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  • 1. System Analysis Unit 1 Examining Concepts of Marketing Management Chapter 2 - E - marketing Lesson 5 - E-Marketing as adapted to the new economy26 © Copy Right : Rai University 3E.004U
  • 2. System AnalysisAfter reading this chapter, you interact with the customers while he is taking orders from others on cell-phone. The cell phoneshould: gives him a handsfree approach and he can at- Understand the factors driving the new tend to more customer by taking orders on it, for economy home delivery. His business has almost doubled Distinguish between the features of old and due to cell phone. And think of the customer, who the new economy can get most of his requirements sitting at home. Appreciate how business practices are In Bangalore, one of the “panwallahs” (Beatle changing leaf vendors) has started selling his wares through Realize how marketing practices are chang- internet. ing Understand how internet is used for e – busi- Truly the age of E-business has arrived. For if ness small vendors can do it, surely the big business Know how websites are set up can exploit it much more. We are all aware of the terms B2B, B2C, C2C, & C2B etc In fact Be initiated to Customer Relationship Mar- internet has opened an absolutely new horizon of keting marketing. No more the need to personally visitIntroduction: the departmental store. One can do it in the cozy environs of his home, and make a complete pur-How many of you would like to stand in long ques pay your bills or even to withdraw money frombanks? Obviously none of us. Today we are in a Now let us see some of the CEO’s of Fortuneposition to choose to make and carry out trans- 500 companies like GE, Microsoft, Intel what doactions sitting in our homes. How do you think it they tell us about the E – possible? Right! It is only because of e mar-keting. Right from the banking, entertainment, Every now & then, a technology comes alonginformation service, airways, hotels, stock broking, that is so profound, so universal, that its impactindependent web marketers all of these are into will change everything. It will transform everye marketing. institution in the world. It will create winners &In this lesson we are basically losers. It will change the way we do business,trying to understand the use of the way we teach our children, communicate &electronic means and platforms interact as individuals. – Lou Gerstner, Ex Chair-to conduct a company’s business. man, IBM.The advent of the internet has Will e-commerce change everything – or just addgreatly increased the ability of another small sales channel? The internet is notcompanies to conduct their just another sales channel. It will transform yourbusiness faster and more business. The future company will operate withaccurately. a digital nervous system. – Bill Gates, Chairman, Microsoft. (He also claims Microsoft is almostE – Marketing – entirely run electronically; there is hardly anyIn our previous chapter, you have been introduced paper flowing through the company because ev-to marketing, its various definitions and concepts. erything is on the computer screen)You have also been introduced briefly to the The internet ranks as priority No 1, 2, 3 & 4changes sweeping across business and market- !………. Embrace the Internet. Bring me a planing. Basically these changes are an outcome of for how you are going to transform your busi-the changes taking place in the world economies. ness beyond adding an internet site. – Jack Welch,Obviously business and marketing can not remain former CEO, GE.isolated from these economic developments. It is the foundation of a new industrial order. ItHave you observed the vegetable vendor doing will change the relationship between consumersbrisk business in the evening? He continues to3E.004U © Copy Right : Rai University 27
  • 3. System Analysis& producers in ways more profound than one deal with ‘customization’ I am sure you are fa-can yet imagine. – Fortune magazine. miliar with it. When a business is able to supply product/service, after modifying it to meet theDigitalization and connectivity requirements of individual customer , this processIn the past, most appliances and systems— such is called customization. For example the customeras the telephone, the watch, recorded music, and in Japan is able to design his own bi-cycle on linepanel gauges— operated with analog informa- and communicate with the supplier. While thetion. Analog information is continuously variable ability of the company to customize the productin response to physical stimuli: thus a phonograph to the requirement of the customer is termedplays music by responding to the physical grooves customization, its ability to communicate on-linein the record. Today most appliances and sys- with the individual customer is calledtems operate with digital information, which con- “customerization”.verts text, data, sound, and images into a stream The old economy revolved around manufactur-of zeros and one that can be combined into bits ing companies whose main drive was to stan-and transmitted from appliance to storage, and dardize production, products and business pro-other applications. cesses/ They invested large sums in brand build-But bits will not reside in separate appliances ing to tout the advantages of their standard mar-unless connectivity is established. For bits to flow ket offerings. Through standardization and brand-from one appliance and location to another, a wired ing, manufacturers hoped to grow and take ad-or wireless communications network is neces- vantage of economies of scale. And the key tosary. The internet, the ‘information’s highway,’ managing their assets was to establish a com-can dispatch bits at incredible speeds from one mand-and-control system that would run the busi-location to another. Much of today’s business is ness like a machine.carried over network connecting people and com- In contrast, the new economy is supported bypanies. These networks are called intranets information businesses. Information has the ad-whether connect people within a company to one vantages of being easy to differentiate, custom-another and to the company mainframe; extranets ize, personalize, and dispatch over networks atwhen they connect a company with its suppliers incredible speed. As companies grew proficientand distributors; and the internet when they con- at gathering information about individual custom-nect users to a large worldwide ‘information re- ers and business partners ( suppliers, distributors,pository.’ Connectivity is further enhanced by retailers), and as their factories were designedwireless communication.( see ‘marketing for the more flexibly, they increased their ability to indi-new economy : M-Commerce opens up opportu- vidualize as their factories were designed morenities for marketers.’) flexibly, they increased their ability to individual-A survey by Jupiter communications found that ize their market offering’s, messages, and me-most Americans wouldn’t use or pay for m-com- dia. For example, Dell Computer invites custom-merce because they didn’t see a ‘killer applica- ers to specify exactly what they want in a com-tion,’ because the mobile internet is slow, and puter and delivers a custom-built one in a fewbecause the appliance screens are too small. In days. P&G, on its site, allows a per-contrast, Europe and Japan have and are using son to specify needs for a shampoo by answer-better wireless service. M-commerce entrepre- ing a set of questions, and then p&G formulatesneurs need to focus on converting specific groups a unique shampoo for the person. Levi’s is nowto m-commerce; they will make faster inroads able to produce customized jeans based on aby promoting separate service packages for, teen- person’s measurements.agers, mothers, investors, and executives than by In this process, we can distinguish betweentrying to attract the mass market. customization and customerization. CustomizationCustomisation and Customerisation means that the company is able to produce indi- vidually differentiated goods whether ordered inAgain we have two tongue twisters at hand? Can person, on the phone, or online. By going online,you distinguish between the two? Well let us firstly companies essentially enable consumers to de-28 © Copy Right : Rai University 3E.004U
  • 4. System Analysissign their own goods; in effect, it enables them to of AOL and Time-Warner has created an onlinebe presumes, namely self-producing consumers. and traditional media hybrid that opens up a hostThe company is essentially providing a workshop of new marketing communication options. In allwhere each individual can design what he or she these cases, companies are recognizing that newwants. opportunities lie at the intersection of two or more industries, Capitalizing on these opportunities canThe company also acquired the capacity to inter- be challenging. However, as firms are having toact with each customer personally, namely to learn about new markets and competitors as wellpersonalize messages, services, and the relation- as how to achieve maximum synergy across theship. The customer can request customization of different parts of this business.products, services, prices, and delivery channels.The combination of operational customization and Activtiy-1marketing customization has been calledcustomerization. A company is customerized For the Instructorwhen it is able to dialogue with individual cus-tomers and respond by customizing its products, Divide the class in two groups andservices, and messages on a one-to-one basis.2 hold a debate on the following:Customization is not for every company: There “The new drivers of economy are definitely ac-are several downsides. Customization may be celerating the growth of the business and mar-very difficult to implement for complex products keting. At the same time they are encouraging asuch as automobiles. Customization is not for consumerist society, which is not in the best in-every company: There are several downsides. terest of the consumer.”Customization may be very difficult to implementfor complex products such as automobiles. Performance in the debate shall be part of theCustomization can raise the cost of goods by more continuous evaluation.than the customer is willing to pay. Some cus-tomers do not know what they want until they How business practices are changingsee actual products. Customers cannot cancel the So far we have been talking about new economy.order after the company has started to work on Surely then there is an old economy to talk about.the product. The product may be hard to repair Let us compare the two.and have little sales value. In spite of this,customization has worked well of some products– laptop computers, apparel, skincare products,and vitamins – and is an opportunity worth inves- Old Economy New Economytigating. Organize by product Organize by customerIndustry convergence unitsFocus on profit- segmentsFocus on cus-Industry boundaries are blurring at an incredible able transactionsLook tomer lifetime valuerate. Pharmaceutical companies, at one time es- primarily at financial Look also at marketingsentially chemical companies, are now adding scorecardFocus on scorecard focus onbiogenetic research capacities in order to formu- shareholdersMarketing stakeholders Everyonelate new drugs, new costometics ( cosmonautical) does the marketing does the marketingand new foods ( nutriceuticals ). Film companies Build brands through Build brands throughsuch as Kodak are also chemical companies, but advertising Focus on performance Focus onthey are moving into electronics to digitize their customer acquisition customer retentionImage-making capabilities. Shiseido, the Japanese No customer satisfac- Measure customer sat-cosmetics firm, new markets a portfolio of der- tion measurement isfaction and retentionmatology drugs. Disney is not only into cartoons Over promise, under rate Under promise,and theme parks, but it makes major films, license liver over delivercharacters, and managers retail stores, hotels,cruise ships, and educational facilities. The merger3E.004U © Copy Right : Rai University 29
  • 5. System AnalysisThe changes in technology and economy are elic- petitors, and other measures. The recognize thatiting a new set of beliefs and practices on the changes in marketing indicators predict changespart of business firms. Let’s look at the major in financial beliefs in the old economy and how thesebeliefs are shifting As discussed earlier,the new FROM FOCUSING ONeconomy is affecting both , the way business and SHAREHOLDERS TO FOCUSINGmarketing are conducted. Let us start by analyz- ON STAKEHOLDERSing how business practices are changing. Top management sees its primary mission asFROM ORGANIZING BY PRODUCT making profits for shareholders. The costs of working with other stakeholders, such as employ-UNITS TO ORGANIZING BY ees, suppliers, and distributors, are kept under tightCUSTOMERSEGMENTS rein. They treat business as a zero-sum game,A company making two or more products nor- where by paying the least to employees, suppli-mally assigns product managers or product divi- ers, and distributors, the company will be left withsions to manage them GE’s appliance Division the most profit Top management in new economywould assign different people or business units to companies respects the importance of creatingmanage their washing machines, dryers, refrig- co prosperity among all the business partners anderators, and stoves. This makes sense, but it also customers. These managers carefully define theirmakes sense to add marketing groups that ad- stakeholders and develop policies and strategiesdress the needs of different customer groups, such to balance the returns to all the key households and building contractors, who buy They believe business success depends on high-differently. This would mean a switch from be- level performance by employees and businessing product-centered to being customer-segment partners.centered. FROM MARKETING DOES THEFROM FOCUSING ON MARKETING TO EVERYONE DOESPROFITABLE TRANSACTIONS TO THEMARKETINGFOCUSING ON CUSTOMER Companies generally establish a marketing de-LIFETIME VALUE partment to be responsible for creating and de-Companies normally focus on individual transac- livering customer value. Unfortunately, this leadstions with the aim mating individual customer life- other departments in the company to feel lesstime value and designing their market offerings responsible for company performance vis-à-visand prices to make a profit over the customer’s customers. But as the late David Packard oflifetime. The company will sometimes underprice Hewlett-Packard observed, “Marketing is far tooto gain new customers and will be generous in its important to leave to the marketing department.”pricing and services to existing customers with Every employee has an impact on the customeran eye toward retaining them for the long run. and must see the customer as the source of the company’s prosperity.FROM FOCUSING ON JUST THEFINANCIAL SECORECARD TO FROM BUILDING BRANDSFOCUSING ALSO ON THE THROUGH ADVERTISING TOMARKETINGSCORECARD BUILDING BRANDS THROUGHMost senior managers will judge the company’s PERFORMANCEperformance by financial results as reflected on Relying on heavy advertising to build brand knowl-the profit and loss statement and the balance edge and preference in the target public’s mindsheet. Top management in new economy com- certainly worked well in the old economy. Builtpanies will also examine the marketing scorecard brands, ultimately, are built by the customer’sto interpret what is happening to market share ( experience with the brand and by word-of-mouth.not just sales revenue), customer loss rate, cus- Companies are recognizing that a whole set oftomer satisfaction, product quality relative to com- tools can help build brands, including sponsorships,30 © Copy Right : Rai University 3E.004U
  • 6. System Analysisevent management, public relations, and chari- As a consequence, salespeople spend less timetable gifts. ensuring the satisfaction of existing customers, with the result that some current customers de-FROM FOCUSING ON CUSTOMER fect. New economy companies place much moreACQUISITION TO FOCUSING ON emphasis on customer retention. Attracting a newCUSTOMER RETENTION customer may cost five times as much as doing a good job to retain existing customers.Most companies seek growth and reward sales-people handsomely for finding new customers.3E.004U © Copy Right : Rai University 31
  • 7. System AnalysisFROM NO CUSTOMER new economy. Companies need to retain skillsSATISFACTION MEASUREMENT and competencies that have worked in the past, but they will also need to add new understand-TO IN-DEPTH CUSTOMER ings and competencies if they hope to grow andSATISFACTION MEASUREMENT prosper. Today’s marketplace is made up of tra-Many companies fail to systematically measure ditional consumers (who do not buy online, cyberand track customer satisfaction and the factors consumers (who mostly buy online), and hybridshaping it. Instead they rely on anecdotal infor- consumers (who do both)3mation that is not reliable. An increasing numberof companies are making customer satisfaction Most consumers are hybrid: They shop in gro-a major probity. For example, IBM systematically cery stores but occasionally order from Peapod;measures how satisfied customers are with each they buy books in Barnes & Noble bookstoresIBM salesperson they encounter, and makes this and sometimes order books from Peoplea factor in each salesperson’s compensation. still like to squeeze the tomatoes, touch the fab- ric, smell the perfume, and interact with sales-FROM OVER – PROMISE, UNDER – people. Consumers are motivated by other needsDELIVER TO UNDER-PROMISE, than only shopping efficiency. Most companiesOVER-DELIVER will need a presence both offline and online to cater to these hybrid consumers. The task todayTo get the order, salespeople frequently over- is for companies to rethink and revise their over-promise on quality or delivery, and worry later all company strategy and within that, their mar-about the repercussions. This is true of ads that keting strategy. We will even argue that market-exaggerate the performance of company prod- ing should play the lead role in shaping companyucts. New economy companies recognize that strategy.customer satisfaction is a function of the matchbetween customer expectations and company Activity-2performance. These companies what their mes-sages and promises to be accurate. Some would For the Instructor.even prefer that their salespeople under-promiseand over-deliver, as a way to create customer Hold a 10-minute discussion on the statement ofdelight. David Packard of Hewlett-PackardTHE NEW HYBRID “ Marketing is far too important to beleft to theThe fact is that today’s economy and most com- marketing department”.panies are a hybrid of the old economy and the32 © Copy Right : Rai University 3E.004U