company should take into account the value of the respective product for the consumer and not the additional innovation cost. This way, the products price may increase significantly if the innovation saves consumers time or other expenses. How much the customers value the product may be found out through market research, statistical reports and product experts. Also, an important factor into the differentiated value of a product is the effect of the brand. A well-known brand that has already won consumer trust can offer the same product as its unbranded competitors, yet charge a premium. Trust, tradition in manufacture, world recognition etc, represent factors that make the good sold an augmented product which not only meets the initial needs of the customer but also additional ones. For example, take a customer which has a disposable income of $10 and needs a T-shirt. In the position of choosing between a $7 Nike T-shirt and a $4 no-name T-shirt, he would most likely choose to buy the Nike T-shirt even if it costs almost double. Also, brands have a psychological impact over the customer, as purchasing branded good may increase the customers positioning through society.

3. Strategically select target customer segments. Customer segments or target market means identifying the exact type of people that are likely to become customers. This determines the price of the product in the sense that, by identifying the target market, a company is also aware of the average disposable income of the people.

25

For example, Unilevers range of detergents include these 2 brands, on the Romanian market: Ariel and Dero. At a first view, you may think that Unilever has two brands that compete to one another. In fact, this is the demonstration of how target market influence prices. Ariel is destined for high-income people and has a higher price, it is known as a luxury brand, while Dero has as a target, the medium to low income people, being sold at a lower price, known as a normal brand.

4. Strategic pricing/ Competitor reaction. When setting up a price strategy, the competitions reaction must be taken into account, because the introduction on the market of a substitute product will affect the demand of the already existing ones. Companies must closely watch the reactions of both competitors and consumers after the launching of the product with the established price. Before launching the product, a company must anticipate reactions of the competition and refine, depending on that, the price strategy chosen. The competition may react in one of the following ways: a. Accept. This reaction is generally unlikely to happen, when competitors just accept the new products price and do not adjust in any way their own products price. b. Minimally react which means minimally adjusting the price of their products. c. Strongly react which means significantly changing their products price and potentially start a price war.

26

5. Select a pricing structure and price point Fig. 7


Hi-Lo Pricing Select Retail Pricing Strategy Everyday Low Pricing

Select Pricing Strategy

No Pricing Corporate Flexibility Mandate Price at market; Target pricing; Target return;

High Initial Correlated Demand Demand return Fairness pricing Bundling; profit Frenzy pricing; Price discrimination over time; Bundling; Volume discount pricing; Two-part pricing;

Dynamic Pricing

Price as Strategy

Mk

English auction; Prestige; Reverse-price Sign of quality; English auction; Promotional; Dutch auction (regular & EBay type); First-price sealed-bid auction (regular and Priceline type); Reverse firstprice sealed-bid auction; Group buying; Electronic exchange;

27

2.2.3. Implementation across the four relationship stages Fig. 8


Awareness Exploration/ Expansion Commitment Dissolution

Click-through promotions Web-referral promotions Bricks-and-clicks promotions Web price discount Bundle Frenzy pricing Prestige Price as a sign of quality Hi-Lo pricing Dynamic pricing Everyday Low Pricing (EDLP)

Targeted promotions Future price promotions Justify prices Loyalty programs

Tiered loyalty programs Wide variety of pricing plans Become affiliates Profit-enhancing programs Volume discount promotions Targeted promotions Future price promotions Fairness Two-part pricing EDLP

Discontinue pricing promotions Reconfigure loyalty programs Decrease profit programs

Awareness

i) Promotions (a) Click-through promotions. Banner ads can provide the user discount prices for various products, by only clicking them. (b) Web referral promotions. By using other communication channels, like television, radio, print, mail, package, the firm can redirect the consumer to a website link where he/she can get price discounts. (c) Bricks-and-clicks promotions. A firm can encourage consumers to access the website by offering them online coupons to print, which is validated at the selling point and provides the consumer a price discount. (d) Web price discounts. Even if the firm has physical representation through shops, online sold products can have a 5% discount in the price, if purchased via Internet. Examples are books, medicines or airplane tickets.

28

ii) Bundling. Being sold in bundles, new products are made known more quickly by the consumer. iii) Frenzy pricing. Buying frenzies occur whenever demand exceeds supply. It is an Awareness tool because the frenzies are usually subjects of media and of consumer word-of-mouth. For example, the ultimate buying frenzy concerns the product IPhone and wherever the high number of purchases becomes subject of the media, Apple gains awareness. This type of communication is called publicity. iv) Prestige pricing and Price as a sign of quality is an awareness tool which gives the firm the chance to sell products at a higher price, in case it has a trustworthy and recognized brand. v) Hi-Lo pricing. Whether the price is established as being extremely low or outrageously high, compared to the competition price, it stimulates awareness. vi) Dynamic prices. In B2C cases, auctions and group buying, interactivity of any kind creates awareness. vii) Everyday low pricing. EDLP usually works out in the case of retailers which may even build up its brand on everyday low prices.

Exploration/Expansion i) Promotions (a) Targeted price promotions. It is a tool that a firm uses in order to guide the consumers to particular products. By using price as a way to demonstrate the understanding of the consumer needs, it may lead to a long-term relationship between consumer and producer. (b) Future price promotions. By delivering coupons which will be validated in the near future, the firm ensures that the customer gets more information about the product which will increase the chance of purchase. ii) Justify prices. Even if it isnt a clear pricing tool, justifying the price and giving information about the product on the website, it represents a kind of guarantee and a source of gaining the trust of the customer. This is very likely to lead to a customer-company relationship. iii) Loyalty programs. Through this tool, customers are encouraged to the permanent use of the product, in order to receive and benefit of discounts and other
29

advantages. This way, customers and induced to explore a deeper product relationship.

Commitment i) Promotions. (a) Volume discount promotions. In case of non-perishable goods, customers usually have the will to purchase a larger quantity of goods at a lower price. Given that online firms can easily track consumer purchases, they can encourage commitment by offering volume discounts to customers. (b) Two-part pricing. By using a high fixed fee and a low variable fee pricing structure, firms induce consumers to remain committed. After paying the high fixed fee, one is likely to remain customer because they are charged only the low variable fee. By changing the firm, it implies paying another high fixed fee. ii) Tiered loyalty programs. This tool is used to provide loyal customers with different advantages that make him/her difficult to switch the company. Air travel companies are a good example. Customers that travel more the 100 000 km per year are rewarded with significant discount prices for future tickets (up to 50%), first-class services etc. iii) Wide variety of pricing programs. For most products there is a wide range of consumers that have different product needs. In the product needs, the amount of money available for the customer to pay differs. So, companies have developed different pricing programs in order for the customer to choose the one that fits his needs best. Mobile phone providers use this tool frequently and make up different offers which may include both the service and the mobile phone. iv) Affiliates. By becoming affiliates, committed customers can financially benefit by advocating the product to others. Many firms offer refer a friend programs that provide price discounts to current committed customers that recommend the product to a friend. In the case the latter becomes a committed customer, the referral customer may benefit of further advantages. v) Profit-enhancing opportunities. Websites that provide dynamic prices, such as EBay, through auctions and interactivity, also offer feedback forums, where customers discuss and write their opinions on the product already purchased. The feedback gives the seller reputation, and for the buyer it represents a source of
30

trust/distrust into the respective sellers products. This tool represents a source of profit maximization for the seller as it has the form of advertising, which is costfree for the seller. This will be discussed deeper in the Case Study chapter.

Dissolution i) Discontinue pricing promotions. The Internet provides the firms the option of tracking down consumer purchase. This way it is easier to find out which category of buyers is more profitable, and hence, target a market segment. So, the firm can easily discontinue the activity of price promotions to buyers that prove to be unprofitable. It is more of a cost-cutting tool, which has as a consequence, the decrease of the price. ii) Reconfigure loyalty programs. On the same basis as before, firms can also discontinue loyalty programs to unprofitable customers. iii) Adversely affect profit programs. The interactive websites may encounter the problem of sellers with poor community feedback which may negatively affect the brand. A firms control is not only over the consumers, but also over the seller who upload their products on the website, and it can discontinue the relationship.

2.2.4. E-Bay Example

E-Bay does not charge individuals for browsing, bidding, or buying items. Instead, the auction site generates revenue through fees for listing and selling items.

Listing related fees Users upload their products for a minimum insertion fee which can vary from 30 cents to $3.30. The website provides the seller advertising templates, such as; uploading photos, space for product details, consumer feedback options etc. The insertion fees are nonrefundable and may vary depending on the cost of the product, on the minimum bid, the degree of visibility on the website, longer duration, or on the type of listing chosen. There are three types of listing available: Regular listings, which are based only on the minimum bid for a product. (in case of real-estate, there is a flat insertion fee of $50.)
31

Reserve-price auction listings. The seller is given the change to decide over a reserve price which represents the minimum starting bid price. If no buyer takes this price, the product will not be sold. For this option, to the insertion fee are added 50 cents for items under $25 and $1 for items over $25.

Dutch-auction listings. This is an option that provides the seller the chance to sell a larger quantity of the product under the same item listed.

Final-value fees are calculated after the product is sold. It is based on the final price of the product which is the closing bid. In Dutch auctions, the fee is also based on the final value, but in this case the final value is the lowest successful bid multiplied by the quantity of items sold.

Fig. 9 Final Value $0-$25 $25-$1000 Final Value Fee 5.0% of the final value 5.0% of the initial $25 ($1.25) plus 2.5% of the amount above $25 Over $1000 5.0% of the initial $25 ($1.25) plus 2.5% of the initial $25-$1000 ($24.38) plus 1.25% of the amount above $1000

To ensure the fairness of auctions, E-Bay has implemented the following procedures: Fraud protection. It protects its auctions in case an item is not received or is less than advertised. Bidders are refund with up to $200. Abuse control over the auction process. It offers escrow service. It offers the online option of resolving disputes between buyer and seller with the help of a professional mediator.

32

2.3.

COMMUNICATION

2.3.1. Definition
Communication is a major part of the international marketing activities. It is not enough to produce and make available a product or a service, it is also necessary to provide information that buyers need in order to make purchasing decisions. Communication takes place through the promotional activity. The function of promotion at international level is similar to that in a domestic market, as the firm communicates with its customers and other different audiences with the objectives either to inform, to persuade or to remind, in the attempt to achieve the corporate goals.14 2.3.2. The Communication Process In order to build and execute a successful marketing communication campaign, a firm needs to establish the best strategy. The basic communication process involves six stages15: (1) Identifying the target audience (2) Determining the communication objective (3) Developing the media plan (4) Creating the message (5) Executing the campaign (6) Evaluating the effectiveness of the campaign The process has an integrated nature, as every communication campaign includes both online and offline channels. But, as this paper regards online marketing, we will assume before detailing the process phases, that offline marketing simply represent additional channels which redirects the consumer to the online channel. So, the communication process will be detailed considering only the online media types of promotion. (1) Identifying the target audience Likewise the pricing strategy, the promotion strategy cannot be set until the strategist knows exactly to whom he is addressing. Internet has developed the consumer targeting, by making it easier to access and less expensive, through consumer behavior tracking. By keeping track of web pages visited, time spent on specific websites, ads and links clicked on, purchases made and so on, marketers have an extremely valuable database of information. Also, the personal information of the user, requested as login to different websites,
14 15

International Marketing, Phd. Luminita Nicolescu, Ch. 11 Internet Marketing: Building Advantage in the Networked Economy, Rafi Mohammed, Robert J. Fisher, B.J. Jaworski, Aileen M. Cahill, McGraw-Hill Higher Education, 2002, Ch. 10, p. 395

33

complete the information in the database, with contact information. This way, a personal profile of the consumer is made up, which provides more information than any demographic physical research. After determining the target market, the strategist chooses which way to send the message to the customers including: which media to use, which selling point to stress, and what sort of personality to give to the message. (2) Determine the Communication Objective The objective must be set clear, in any case. It should be focused on developing one of the four stages of the customer-company relationship, depending on the period of time that the product is present on the market, the degree of product awareness, whether customers are used to buy the product or not, or if customers renounce quickly after the first purchase. In the development of the communication process, the clearly-set objective must be closely followed until the end, and not missed by any chance. Many Internet websites have fallen apart because they didnt have a continuous communication program, which passes the consumer through all the stages. The firm should look ahead and fit into its plans the future campaigns that will be necessary to follow up with objectives focused on a continuous progression along the customer stages. (3) Develop the Media Plan The media plan must meet some criteria in order that the message gets to the targeted market segment. (a) It must be consistent with the audience. To reach students, advertising in universities, schools and Internet seems appropriate. To reach housewives, supermarkets, television and radio may be the right channels. (b) It must be consistent with the communication objective. (influenced by the relationship stage which needs to be developed) (c) It must be integrated. Both offline and online levers should combine in the way of expressing a homogenous message and image. Also, depending on the target market, advertisers choose particular moments, spaces and environments to send the message. For example, television ratings indicate advertisers when to spot the commercial. On the Internet, visitors profile indicate which ads to place and where. (4) Create the message In the creation of the message there must be considered different aspects: the theme, which has to be in the way that the targeted customers react to, it has to go along with the overall brand personality and flexible to the next stages of customer relationship. Another aspect is the medium of communication chosen; if its television, then the message must have a visual motion impact, if its

34

print, than it has to have a punch line for impact and a suggestive and stimulant picture. On the Internet, banner ads have more chances of success if they are interactive. It stimulates users attention and it becomes more exciting to click on. After the message is created and is combined in different media channels, it is tested on a sample of targeted people. After it passes the tests, it is finally ready to move on to the execution. (5) Execute the campaign This phase consists in hiring advertising agencies to help see rest of the campaign through, making the media buy, and distributing the message. Making the media buy refers to buying the media space for the message, whether it is space on the Internet, TV, radio, newspapers, outdoor/indoor print. The basic measure of a media space is the number of impressions purchased which means the number of times that the ad has been visualized. Also, frequency is another important measure which refers to the number of times the ad has been seen by a single customer. Making the buy on the Internet is generally based on CPM (cost per thousands impressions) as well. But, there are also other measures, like cost per clickthrough, which is a result measured from the tracking of online consumer behavior. Cost per transaction is a measure which refers to the selling of an ad space depending on the number of users which have purchased the good after clicking on the banner. (6) Evaluate the effectiveness of the campaign After the message is distributed, the next step is the evaluation process. This is where tracking consumer behavior online starts again. Depending on the feedback received, online software permits the modification of the message ongoing. This real-time versus lag-time difference highlights one of the most staggering contrasts between online and offline marketing communications. Profiles of online media types
Medium Banner Ads Definition Electronic billboards Advantages Link directly to buying opportunity; easy to measure effectiveness; wide reach; potential for effective targeting Interstitials (pop-ups) An ad that runs between pages on a website Catch users attention; link to buying opportunity Disadvantages Low attention and click-through rates; short life; limited pass-along audience; very high clutter; fleeting exposure Can annoy users; limited pass-along audience

35

Search Engines

Websites that provide information referred to a keyword typed by the user

Good credibility; guarantee of position available; significant audience

High competition; information overload; limited pass-along

Affiliate Programs

A relationship between two or more websites which share each others banner ads or references

Inexpensive; potential for wide exposure; credibility and trust; qualified audience Potential for effective targeting

Clutter

Chat Rooms

A website where individuals who want to discuss a certain topic gather online and communicate with each other in real time.

Narrow reach; high clutter

Loyalty Programs

Reward and recognition programs for loyal customers Someone is given the option to receive "bulk" email, that is, email that is sent to many people at the same time.

Generates substantial demographic information High demographic selectivity; flexibility; inexpensive; proven high click-through rates High reach; inexpensive; flexible Typically inexpensive; potentially enormous reach; high credibility; has personal touch

Must acquire customer first

Opt-in eMail

Requires substantial user base before effective; high clutter

Mass e-Mail

= Opt-in e-Mail, without being asked for permission

Low attention and significant resentment (spam image) Extremely difficult to execute

Viral Marketing

Products or offerings that are passed from user to user.

Customer Service

Buyer-seller interactivity on issues that may appear in the purchase.

Interested parties asking for help, thus high targeting value; generates loyal customers

Very expensive to provide comprehensive telephone, e-mail, and online support

36

2.3.3. Implementation across the four relationship stages in the E-Bay example. Since its founding in 1995, E-Bay has utilized various strategies of communication. Its awareness started to grow with word-of-mouth, until it utilized viral marketing. The latter has as a consequence a phenomenal growth in both kinds of users (sellers and buyers). E-Bays successful story is based on the efficient communication strategy applied on the four stages of customer-company relationship. Awareness It all started with literally spreading the word. E-Bay sent representatives with laptops who physically showed people what they can operate on this website. By 1999, E-Bay had more than 120 shows per year and people were already spreading the word. Also, much publicity was made by media which was reporting about the E-Bay phenomenon. In 1998, E-Bay launched its first major marketing campaign, which contained three components: Strategic alliances with online partners: E-Bay bought substantial advertising space on AOL, and partnered with Go.com Development of free media exposure: E-Bay sponsored bidding on Mark McGwires and Sammy Sosas homerun baseballs, and a charity auction with notable television personality Rosie ODonnell. Print and radio campaigns started in October 1998 with the slogan You just might find it on eBay, which aired on more than 12 000 radio stations across the US. Another trick that EBay used was taking advantage of the frenzy buying of Furby toys in 1998. Because the toys were short on supply, EBay dedicated its homepage to these toys, facilitating the purchase. They also bought Furby keywords from that times most important search engines like Yahoo.com, Infoseek.com, GoTo.com. The niche placements seemed to be cost effective therefore EBay positioned itself as the ultimate source of buying and selling Furbies. EBay did not attempt to advertise on television until the end of 2000, which interestingly coincided with a sharp downturn in the use of television ads by Internet companies. EBay did this to sharpen the image of worlds greatest garage sale.

37

Exploration/Expansion The most important tool that EBay firstly used in order to attract people to the website was word-of-mouth in the form of You wont believe what I found on EBay! Ive been looking for that for years!. EBay signed contracts of millions of dollars for banner ads with websites like AOL and Go.com which led to substantial click-through. Customers were also redirected from offline sources to access the website. EBay itself encouraged exploration. Once you access the website, there are many link and options and instructions which are easy to follow and interesting to click-through. A search option is also available, so that its very easy for any buyer to search only the products that hes interested in, which represents a measure of personalization. The interactivity is a fundamental attribute of EBay which uses personal feedback from users, both buyers and sellers, through discussion forums in order to attract new customers.

Commitment In this phase, EBay chose to keep the community vibrant by constantly attracting new buyers and sellers and by introducing new facilities that increase the value of the website to its users. Once being a committed customer, it is difficult to switch to another auction website, because of the initial fees (discussed in the Pricing Chapter). By constantly adding new buyers and diversifying the supply, eBay makes relationships durable and consistent. By tracking down items bought, EBay keeps in touch constantly with the buyers by sending them newsletters promoting new products arrivals that are linked to the previous purchases (either substitute or complementary goods). Dissolution Sellers that have negative feedback from previous buyers are likely to become subject of dissolution with the website. Also, fraud buyers can exist too. The anonymity and the absence of legal provisions make people to not complete the payment. EBay is constantly trying to manage and control its system and image better and does not let its brand be dominated by pranksters that do not accomplish the auction activities.

38

2.4.

DISTRIBUTION

2.4.1. Definition When planning for international markets, distribution plays a very important role. Sometimes distribution may be the biggest constraint to successful marketing as getting the product to the target market can be a costly process if barriers in a distribution structure cannot be overcome. Distribution channels differ to a great extent from one country to another on a number of dimensions, due to influencing factors such as culture, tradition, customs, legal requirements. There are, however a number of things that are common to all channels regardless the product category or the market.16

One fundamental debate today is whether the Internet is simply another channel of distribution or whether it represents a business revolution. On one hand, it seems unlikely that all consumers will someday buy personal computers, clothing, books and groceries over the Internet. Some consumers will always want to touch, feel, hear, smell or taste the merchandise before purchase. Others wont wait for the next-day delivery, and some will want the personal touch of a retail salesperson and a physical shopping environment. On the other hand, it is impossible to overstate the Internets impact on distribution. The Internet has transformed the industry structure for personal computers, books, CDs, clothing, travel, health services and a host of other products. The Internet provides much more than low cost and convenience to customers it enables firms to interact with millions of customers on an individual and real-time basis. Never before have organizations been so closely linked with their suppliers and customers. The result is a blurring of the boundaries between firms and their environments.

2.4.2. Distribution Process (1) Identify and evaluate consumer preferences by segment With the consumer target settled, the distribution channel is established depending on it. The goal is that combining the four elements in the marketing mix, the consumer needs to be met at maximum point. Even if
16

International Marketing, Phd. Luminita Nicolescu, Ch. 10

39

the Internet provides the option of delivering personalized items, the process of distribution is much the same online and offline, single or bulk products. (2) Design a customer-based channel system A relationship customer needs a clear understanding of the distribution channel and of the facilitation of delivery and payment. They need a channel system based on continuous interaction by a firm which deeply understands their personal needs. The firm should attempt to redirect these customers to the offline channels to ensure that they are not frustrated or confused by the online systems. Every attempt should be made to include ways for these customers to gain help or find offline support while or after they navigate the website. For example, if I want to purchase an item from EBay, I need further information from my personal bank in order to facilitate the transaction. In Romania, there are some rules by which online transactions are taking place. The customer has to have an individual card (other than the wage card) on which he/she can place as much money they want in order to spend on online transactions. This way, the bank ensures that no accidental transaction happens so that the customer may complaint about. Upload on the respective card the fixed amount of money that youre disposed to use on online purchases. (3) Modify channel strategy based on firm objectives and constraints After creating an ideal distribution channel system based on consumer needs, the firm now must evaluate the possibilities it has to access these channels. There may appear different problems like potential conflicts with the intermediaries, human resources constraints or financial barriers. To discover the best way to choose, a firm should consider three types of objectives: economic, adaptive and control. From the economic point of view, online channels require financial support as well, even if it seems cheaper; the website design and maintenance, the customer service available 24/7, the integration between the production, logistical and sales systems. These costs should be considered in direct relationship with the revenue that the usage of the respective channel provides to the firm. (in this case, Internet)

40

The adaptability of the system is particularly important in fast-moving industries. It involves the strength of the firm to move, combine and switch between distribution channels, in order to follow constantly the consumers steps. The control objective is inextricably linked to adaptability. In case of choosing retailers as principal distribution channel, it is very important to permanently check the availability of your products and to adapt after the consumers. This means a permanent connection with the retailer, which, as an intermediary it usually makes more difficult the connection to the customer. Thats why, if a firm wants deep control of the relationship with the customer, it has to choose the direct channels. (4) Select channel intermediaries or partners When selecting a channel intermediary or partner, a firm must take into consideration the following aspects: the reputation, the financial strength, sales performance, compensation plans, marketing support, pricing strategy (whether it suits the firms strategy), customer service (whether they care about the customer welfare). There are four types of intermediaries which are likely to become parts of the B2B channel are: (i) Distributors that have highly specialized routines and capabilities in both markets and technologies. (ii) Large, general-line distributors that stress viability over efficiency. (iii) Specialized niche distributors that enter the market near the end of the consolidation period. (iv) Distributors that have been consolidation triggers through rapid acquisition and growth.17 (5) Develop a channel feedback system As in any other business environment, the B2B section also has risks. If intermediaries fail on the market, it automatically affects the firm. So, a good distribution strategy should also include feedback and a backup
17

Internet Marketing: Building Advantage in the Networked Economy, Rafi Mohammed, Robert J. Fisher, B.J. Jaworski, Aileen M. Cahill, McGraw-Hill Higher Education, 2002, Ch. 12, p. 494

41

system. The feedback system refers on closely following the activity of the intermediary, measuring it with different financial indicators like: profit margins (net profits/new sales), asset turnover (new sales/total assets), return on assets (ROA=net profits/total assets), and return on investment (ROI=net profits/net worth). The backup system should be previously established, by choosing alternative intermediaries and by closely following the activity on the distribution market.

2.4.3. Distribution levers and the four key stages of customer relationships

Awareness. The first distribution levers that increase customer awareness are multiplying access points and distribution channels. Number of intermediaries. In the online world, it is easier to develop an intensive distribution strategy because of the Internets massive reach. Participation in affiliate programs and positioning banner ads in multiple locations can provide access to the website by a single click. Affiliate programs create a high level of distribution intensity which is analogous to an offline firm that adds retail outlets. Number of channels/Intermediary type. The number of channels may be increased by using an integrated combination between online and offline channels. Usually, firm go from offline to online, this way completing the distribution strategy. Exploration/Expansion. Channels that create more value for customers increase consumer interest and exploration. Degree of channel integration. The number of channels. Integration increases the level of customer service which makes the firm more attractive as a relationship partner. Also, the online channel provides the customer more information about the firm than the offline channels. It represents a trustworthy and easy to access source of information which also increases customer exploration. Also, the more channels are being integrated, the more the chances increase into achieving the stage goal. Commitment. It is fundamental in order to achieve this stage goal to

42

implement properly the distribution channels. The delivery of the products is absolutely essential so that the customer is satisfied. Online channels are usually regarded as less trustworthy than offline channels, simply because the customer cannot physically touch the product before transaction. Intermediary type. In order to commit, the customer must purchase the product from a trustworthy source. So, it is preferable for the firm to distribute their products through official selling points and less through retailers. Intermediary functions and responsibilities. Retailers, salespersons and other distribution channels may be engaged in the commitment of the customer, by offering them additional information at the place of the purchase, through trainings, which represent a cost, but in the end, the final result may be transformed into profit. Dissolution. In the case when a firm is not satisfied by the kind of customers it reaches, it may reduce the number and types of distribution channels. For example, Ferrari even allows itself de privilege to choose the customers. This happens because, providing luxury cars, in a small number, each driver participates at the entire Ferrari image. If the customer doesnt fit the prescription, the item is not sold. Or, if the items are sold and then the company realizes that the customers are inappropriate, they may begin to cut loose the distribution of the cars in the respective area.

2.4.4. E-Bay as a distribution channel As a business, E-Bay has actually the form of a distribution channel. It basically intermediates transactions between buyers and sellers. It is classified as a broker, which does not hold responsibility for the goods offered at auction, for collecting payments or for transport. The only goal it has is to maintain the integrity of the process of auction and, what makes it successful, to facilitate the distribution process (this is where it collects its profits from). It plays a very important role in the business activity of small firms, as it represents the cheapest and most effective distribution channel. E-Bay has developed a number of services in order to maintain a secure and

43

reliable electronic exchange: e-Stamp. It represents a relationship with the US Postal Service from which E-Bay sellers benefit of online printable stamps, valid at any post-office. Also, the physical placement of the product sold is facilitated by a special mailbox which makes the seller saving time and energy by avoiding the post-office queues, by simply placing the less than five pounds package in. iShip. This is a service which provides the auction winner an estimation of the total shipping cost, depending on the region, and avoids unpleasant surprises consisting of paying much larger amounts of money on a product. Billpoint. Through a relationship with Wells Fargo Bank, E-Bay ensures the safety of the credit card transactions.

All these partnerships encourage new users and stimulate continued business from existing users by providing security, ease, and timesaving.

III.

BUILDING COMPETITIVE ADVANTAGE THROUGH INTERNET MARKETING The 11 Immutable Laws of Internet Branding18 Al and Laura Ries, father and daughter marketing authors and consultants (at the consulting firm Ries & Ries), suggest that Internet branding differs from traditional branding in 11 distinct ways. 1. The Law of Either/Or: Companies can treat the Internet as either a medium or a business, but not both. If the Internet is a business, it must start from scratch and invent a totally new name. If the Internet is a medium, then it is acceptable to use the existing name of the firm. 2. The Law of Interactivity: Interactivity is critical to every website.

18

Cele 11 legi imuabile ale Internet brandingului, Al Ries, Laura Ries, BrandBuilders, 2006

44

The authors argue that the secret to branding on the Internet is to present the brand in a way that customers and prospects can interact with it. 3. The Law of the Common Name: The authors argue that the most important marketing decision on the Internet is what to name the product. In order to reach a website for the first time a user must usually type in a word (hot links aside). One of the worst names to select is a common noun such as car, cooking, auction, wine because they dont relate to anything unique. 4. The Law of the Proper Name: Brands should be proper nouns that are short, simple, suggestive of the category, unique, alliterative, shocking and personalized. 5. The Law of Singularity: Firms should avoid being second in their category at all costs. Although secondly positioned brands have the chance to survive and prosper in the offline world, this is not the case for Internet brands because of the direct distribution for most products and services. In the offline world distributors and retailers have an interest in supporting the second or even third line brands to balance the power of the first line brands, but this is not the case when direct distribution is used. 6. The Law of Advertising: Internet brands need visibility in the offline world to survive and prosper. Online brands that are not advertised through traditional media will soon be forgotten by most consumers. All brands need to be visually reinforced on a daily basis. 7. The Law of Globalism: The Internet is a global medium that does not respect national borders. Building an Internet brand requires a global outlook that accounts for international perceptions of your home countrys strengths, government regulations, and language issues. 8. The Law of Time: Not only do firms need to be first, but they must execute quickly and in a focused manner. 9. The Law of Vanity: Companies that are successful in one area soon move into other areas. However, if a brand is extended to products that are inconsistent with its heritage, it will not be successful. Customers do not change their perceptions of the brand just because

45

the firm wants them to. Brands must remain consistent with customer perceptions. 10. The Law of Divergence: Although most specialists argue that the Internet, television and computers will converge, Ries & Ries take the opposite track. They sustain that divergence is consistent with the laws of nature, and cite the failure of convergent products such as: airplanes/automobiles, combination VCRs/TVs, washer/dryer units. 11. The Law of Transformation: In business there is never only one way to do things. The Internet will transform many industries including financial services, catalog retailers, classified advertising, traditional postal services and traditional retailing.

IV.

INTERNET MARKETING IN THE TIMES OF CRISIS How a well planned Internet campaign can be successful even in the times of economical crisis.

Client: South Pacific Romania, real-estate agency Advertising agency: Brightness Advertising Campaign Name: The solution which takes you out of the crisis Date: 28th May- 14th July 2009

Premises: Based on the idea that although the current market situation is not favorable, people are still looking for solutions to buy a house, South Pacific real estate developer launched Rent-to-Buy program, which facilitates access for consumers to purchase a home in any of the three projects developed in the north of Bucharest: Sydney, already completed project, Melbourne to be completed in 2009, and Adelaide, which will be completed in early 2010. The solution is simple and innovative: for a fixed period (Adelaide and Melbourne 14 months maximum, and Sydney 2 years), buyers have the option to move into the apartment by paying a rent. By the end of the period after the integral payment of the negotiated price, they will become owners of the property, without being obligated to pay any money in advance.

46

However, if the customer has disposable money to pay in advance, the rent then decreases considerably. Objectives: The increase of the degree of Awareness for the Rent-to-Buy program. The increase of the number of Committed customers. Target market segment: Businessmen that work especially in the north are of Bucharest, which deeply appreciate the time-saving by purchasing a home near to the workplace. Strategy: In order to attract people to buy a house, during real-estate crisis, Brightness team have offered the client a communication campaign exclusively designed for the online channel. Brightness Advertising and South Pacific, together with Mediacafe (Yahoo! Solutions representative in Romania), ThinkDigital (exclusive sales representative for MySpace, Microsoft Advertising and of the Eyeblaster technology) and the media planning division of Communique Media, have chosen to communicate on the specific websites accessed by the targeted Romanian businessmen. The campaign took place between 28th of May and 14th of July both on Romanian lifestyle and real estate websites and international premium websites like: Yahoo!, Microsoft Advertising and Oridian, on MySpace social network, and through the search system provided by Google Adwords. For the first time in Romania, the banner ads included HD videos of over 7MB size. Tactics: In a time when almost all market competitor of South Pacific communicate only through price discounts and promotional offers, Brightness Advertising introduces the consumer into a life story which pictures two characters, Gogu and Maria. The story is divided into 6 episodes, aired weekly, whose characters confront with the same daily-basis problems as the targeted consumer, and have the same dilemmas in order to purchase a home in a crisis period. In the end, the characters solve their problems with the Rent-to-Buy program, the happy-ending of each episode being highlighted with funny sketches which represent The solution which takes you out of the crisis. It may be included into the Blair Witch Project category of serial marketing. Campaign results: After only 25 days of display the results were: over 2.500 sales leads (number of users that left their contact data on the website

47

to be contacted by the firms sales department), an average of 150 leads per day for the total number of 117 apartments from the up listed programs. The number of unique visitors which were redirected to www.southpacific.ro has overcome 365 000. The click-through ratio registered was of 8%, with a 0.3% average European click-through ratio. The team: Andrew Prelea, CEO South Pacific, Geoff Spears, Sales and Marketing Director South Pacific, Ana Vasile & Alin Tatarca copywriters, Cristian Singiorzan & Octav Campeanu art directors, Bogdan Manea Dragulin Creative Director and Director of the videos.

V.

Bibliography 1. Principles of Economics, N. Gregory Mankiw, 5th Edition,


South-Western Cengage Learning, 2009

2. International Nicolescu

Marketing,

Prof.

Univ.

Dr.

Luminita

3. Internet Marketing: Building Advantage in the Networked


Economy, Rafi Mohammed, Robert J. Fisher, B.J. Jaworski, Aileen M. Cahill, McGraw-Hill Higher Education, 2002

4. Cele 11 legi imuabile ale Internet brandingului, Al Ries, Laura


Ries, BrandBuilders, 2006

5. Strategic Management and Online Selling, Susanne Royer,


Routledge Taylor & Francis Group, 2005

6. Marketing Insights from A to Z, Philip Kotler, John Wiley &


Sons, Inc., 2003

7. Principles of Marketing, Philip Kotler, Gary Armstrong, 12th Edition, Pearson Prantice Hall, 2008 8. Marketing Management, Philip Kotler, 11th Edition, Prentice
Hall, 2003

48

49