TRANSCRIPT OF CHAPTER 2: ADAPTING MARKETING TO THE NEW ECONOMY

1. CHAPTER 2: ADAPTING MARKETING TO THE NEWECONOMY
Marketing and business practices had change mainly due to the “New Economy”. The idea that
notable advances in information technology that have appeared in the last decade,from 1990’s and
beyond, and specifically the rise of the internet as a business medium had changed fundamental
economic rules. In the new economy, it wasthought that former business valuation techniques were
invalidated by the resulting fast changing business environment.
Learning Objectives:
A. Identify the major forces driving the New Economy
B. Understand how business and marketing practices change as a result of the New
Economy
C. Explore how marketers use the Internet, customer databases, and customer
relationship management in the New Economy.
A. Major drivers of the New Economy
Generally, technology, globalization, and market deregulation are among those forces that plays a
major role in reshaping today’s world economy. But four specific drivers that really underpin the
New Economy are:
1. Digitalization and Connectivity
In the past,most appliances and systemsare operated with analog information. But today, those
are operated with digital information which converts, text, data, sound, and images into a
stream of zeros and ones that can be combined with bits and transmitted from appliance to
appliance. Bits flow from one appliance and location to anotherthru an “information highway”,
called the Internet.
Much of today’s business activities are carried over a network which connects people and
companies. These networks are called:
 Intranets – whenthey connectpeople within a company to one anotherand to the company
mainframe.
 Extranets – when they connect a company with its suppliers and distributors; and
 Internet – when they connect users to a large worldwide “information repository”.
With the kind of technology we have this days, connectivity is further enhanced with the used
of wireless communication. Activities and transactions of consumers aswell asbusiness people
are not just done with the used of their computers. They can even send and receive information
with the use of their mobile phones, tablets and other handsets Marketers used this opportunity
to create and innovate new strategies to easily reach their target market.

2. 2. Disintermediation and Reintermediation
Because of the amazing success of early online dot-coms (e.g. AOL, Amazon, Yahoo, eBay,
Etrade) and with today’s technological capabilities and advances, many entrepreneurs and
companies were trigger to also launch their own dot-com. They even hope that having their
own would also give them a chance to strike their own pot of gold. Many businesses went into
direct selling and as a result, many established middle men lost their businesses and rightly so
being disintermediated.
Disintermediation is the removal of intermediaries in a supply chain, or "cutting out the
middlemen". Instead of going through traditional distribution channels, which had some type
of intermediate (such as a distributor, wholesaler, broker, or agent), companies may now deal
with every customer directly, for example via the Internet. One important factor is a drop in
the cost of servicing customers directly and increasing profit margins.
Although some established middle men were disintermediated, new middle men (e.g.
mySimon.com, Priceline.com, Lifeshopper.com, Evenbetter.com, Buy.com, Bestbook.com,
Shopbest.com, Smartshop.com, Streetprices.com)sprang up to provide internet servicesto both
businesses and consumers. And here, reintermediation took place.
Reintermediation is the insertion of middle men into transactions between producers and
consumers.
3. Customization and Customerization
In the old economy manufacturing companies’ main drive was to standardize production,
products, and business processes. But since the new economy is already supported by
information businesses, it is now easy for companies to differentiate, customize, personalize
and dispatch over networks at incredible speed. Products are not just being customized but
companies’ messages and media for particular target market as well. In this process,
customization and customerization occurs.
Customization means that a company is able to produce an individually differentiated goods
whether ordered in person, on the phone, or online. By customizing the goods they want,
companies enable their consumer to become a prosumers or a self-producing consumers.
Allowing customer to customize their own products enable companies to interact with them
thru personalize messages, services and relationship. This interaction is then called
Customerization. A company is customerized when it is able to dialogue with individual
customersand respond by customizing its products, services and messageson one-to-one basis.
Customization is not for every company and may have severaldownsides such as difficulty of
implementing on complex products, customer’s willingness to pay high cost for customized
products, customer’s preferences,cancellation of orders, repairing a customized products and
lower sales value.
4. Industry Convergence

3. Businesses today does not only goes and operate the way they do before. Many had started to
go beyond their boundaries.
Examples are Kodak (from chemicals to electronics), Shiseido (from cosmetics to dermatology
drugs), and Disney (from cartoons and theme parks to major films, licensing, retail stores,
hotels, cruise ships, and educational facilities).
Others also recognized that new opportunities may be at the intersection of two or more
industries. As an example, AOL merge with Time Warner (January 2000) and has created
online and traditional media hybrid that opens up a host of new marketing communication
options.
B. HowBusiness And Marketing Practices Change As A Result OfThe NewEconomy?
The changes in technology and economy are eliciting a new set of beliefs and practices on
the part of business firms. Listed below are major business beliefs in the old economy and
how these beliefs are shifting to the new economy.
 From organizing by product units to organizing by customer.
In the new economy, it has been realized that different customers have different needs and
therefore buy differently. In this case,companies had switch from being product-centered
to being customer segment-centered. Instead of organizing the company according to the
product they offer, they are now taking into consideration of organizing in such a way that
they would be able to address the needs of different customer group.
 From focusing on profitable transactions to focusing on customer lifetime value.
Companies in the old economy normally focus on current individual transactions with the
aim of just making a profit on each transaction. But today, individual customer are being
valued with an eye toward retaining them for the long run, as companies would also be
benefited.
 From focusing on just the financial scorecard to focusing also on the marketing scorecard.
In the new economy, aside from judging the company’s performance through its financial
scorecard,top management also examine the company’s marketing scorecard to interpret
what is happening on its market share, customer loss rate, customer satisfaction, product
quality relative to competitors, and other measures. It is now recognize that changes in
marketing indicators can also predict changes in financial results.
 From focusing on shareholders to focusing on stakeholders.
In the old economy, making profits for shareholders are considered as top managements
primary missions. But today, top management of the new economy companies respects the
importance of creating a co-prosperity among their employees, suppliers and distributors.
They even believe that the company’s success depends on high-level performance by
employees and business partners.
 From marketing does the marketing to everyone does the marketing.
In the new economy, marketing or creating and delivering customer value are not just leave
to company’s marketing department alone. Instead, marketing has been considered as a

4. responsibility of every employees, since their actions has a much more impact to
customers.
 From building brands through advertising to building brands through performance.
Building brand knowledge and preference in the target public’s mind are now built by the
customer’sexperience with the brand and by word-of-mouth. Ratherthan relying too much
on advertising, companies also recognize sponsorships, event management, public
relations, and charitable gift as a help in building their brand.
 From focusing on customer acquisition to focusing on customer retention.
New economy companies are placing much more emphasis on customer retention rather
than attracting new customers. Instead of spending high cost on acquiring new customers,
companies are much more willing to spend additional cost on promo’s, rewards and
services for their existing customers, with the aim of retaining them for a long time.
 From no customer satisfaction measurement to in-depth customer satisfaction
measurement
Many companies in the old economy fail to systematically measure if their customers are
satisfied enough or track the factors that are shaping customer’s satisfaction. In the new
economy, companies are making an in-depth customer satisfaction measurement rather
than relying on unreliable anecdotal information.
 From over promise, under deliver to under promise, over deliver
New economy companies recognize that for a customer to be satisfied, company
performance should match customer expectations. In this case,companies do as accurately
as what they promise and as what their message is. Some company would even prefer to
do more than what customer expected from them.
Most companies are a hybrid of the old and the neweconomies. They retain skills and competencies
that worked in the pastbut add newunderstandings and competencies for them to grow and prosper.
And since today’s marketplace is made up of traditional consumers (who don’t buy online), cyber
consumers (who mostly buy online), and hybrid consumers (who do both), companies and
marketers are adjusting on new marketing practices 1) E-business and 2) Customer Relationship
Management (CRM)
B.1. How Marketing Practices Are Changing: E-business
The internet is a worldwide network of computer networks, while World Wide Web is just one
of the internet’s most popular services providing access to over two billion web pages. Using the
internet and World Wide Web gives any businesses an opportunity to be engage on e-business and
e-commerce.
E-business describes the use of electronic means and platforms to conduct a company’s business.
E-business includes doing transactions with the use of intranets (facilitates communication between
employees, and downloading and uploading of information to or from the company’s computers)
and extranets (facilitates exchange of information, orders, transactions, and payments with
suppliers and distributors) created by companies.

5. On the other hand, E-commerce does not only provide information about the company (e.g.
History, policies, products, and job opportunities), it also offers to transact or facilitate the selling
of products and services online. Thus, give rise to e-purchasing and e-marketing.
E-business and e-commerce take place over four major internet domains.
1. B2C (Business to Consumer)
B2C stands for business-to-consumer, or the retailing part of e-commerce on the Internet. It
refers to activities of businesses serving end consumers with products and/or services. The
internet is most useful for products and services when the shopper seeks greater ordering
convenience, lower cost and information about product features and prices.
2. B2B (Business-to-Business)
B2B standsfor business-to-business. Itrefersto companies doing business with eachothersuch
as manufacturers selling to distributors and wholesalers selling to retailers. B2B commerce is
10-15 times greater than B2C commerce. It gives businesses an opportunity to obtain lower or
better prices via B2B auction sites, formed buying alliances to secure deeper volume discounts
from suppliers, greater access on information (e.g. supplier websites, infomediaries, market
makers, customer communities) and price transparency.
3. C2C (Consumer to Consumer)
C2C stands for consumer to consumer. It refers to electronic commerce which involves
electronically facilitated transactions between consumers through some third party or online
trading sites. With the use of internet consumers increasingly create product information and
not just consume it. By joining internet interest group, 'word of web” is also joining 'word of
mouth”.
4. C2B (Consumer to Business)
C2B stands for consumer to business. It facilitate communication between customer and
businesses which needs faster and better response.
PURE-CLICK COMPANY VERSUS BRICK-AND-CLICK COMPANY
This days, setting a website for a new company or existing company were taken into
considerations. Companies must decide on what to choose for them to develop an e-presence:
the agility of a pure click company, or the well-defined and readily identifiable resources of a
traditional brick-and-click company?
Pure-click Company are those company that launched a website without any previous
existence as a firm. Examples are search engines,Internet Service Providers (ISPs),commerce
sites, transaction sites, content sites, and enabler sites like Yahoo, Alta Vista, AOL and
Compuserv. But most dot-coms failed for a variety of reasons such as rushing into the market

6. without proper research or planning, spending large amounts on mass marketing and offline
advertising, and failure to build sound business model that would deliver eventual profit.
On the other hand, Brick-and-clickCompanyare existing companies that added an online site
for information and/or e-commerce and tend to be more successful than their pure-click
competitors because ofthe following reasons:1) betterknown brand names,2) greaterfinancial
resources and access to funds, 3) deeper industrial knowledge and experience, good
relationships with key suppliers, 4) can be easily reached 24 hours a day and 7 days a week,5)
ability to reached additional customers from far away location with the use of internet.
B.2. How Marketing Practices Are Changing: Setting Up Web Sites
To be able to go with the flow of changes on e-commerce and e-business, all companies must also
need to move into e-marketing and e-purchasing. In deciding to set up and operate company’s own
website, designing anattractive website,placing ads and promotions online aswellas building
a revenue and profit model must be considered.
1. Designing An Attractive Web Site
Proposed the following seven design elements or 7Cs in designing an attractive website that
can encourage repeat visits (Rayport and Jaworski)
 Context: layout and design. Context factors are judge by visitors according to site’s
performance based on:
a. Ease-of-use (website downloads quickly, first page is easy to understand, easy to
navigate to other pages that open quickly)
b. Physical attractiveness (pages that are clean looking and not overly crammed with
content, readable type faces and font sizes, good use of color and sound)
 Content: text, pictures, sound, and video the Web site contains. Content function that
attract visitors to bring back
a. With information that are link to related sites
b. Changing news of interest
c. Changing free offers to visitors
d. Contest and sweepstakes
e. Humor and jokes
f. Games
 Community: how the site enables user-to-user communication
 Customization: site’s ability to tailor itself to different users or to allow users to
personalize the web site
 Communication: how the site enables site-to-user, user-to-site, or two-way
communication
 Connection: degree that the site is linked to other sites
 Commerce: site’s capabilities to enable commercial transactions
2. Placing Ads And Promotion Online

7. Internet users generally does not welcome advertising. As a result companies have to decide
which among the following forms of advertising will be the most cost-effective in achieving
their objectives.
 Banner Ads-basically are small boxes containing text and pictures
 Sponsorships
 Microsite-limited area on the webmanaged and paid for by an external advertiser/company
 Interstitials-advertisements that pop-up between changes on a website
 Browser Ads-pay a viewer to watch them
 Alliances and Affiliate Programs
 Push Content and Ads
3. Building a Revenue and Profit Model
Several sources of company’s revenue stream
 Advertising income: sales of banner ads
 Sponsorship income: fees collected from sponsors
 Alliance income: sharing cost with business partners and giving free advertising in
exchange
 Membership and subscription income: subscription fee collected for receiving a password
in exchange of using the site.
 Profile income: sales on profile of particular target group
 Product and service sales income: mark up on prices of goods and services
 Transaction commissions and fees: fees collected from other parties
 Market research/information: charges for special market information or intelligence.
 Referral income: revenue collected for referring customers to others
C. How Marketing Practices Are Changing: Customer Relationship Marketing
Customer relationship marketing (CRM) is a business process in which client relationships,
customer loyalty and brand value are built through marketing strategies and activities. CRM allows
businesses to develop long-term relationships with established and new customers while helping
streamline corporate performance. It also enables companies to provide excellent real time
customer service by customizing market offerings, services,programs, messages,and media based
customer attributes.
Companies with good CRM improve the value of their customer base by excelling at the following
customer strategies:
 Reducing the rate of customer defection
 Increasing the longevity of the customer relationship
 Enhancing the growth potential of each customer through “share of wallet,” cross-selling
(occurswhen the sales representative has more than one type of product to offerconsumers
that might be beneficial to them), and up-selling (salesperson is not so much concerned
with selling an additional product to generate additional commissions, but rather with
selling a higher-end version of the product the customer originally came to buy)
 Making low-profit customers more profitable or terminates them
 Focusing disproportionate effort on high value customers

8. Four Step Framework for One-to-One Marketing
 Identify prospects and don’t go after everyone
 Group customers by their needs and their value to the company, and aggressively pursue
the most valuable customers
 Individualized interactions with customers to improve your learning
 Customized products, messages, and services for each customer.
Note differences in mass marketing versus one-to-one marketing.
Mass Marketing One-to-One Marketing
Average customer Individual customer
Customer anonymity Customer profile
Standard product Customized market offering
Mass production Customized production
Mass distribution Individualized distribution
Mass advertising Individualized message
Mass promotion Individualized incentives
One-way message Two-way messages
Economies of scale Economies of scope
Share of market Share of customer
All customers Profitable customers
Customer attraction Customer retention
Customer Databases and Data Marketing
To be able to build a relationship with customer or do CRM, a company must know their
customers by collecting information, storing those information on a data base and do
database marketing.
A Customer Database is an organized collection of comprehensive information about
individual customers or prospects that is current, accessible, and actionable for such
marketing purposes as lead generation, lead qualification, sale of product or service, or
maintenance of customer relationships.
Database Marketing is the process of building, maintaining, and using customer
databases and other databases for the purpose of contacting, transacting, and building
relationships.
Data Warehouses and Data Mining

9. After customer’s databases are being collected by the company’s contact center from
customer’s purchase,customer service calls, online inquiries, and mail-in rebate card,data
are being organized into a storage files called data warehouse.
From the storage files, marketing statisticians can extract useful information about
individuals, trends, and segments. This process is called data mining, which includes the
used of sophisticated statistical and mathematical techniques.
In general companies can use their databases in five ways:
1. To identify prospects
2. To decide which customers should receive a particular offer
3. To deepen customer loyalty
4. To reactivate customer purchases
5. To avoid serious customer mistakes
Downside of Database Marketing
Though there were good news doing database marketing, bad news are as follows:
a. Requires a large investment in computer hardware,database software, analytical
programs, communication links, and skilled personnel. But building a customer
database is not worthwhile if: product is a once in a-lifetime purchase, customers
show little loyalty to a brand, unit sale is very small, cost of gathering information
is too high
b. Difficulty of getting everyone in the company to be customer-oriented and to use
the available information.
c. Not all customers want a relationship with the company and resent collected
utilization of personal information. Marketers must be concerned about customer
attitudes toward privacy and security. Database marketing is not for everyone.