Supplement/Ancillary Title s2

TEACHING NOTES FOR INTERNET EXERCISES

Important Note to Instructors: The links in the Internet exercise were verified prior to publication and were fully functional. Please check each link before assigning an exercise as link changes and domain name reassignments are not uncommon.

8 1. Corporate Web Sites The primary purpose for this exercise is to teach students the components of the strategic plan by using the corporate Web sites as active examples. Students should have little problem finding a company for this assignment considering that most major corporations have corporate Web sites. In addition, finding the corporate Web site is also easy because most companies have purchased the domain name that corresponds with their company name. (For example, IBM is www.ibm.com, and Cisco is www.cisco.com.) However there are some companies whose Web addresses are a little different. Ben & Jerry’s has an incredible corporate site that can be found at www.benjerry.com. Another great company for this assignment is Proctor and Gamble; they are found at www.pg.com.

If students are having problems finding a company to use, direct them to the fortune 500 companies. In particular, look at the consumer goods industry (www.nabisco.com, www.gillette.com, www.generalmills.com, www.pg.com) and the computer industry (www.microsoft.com, www.cisco.com, www.ibm.com, www.hp.com, www.dell.com). These companies are more likely to have Web sites because of their industries and large product lines.

To find the answers to the questions, each site will have the information located at different areas of their Web site. Many of the questions can be answered if the site has Web versions of the company’s annual report. The (1) statement of mission may be found in the annual report, a ‘who we are’ link, or a statement from the CEO of the company. Almost all the corporate sites offer a history page separate from the annual report that should describe the (2) company’s history and evolution. The online annual report or the statement from the CEO can provide a hint at the (3) company’s strengths and distinctive competencies as well as their (4) organizational objectives. (5) The product lines offered by the company are usually found at a products link (see www.sony.com for a great example).

9 2. Online vs. Offline Retail Experiences This assignment is a fun one for students to consider. It gives them a chance to visit some sites that they may not have been to before. Plus, this issue will be increasingly more important as ‘brick and mortar’ stores develop an online presence. It certainly points out the limitations that both forms of retailing possess. It is important that the students understand that these two retailing forms are very quickly evolving. They need to answer the questions in the present tense while always remembering the future tense and possibilities.

For purposes of definition, a ‘brick and mortar’ store is one that has a chain of real world retail locations. A company that only has retailing operations online is called a ‘pureplay.’ Most brick and mortar stores have a Web presence, but only a few of them offer e-commerce options.

Some examples of ‘brick and mortar’ retailers that offer e-commerce include Wal-Mart (www.wal- mart.com), Victoria’s Secret (www.victoriassecret.com), Barnes and Noble (www.bn.com), Toys ‘R’ Us (www.toysrus.com), The Gap Online (www.gap.com). There are a few online sites that offer limited product lines including: Best Buy (www.bestbuy.com), which offers CDs and Videos, and Jewel/Osco (www.jewelosco.com), which only sells cakes, refills prescriptions, and takes special orders online1.

Warning! If a student wants to use Dick’s Sporting Goods as their comparison retailer, their Web address is www.dsports.com not www.dicks.com! This warning can eliminate a great deal of embarrassment for both student and teacher!

Answers to questions:

1.Compare shopping at the virtual retailer to the physical version. What about the shopping experience is similar? Most students will focus on the idea that the same products are available at both the online and physical retailers. Be sure to point out that the online version is able to offer a much greater selection because they don’t have the restraints of floor and shelf space. Some other student answers might include the display of product prices, available color choices, and the display of matching products especially for clothes (www.gap.com).

2.Now, contrast the two experiences. What does the online store offer that the ‘brick and mortar’ store cannot? What does the ‘brick and mortar’ store offer that the virtual store cannot? The online store offers 24-hours a day, 365 days a year shopping whereas the retail store is constrained by both hours and holidays. Online you can find out if they have the product in stock and how quickly they can get it to you without having to search the store. Both the lack of crowds in the store and the lack of lines at the checkout counter are also common student answers. Additional focus can be made about the increased selection available, the ability of the online store to remember what you ordered last time, and the online shopping cart that can remember the products that you liked but didn’t buy immediately for a later shopping trip.

The brick and mortar store is seen as a social environment where consumers can interact with each other. Student answers also focus on the ability to touch and try on the product. Some students will mention that “brick and mortar” stores have sales representatives that can help you while shopping. 1 The product offerings mentioned are as of November 1999. It is possible that they may add more products in the near future.

10 Both the ability to use the product the same day as you bought it and the lack of shipping and handling charges are mentioned as well.

3.What value does the online site add to the retailer as a corporation? There are a number of possible answers here and the students will come up with a large variety of them! For the most part, the existence of the online site can benefit the corporation by serving both promotion and segmentation purposes. The Web site can promote the corporation by providing information to both customers and investors. Investors can find a host of financial information dealing with the financial stability of the corporation. Customers can print out a listing of the nearest store’s hours and even print out a map that directs them from their house to the closest retail store. In addition, many consumers are using the Web as an information-gathering tool, but are going to the retail store to make the purchase. The Web site can also reach different segments of their target markets. Busy professionals or even the elderly can place orders online instead of having to make a trip to the store. Mothers do not have to deal with taking their children through the gauntlet known as toy store aisles and can stay at home placing orders online while the children play. They may stay in the store longer online and end up purchasing more than if they visited the physical store. The Web site can also reach consumers outside the retailer’s home location. The Web reduces the regional barriers that most retailers have to overcome based on their geographic base of operations without having to invest in the construction of large retail outlets. 4.Will the online site ever completely replace the “brick and mortar” store? Why or why not? Obviously this is an opinion question and there is no “right” answer. Most of the student answers to this question will focus on either the social aspects of shopping or the lack of ability to physically touch the product. The discussion about the social aspects of shopping can get very deep, as students talk about society and the need for more interaction between human beings and not less.

The issue of physically touching the product is an interesting one that should be thoroughly investigated by researchers in the near future. Students tend to focus on the capabilities of the current technology and not what technology might be able to accomplish in the future. Direct the students to think about the possibility of receiving a representation of a material’s texture online. It is conceivable that a machine could reduce the surface dimensions of a material to digital information. That information could be sent online to a glove that the consumer would wear. The digital information would then be changed into sensations on the surface of the glove for the consumer to feel! Also note that an e-commerce site could store your (the consumer’s) physical measurements and a digital image and then display the product exactly as it would appear on you!

11 3. Consumer Decision-Making Process The most important thing that the Web does to the consumer decision-making process is to shorten the amount of time that consumers spend going through the entire process. In fact, many examples are possible about how the process can be undertaken at one online shopping session! A consumer sees a banner ad for a new printer as they visit the computer section of Yahoo (http://dir.yahoo.com/ Computers_and_Internet/). They need one and click on the banner ad that takes them to the Web page describing the printer. There the product is described and compared to other models. A link then takes the consumer to a secure server where they can purchase the product and determine their shipping choice. They can even track the shipping at the UPS Web site (www.ups.com). If they are dissatisfied with the purchase, they can e-mail the company about their concerns.

Here are some possible answers at each stage of the process:

Need Recognition

There is no affect on internal need recognition. Externally, banner ads served at targeted Web sites can alert the customer to a need. Similarly, ads served based on search engine entries are very targeted ways to activate consumer’s needs. For example, Yahoo (www.yahoo.com) sells key words to advertisers and has an ad for Amazon (www.amazon.com) that uses the key word entered and links to suggested books on the same topic at the Amazon site. They also greet past customers with personalized greetings and purchase suggestions based on past purchases. The peer evaluations at both Amazon (www.amazon. com) and CDNow (www.cdnow.com) can trigger need recognition. Some companies send e-mail to past consumers when a new item is released similar to a purchase they have made in the past.

Alternative Search

The book focuses on five sources of alternative search: internal, group, marketing, public, and experiential sources.

Internal sources are not affected by the Internet.

Group sources based on the Internet can now include the information contained in peer reviews located at e-commerce sites like CDNow and Amazon. In addition, Amazon offers a program called Purchase Circles, which lists the top book and CD purchases based on the consumer’s affiliations including: university (i.e., University of Kentucky), organization (i.e., Lexmark), region or city (i.e., Lexington, Kentucky). Another group based source would include the various forms of community, such as chat rooms and discussion lists, that can provide the consumer with information about a product or product category.

Marketing sources based on the Internet are found in great abundance! One look at the Sony Web site (http://www.wel.sony.com/) shows how much information about a product can be found using the Internet. The interesting aspect here is that more detailed information about a greater variety of products can be found in significantly less time than ever before! To make this point, present the students with this or a similar scenario. Twenty years ago, their parents, probably a newlywed couple, needed to buy their first television set. What activities would they have to undertake in order to find enough information about their alternatives to make a decision? Stress the emphasis on physical travel from store to store and reliance on salesperson knowledge. Of course the issue of information overload wasn’t much of an issue back then.

12 Public sources based on the Internet include numerous consumer oriented articles and press releases about new products that can be easily pulled up and searched. In addition, objective reviews, such as Consumer Reports (www.consumerreports.com), Edmonds (www.edmunds.com), and MS Carpoint (www.carpoint.com) provide the consumer with third party information about products as small as watches and as large as automobiles!

Experiential sources based on the Internet are only beginning to be utilized by e-commerce sites! Certain product types, such as music, movies, and computer software can be tried online before the consumer makes a purchase.

Alternative Evaluation

When evaluating alternatives, e-commerce Web sites can allow the consumer to select certain models or products that may satisfy their need. These choices can then be displayed side-by-side, analyzed, and compared. For an example of this ability, visit the QVC Web site (www.iqvc.com). Pick any product category and select two or more of the models. The site literally provides side-by-side comparison of the models chosen. This is what most of the students will answer for this question. In addition, e-commerce sites also have software that can make comparisons based on predetermined selections by the consumer and create a ranking based on the consumer’s preferences. It makes for an interesting discussion to ask the students what role this ability to compare products on pure attributes might have on the importance of branding and the way that consumers evaluate products.

Purchase Decision

Students will focus on the ability to purchase the product online. However it is more important to look at the entire purchasing process. The Internet allows the purchase process to be condensed in time. The consumer can make the exact product selection, pay for it online, and select delivery terms at one sitting online. An important aspect of the purchase decision is the ability to postpone the purchase if the customer so chooses. E-commerce sites have developed the shopping cart feature to allow the customer to postpone their purchase and pick up the purchase process from the same stage at a later time. The customer can also track the purchase (see www.fedex.com or www.ups.com) from its delivery to their doorstep.

Post-Purchase Evaluation

The ability to e-mail the company with a complaint is the answer that most of the students will mention for this question. In addition, consumers can e-mail questions to the company, discuss their purchase in chat rooms and on message boards with other owners, or they can leave reviews of purchase process (www.ebay.com). Don’t miss this opportunity to discuss cognitive dissonance. Most of the activities that the consumer undertakes are designed to reinforce their purchase decision. Online companies understand the importance of alleviating cognitive dissonance and create forums for the consumers to discus their purchase with others. Ford Motor Company has a section on their site called the OwnerConnection (www.ownerconnection.com) where current owners have access to information about servicing and special offers geared towards the vehicle that they own or lease. Some online companies also provide the customer with follow-up information and communication in the form of e-mail. In addition, the post- purchase evaluation stage is an opportunity to refine the entire search process for later online purchases.

13 4. Discovering Product Assortments Online This is another example of an exercise designed as an active learning tool tied closely to the material in the book (Chapter 6: product strategy). Each of the sites listed in the exercise has the information presented in different ways, but all work well for this exercise.

To look at possible answers to the questions, lets look at Gillette.com as an example.

When you visit the Gillette Web site, a splash page greets you and eventually gives way to the site’s main index page. Click on the icon corresponding to the label Brands (1) to find Gillette’s product offerings. The Gillette Web site lists their product offerings into their “six major business segments.” Blades & Razors, Toiletries, Stationery Products, Braun products, Oral-B products and Duracell products. It is not a complete inventory of the products that the company offers, but it does give an idea about the company’s (2) product mix and (3) the number of product lines they offer. While the exact number of names of products offered is not available on the Web site, students can still get a good feeling for the (4) depth and breadth of the product mix. It is easy to select individual products from the Gillette Web site. (5) The majority of Gillette’s products are convenience goods. However, they do sell the Braun Oral-B 3D plaque remover, which is more difficult to classify as either a shopping good or specialty good. These products are produced by Gillette for any number of reasons (competencies, established distribution channels, brand equity and extensions, positioning of company or other products, there are many more!) Make the students think about why they should make those products in addition to making them learn what products are manufactured and how they are strategically handled.

14 5. Brand Equity on the Internet Online branding issues are a hot topic of discussion! What role does branding play online? How do you cultivate a brand using Internet resources? What is the best way to promote your brand online? All of these questions are important to the growth and development of companies online. There are at least two major benefits to having a strong brand name online. First, a strong brand name is seen as safe, trusted, and respected. This helps reduce the impact of online security issues. The second benefit has to do with brand awareness. Since most Web sites are identified by a brand name domain name, strong brand awareness makes it easier for the consumer to find the company online.

The first part of the exercise is extremely important. The thoughts that the students write down about the company represents the brand image that they have developed about that company for many years. It is the primary comparison point between what they expect from the company on the Web site and what they might be surprised by. It may be interesting to enhance the exercise a little bit by finding 2 or 3 online retailers that the students have never heard of before and ask them to complete the assignment for these companies with little or no brand equity.

If you are supervising the class in a computer lab, give the students some time to get used to the site. For many of the sites this will involve games, recipes, and other activities.

1. What is the main purpose for the Web site? Most of the students will probably focus on the informational content of the site or e-commerce activities if the site they choose sells their product online. Most of the students won’t mention the brand building purpose to the site. Even though a great deal of the Web sites mention their charity work prominently.

2. Briefly discuss what messages the Web site is trying to convey. Obviously each site is going to have different answers to this question. The Ben & Jerry’s site (www.benjerry.com) is designed to be fun but define the company as a socially conscious corporate citizen. Students usually pick up on this message. There are other sites that are more difficult to define. The Coca-Cola site (www.cocacola.com) is more challenging and open to more interpretations. This is where you can see just how creative your students are! The art critic in them shows itself and their interpretations can be fun and/or very insightful!

3. Compare what you thought about the company before visiting the Web site to the message that was conveyed by the material on the Web site. Does the Web material match what you thought or is it different? For most of the sites, the student’s initial thought will be pretty consistent with their interpretation of the Web site! Sites like IBM (www.ibm.com), Ben & Jerry’s, and LL Bean (www.llbean.com) are very consistent in their branding messages across media. Reebok (www.reebok.com) and Coke are a little different. For these sites, some consistency is seen but not as much as some of the others.

4. What is it about the company’s Web site that is helping them build brand equity?

15 When answering this question, the students tend to focus on the physical aspects of the Web site (colors, design, and pictures) and informational content as brand building tools. Be sure to make a point about what is missing from the brand equity building process. One very important aspect of brand building that is not found at most of these sites is the use of music or sounds! Sound is a very powerful tool used in radio and television to help define and reinforce a brand image. Talk about why sound is not used on the Web site to build brand equity. For an examination of this issue, read the article, “Silence of the Brands,” by Davis Masten in the November issue of Business 2.0 (http://www.business2.com/articles/1999/11/text/feature_4.html).

16 6. The Impact of Communities on Marketing The evolution of the Internet has depended heavily upon the existence of community. Researchers and computer professionals used the Internet as a way to share research ideas across the country. Marketers are only now beginning to understand how to use communities to generate traffic to their Web sites. Communities can be defined as any online area that people with common characteristics and/or interests gather and interact with one another. This interaction can be real time, like a chat room, or delayed, like a message board or discussion list.

Besides the sites mentioned in the exercise, there are other sites that utilize community. Recently, the ABC television network (www.abc.com) partnered its new season of television programs with an online community activity designed to invite viewers to their Web site to talk about the ABC program that they had just viewed and talk about what they liked or didn’t like about the show. This activity serves not only to increase traffic, but to also act as a research tool to receive almost instantaneous feedback about the program.

To add more to the discussion of the exercise, ask the students about other benefits that the inclusion of community can add to an e-commerce Web site. Student answers might include research opportunities, additional advertising possibilities, branding objectives including loyalty, and even publicity or promotional possibilities.

1. Go to the Amazon.com (www.amazon.com) homepage and click on the “Friends & Favorites” button. Discuss how Amazon uses reference groups to influence consumers at their Web site. Amazon.com does a spectacular job of building community within their site. One student noted that “They offer a place to read product recommendations from other customers, a place to email friends about a product, and a place to write your own comments about the product.” Amazon has also developed an area on their site called Purchase Circles. The primary purpose of Purchase Circles is to allow the customer to see what other Amazon buyers, that share some characteristic with the customer (i.e., same alma mater, employer, geographic region), are purchasing.

2. Go to one of the sections of the following sites: either message boards or chat at iVilliage.com (www.ivillage.com) or “Girl Talk” at Woment.com (www.women.com). How can a sponsor benefit by being associated with a community? Many of the instances of communities online involve a discussion of health issues. These chat rooms are typically sponsored by a company whose logo and maybe ad message is displayed on the site. For more examples, visit any one of the health-based sites (www.onhealth.com). Community sponsors can benefit in the same way that corporations benefit from donations, college scholarships, and other forms of charity work. Their sponsorship builds a feeling of good will and has a positive effect on their brand equity.

Be sure to note that sponsorships are drastically different from advertising in a community setting. Advertising implies that the company involved is primarily associated with the cause because of the financial rewards it hopes to receive.

3. Take a tour of GM’s Owner Center at the GM Web site (www.gm.com) by clicking on the Owner Center link on the navigation bar at the top of the page. What are some ways that a company can use community to develop new products or change existing ones? This question looks at the use of communities as a way to gather consumer information. By monitoring discussion lists, message boards, or chat rooms, the company can usually collect

17 opinions about the functionality of the product or competing products. The company can also find out what their product does not do and incorporate that into their ideas for new product development.

It is important to make the point to students that the company must not have any active involvement in the customer interactions. Having a company representative asking questions in a chat room will restrain the discussion that would naturally develop. The fact that the community is located at the company’s Web site alone will reduce the amount of constructive criticism that the company might be able to collect.

18 7. Branding for Pure Plays The competition between firms that only exist online (pure plays) and traditional (“brick and mortar”) retailers is heating up. Amazon.com, eToys, CDNow, and Reel.com are all causing traditional retailers to rethink their retail strategies. The purpose of this exercise is to make students think about what it takes to compete as both a virtual and a traditional retailer. What role does brand equity play in the marketplace? What advantages and disadvantages do each retailer have over the other.

Describe the different elements of each of their brand equity (see p. 101, figure 6.1 for help). How did Amazon develop such a strong brand name? What issues will B & N have to deal with that Amazon did not?

According to Aaker (page 101), brand equity is comprised of brand loyalty, name awareness, perceived quality, brand associations, and other proprietary brand assets. Amazon did not have any of these elements when they began. They were able to use advertising, promotions, and performance to construct their brand equity. Barnes and Noble entered the online selling arena with some degree of brand loyalty, perceived quality, and a number of other brand related associations. The challenge for Barnes and Noble is to take advantage of their existing name awareness and adapt consumers to potentially different brand messages. The primary issue that Barnes & Noble has to deal with is the coexistence of virtual and real stores. The same brand building strategy does not work for both retail types. In fact, Barnes and Noble.com does not exist anymore and has been replace by BN.com in an attempt to build separate brand identities to their two retail channels.

1. Compare the purpose of the two sites. How are they similar/different? There are two extreme answers to this question. Many of the sites are identical (Toys R Us and eToys, Blockbuster Video and Reel.com, Barnes and Noble and Amazon.com). The other pairs are drastically different from SamGoody.com and CDNow, Joseph-Beth and Amazon.com.

Those sites that sell products online share not only purpose, but also appearance! The Toys R Us and eToys sites are almost identical in format and functionality. Joseph-Beth and Amazon.com illustrate the differences between the two sites that can be viewed. Amazon is a full function e- commerce site whereas the Joseph-Beth site serves as a supplement to their retail locations.

2. Which of the two do you think has the advantage in the future and why? 3. What strategic advantage does the “brick and mortar” retailer have that the “pure play” retailer does not? 4. Does the “pure play” retailer have any strategic advantages that the “brick and mortar” retailer does not? Those sites that conduct e-commerce right now have a distinct advantage because they are learning about the medium and gaining invaluable experience in the marketplace. They are building reputations as innovative online companies, developing brand awareness, and capturing brand loyalty. In addition, virtual retailers are making strategic associations that may help build barriers to entry against future competitors.

Traditional retailers may have advantages based on deep pockets, high levels of brand loyalty and awareness, consumer preferences to shop in real locales, and established channels of distribution. Another possible advantage may be the ability to build a synergy between the retail outlet and their

19 online operations. For example, Jewel/Osco could build grocery pre-ordering into their site and have them either picked up at the store, or delivered by a delivery crew.

20 8. Pricing Issues on the Internet The Internet has had an impact on all four of the marketing mix variables. One of the most interesting effects is the influence that the Internet has had on both how companies decide on what prices to charge and the consumer’s reception to prices.

Answers to questions: 1. Why has this reputation developed? The Internet’s reputation as the place to find the lowest prices might have developed from a number of sources. First, most new e-commerce companies are using price as a competitive to enter the marketplace and steal market share from the existing firms in that industry. For example, Reel.com sold Titanic the movie for only $9.99 for an average of $20 less than the marketplace was asking. According to Julie Wainwright, Reel.com’s chief executive officer, “With everybody in e- commerce fighting to be the winner, you have to spend more and be more aggressive in your pricing. And although our pricing strategy is to be the lowest on the Internet, we’re not necessarily looking to compete with the off-line stores.”2 Second, advertising for e-commerce sites usually focuses on the lowest prices—Amazon.com and Priceline.com each made their low prices the focus of their advertising. Third, online consumers are focusing on the price of the product as a point of differentiation. According to Ken Cassar, an analyst with Jupiter Communications, “There’s definitely a lot of pressure by consumers on online retailers to keep prices down. Online consumers are very, very price sensitive.”3 The auto industry has been greatly affected by consumer’s access to the Internet. More than 60% of car dealerships have Web sites and more than 2 million auto buyers used the Internet to do research before buying their car.4

2. Why might it be possible to charge lower prices online? Prices online might actually be lower because in most cases, e-commerce retailers have much lower overhead costs than “brick and mortar” retailers do. Starting a retail store costs millions for construction, hiring and maintenance of a staff, insurance, and utilities. Plus, the retail store has a limited geographic reach. In many cases the virtual retailer does not have to carry inventory and can reduce costs in that way. In addition, the interface for ordering can reduce costs incurred for order entry and subsequent communication with channel partners.

It is very important to note that a Web site is not free and the costs of building and maintaining a Web site can easily be in the tens of millions of dollars. Staffing costs for customer service can also be expensive. In addition there are additional cybermediaries that are required to conduct business online.

Barnes & Noble has experienced an interesting phenomenon because of its dual existence as a retail store and e-commerce site. Customers come into the retail store with print outs from the B&N Web site and expect the bookstore to match those prices. This has caused Barnes and Noble employees to have to explain why they cannot charge the same prices off-line. They have been forced to “educate the consumers as to why we can charge less online.”5

3. Are products really cheaper?

2 Tedeschi Bob. “Are Online Bargains Here to Stay?” New York Times, October 4, 1998. 3 ibid. 4 Dodge, John. “The Net Has Changed Car-Buying, With Dealers Along for the Ride,” WSJ Interactive, April 1, 1999. 5 Tedeschi Bob. “Are Online Bargains Here to Stay?” New York Times, October 4, 1998.

21 The second half of the exercise can be very time intensive! Finding specific product or bits of information online can be VERY difficult (the proverbial needle in the haystack). IF the students look for books, CDs, computer equipment, or travel rates, it is significantly easier. Before the discussion of the exercise, it’s a good idea to have a few of your own examples ready. The best way to do that is to use a site that searches across the Internet comparing prices at many different sites. Use one of the following sites:

Deal Pilot (www.dealpilot.com), eCompare (www.ecompare.com), and if you know your Wines: Wine Searcher (http://wine-searcher.com/).

Answers to questions: 1. Where is the cheapest place to buy the products that you have selected? Most of the students will find a good deal online. The comparison should be between both online and retail establishments. Students will find that CDs are not as cheap on the net as they may have thought!

2. What costs go into determining which place to buy your product? Online, shipping and handling costs play a huge role. In fact, most consumers don’t even think about them until the final total or even the credit card bill! These costs make local CD stores much more competitive even though you have to pay a sales tax.

3. Are there any non-financial costs to shopping online? To off-line shopping? Online costs include time waiting to receive and use the product, security issues, and even delivery concerns. For clothing, there is greater uncertainty, but no more than with catalog sales. Off-line costs include dealing with crowds, rude or inattentive salespeople, and searching costs (including time, mental effort, and physical effort).

22 9. Selecting the Internet as a Distribution Channel One of the major decisions that a manufacturer needs to make is which channel to use to distribute their products. Pages 171-2 describe the four primary considerations that need to be analyzed before making the distribution choice: distribution coverage required, degree of control desired, total distribution cost, and channel flexibility.

Discuss the implications of using the Internet on these four considerations.

Distribution coverage required

The amount of distribution coverage on the Internet is based more on the cybergraphics of the audience than geography. The types of online users are still drastically different from the average American consumer. Thus, a manufacturer can only reach those consumers with online access either at home, work, or a cyber café. Visit the GVU’s WWW User Surveys (http://www.gvu.gatech.edu/user_surveys/) for an excellent look at who is online and what they like to do online including shopping behavior.

According to the distribution coverage continuum, distribution can be intensive, selective, or exclusive. It is difficult to assess the Internet along these lines of distribution coverage. The selection of outlets does not apply to the use of the Internet as a distribution channel. There are some aspects to these three coverages that can be useful to discuss. Online, it is not possible to produce a type of intensive distribution. Many consumers do not have access to the Internet and products online are not available when needed. That explains why most convenience goods are not available online. The principles behind selective distribution can be achieved by advertising heavily on geographically centered markets using both online and traditional advertising media. Obviously no best outlet can be chosen, however the service needs can still be a major focus on an online strategy. Exclusive distribution is impossible to achieve with territorial boundaries, but extremely specific targeting is very possible online and may be one of its strongest attributes.

Degree of control desired

Manufacturers can maintain a great deal of control over their channels of distribution as compared to traditional channels because they can eliminate wholesalers and retailers. The manufacturer can directly maintain all advertising and positioning of the product. Sales promotion and advertising of the product can be created and changed as they need to for strategic purposes.

If control of the corporate Web site is completely internal, then the manufacturer can have complete control. Dell, Gateway, and Cisco all have control over all strategic aspects of their Web site operations. However, most manufacturers utilize the services of cybermediaries to design and run their online operations. IBM eBusiness helps design and develop e-commerce solutions. External service companies often perform Web site development. Web site maintenance may be performed by an external source. Plus, the delivery of almost all online good purchases is conducted by shipping companies (UPS, Fed Ex, USPS, Roadway, etc.). These intermediaries can influence the experience that the consumer has with the e-retailer.

Total distribution cost

There are so many issues to discuss with this section! Some issues include but are not limited to: shipping costs, handling costs, outsourcing of delivery, the costs of creating and maintaining an online order input system that is reliable and secure, inventory handling costs, and even different types of insurance and financial services needed. Many of these issues depend on the volume of business that is conducted

23 online. The costs of transportation would change because of the shift from the shipment of the product from the manufacturer to a wholesaler then to a retailer to the use of delivery companies direct to consumers. The cost of order processing is affected because of a change in the order input and control process that no longer needs phone operators or manual input, but does need technical experts to maintain the computer systems. Inventory causes an interesting problem: companies can hold their own inventory (which increases costs) or contract out inventory, holding, and delivery. Packaging costs are greatly reduced because there is no need to display the product on store shelves.

Channel flexibility

Internet channels are very flexible to changing conditions based on their business model. Product offerings can be changed overnight depending on sales analysis. In addition, the online channel is open 24 hours a day every day of the year.

24 10. Internet Advertising To be successful, Internet advertising attempts to influence the consumer the same way as traditional forms of advertising. Pages 129-130 discuss these four objectives: awareness, comprehension, conviction, and ordering.

Discuss how Internet advertising can be used to accomplish these four objectives.

Awareness

Awareness is a very common objective of Internet ads. According to an AOL sponsored study, banner ads are as effective as TV advertising at building brand awareness. Online sponsorships, pop-up ads, and small box ads near the scroll bar are all used to make online consumers aware of products. Direct e-mails can also be used to make consumers aware of new products related to their previous purchases.

StoreRunner (www.storerunner.com) presents many links on its front page to direct traffic and even advertises using its own banner ads on the page. Amazon.com (www.amazon.com) uses a personalized approach to advertising by providing current customers with suggestions for products that are similar to those they have already purchased.

Comprehension

The primary purpose for most Web sites is to help inform the consumers about the benefits of their products. The Sony Web site (www.sony.com) is maybe the best at informing consumers about their products. They have a very detailed description of their product lines and the features of each of their product offerings. The information contained about products on the Web site is far more detailed than traditional forms of advertising (radio, magazine, TV) can produce. In addition, the interactive abilities of the Web site make it more user-friendly than brochures and direct mail.

Conviction

There are a number of features at the CDNow (www.cdnow.com) site that attempt to persuade the viewer to purchase the product. Peer and expert reviews are provided about the product. Samples of some of the songs on a CD are provided for consumers to try the product before they make their selection.

Ordering

Maybe the greatest advantage that online advertising has over all other forms of advertising is the ability to bring the consumer to the purchase faster and more conveniently than the other forms. When clicking on a banner ad found at Yahoo, the consumer has shown that they are interested in more information about the product and are potential buyers. Other features of the Web site include the ability to place items in the shopping cart for later purchase, the acceptance of credit card payment, and order tracking.

25 11. The Adaptation of Service to the Internet The primary purpose of this exercise is to make students think about the affect that the Internet is having on some of the more traditional companies. It is also a great way to show students what these companies are doing to adapt to the changing marketplace. Open the class up on this one and make students take a critical look at these industries and what they are currently doing to adapt. Make the students come up with what else they can do to compete with new competitors and new services offered by current competition. Ask the students how these changes have influenced their shopping and which services they would choose in the future the traditional types or the new cyber versions. Banking is the best example of this. Internationally, Internet banking is far more popular than it is in the US. Why is this and would students bank online?

It is very likely that the students have used at least one of these new services. They are probably most familiar with the travel sites. Look at the advantages and disadvantages of travel agencies versus the cyber-based travel sites.