E Commerce Marketing Strategies

E-Commerce Marketing Strategies: An Integrated Framework and Case Study Eric Allen Jerry Fjermestad New Jersey Institute of Technology

Introduction Many of the models for E-commerce strategies that have been published have a lot in common with the traditional four P’s marketing model. Integrating the new strategic frameworks with the traditional marketing model provides for a more thorough framework. The framework is applied to Nabisco, Inc. to generate strategic planning ideas.

Framework Integration Zwass (1996) suggests that the established way to analyze and develop complex systems is to organize them in a meaningful structure. Handout 1 summarizes four articles that provide strategic frameworks for thinking about on-line relationships between manufacturers, retailers, and consumers. Handout 2 and Table 2 show how the major concepts of each framework map to the traditional marketing model.

Rayport & Sviokla, 1994 Framework: PRODUCT  Content is what is being sold . Can be information, a service or a physical product PLACE  Context is how the content is presented for sale. PRICE  Pricing based on cost Infrastructure describes how the buyer and seller are brought together Consequences: Erosion of brand equality Physical products replaced with the information services Near-zero marginal costs of additional customers invalidates old concepts of pricing Companies must look to exploit the breadth of the electronic channel - develop context loyalty first, then exploit it with

Klein & Quelch, 1996 Framework: PLACE  Global Reach; Market Makers PRICE  Standard Pricing PROMOTION  Global Branding Customer Centered: Technology will become more important than size of company Changing role fore intermediaries Companies dominating market Understanding the global market

Gosh, 1998 Framework: PRODUCT  Tool for developing and delivering new products and services to customers PLACE  Companies can skip other players in an industry value chain Customer Centered: Links companies directly to customers, suppliers, and other

Evans & Wurster, 1999 Framework: PRODUCT  Navigation as a separate business PLACE  Reach -describes the visibility of the customers interface and also of the business PROMOTIONS  Richness -refers the amount of information exchanged between the producer and the consumer Customer Centered: Affiliation - describes the interest of most importance with respect to the merchant.

Table 2 The Electronic Commerce Marketing Framework

The Traditional Marketing Model (the 4 P’s Kottler’ s model) A Product is anything that can be offered to a market for attention, acquisition, use, or consumption that might satisfy a want or need Place is Marketing channels- Supply Chains Price is the only element of the marketing mix to generate revenues. Promotion encompasses all the various ways an organization undertakes to communicate its products’ merits and to persuade target customers to buy from them

Product Information is now its own viable product. Internet can also serve as a platform for new product innovations.

Place Of all the elements in the marketing mix, the Internet will have the most profound effect on the marketing channels. The Internet will allow organizations to skip over parts of the value chain- Supply Chain. The Internet becomes e-value chain. Must maintain relationships w/ manufacturers, suppliers and buyers- the supply chain It is critical to quickly develop a large customer base in on-line commerce. Organizations that are first to offer a large breadth of products to consumers will have an advantage.

Price The Internet will lead to increased price competition and the standardization of prices. Organizations will have to employ new pricing models when selling over the Internet.

Promotion Incumbent retailers and manufacturers have certain advantages when promoting products and services on the Internet. Branding will continue to play an important role in Internet marketing. There are important limitations to promoting on the Internet.

Customer Centered Companies are changing how they market their products in order to better satisfy consumers’ needs: CRM-Supply Chains With the Internet it is possible to gain permission to discuss your products, as opposed to interruption marketing, such as television commercials.

The Shifting Importance of Marketing Mix Elements The Internet will change the tradeoffs between elements of the marketing mix. Evans and Wurster (1999) point out that the amount of products a retailer could carry in one place (their reach) is no longer inversely proportional to the amount of information they could present about the product in their promotions (richness).

Nabisco: A Case Study Background Nabisco, an $8 billion snack food company, has major competitive advantages in the traditional supermarket distribution channels. Nabisco’s current corporate strategy is to build total brand value. Total brand value calls for satisfying customers faster and more completely than the competition. Its Biscuit division currently spends 10% of sales in trade (retail) marketing for items such as special promotions and in-store displays. In addition, the Biscuit division maintains a fleet of trucks that provide direct store delivery which is an advantage that few competitors can afford. Direct store delivery and Nabisco’s dominant market share in the biscuit category ensure that Nabisco’s products receive the most shelf space in stores and cross shoppers’ paths more than competitor products.

State of E-Marketing at Nabisco (2000) To date Nabisco has established a significant presence during the land grab phase of the Internet referred to by Evans and Wurster (1999). For the U.S. market, the company currently has a number of web sites: A corporate information site A recipe site that provides consumers with recipes that feature Nabisco products. Each of its two domestic operating units have web sites that contain games and promote the units brands. On-line shopping for Nabisco brand merchandise (e.g. mugs, dolls, and trains), along with specially packaged food products. Various brand specific sites Nabisco has also started an e-business group to address the larger strategic issues presented by the Internet.

The Problem Current competitive advantages will diminish in a market dominated by on-line grocery shopping. Advantages critical for a bricks and mortar grocery manufacturer such as in-store displays, product presentation and shelf space do not directly transfer to an on-line environment. Strategies will have to be developed to create new competitive advantages.

Challenges For established companies, doing business on-line risks damage to brands and distribution relationships that currently represent key competitive advantages. The value chain for incumbent manufacturers and retailers is being deconstructed because the value to consumers derived from entire segments of that chain can be achieved more efficiently and effectively through the use of the Internet and Supply Chains Even if the overall percentage of sales on the Internet averages just 5% across all categories, that shift will still create tremendous pressure on physical retailers, particularly in the United States.

Growth of the On-line Grocery Business The on-line grocery shopping industry is positioned for tremendous growth in the coming years. current sales are estimated at $1.8 billion annually they are expected to reach $3.5 billion by 2002 and $37 billion, 4% of domestic sales, by 2004 Some projections call for 20% of all grocery orders to be placed on-line by the year 2007. The incentive for grocers to go on-line is to establish relationships with customers that will allow them to automatically replenish homes- a new form of SCM.

Implications of the Integrated Framework

Product Nabisco must use the information collected from the Internet to develop new products for new markets. Nabisco may have to compete with niche shops over the Internet and should start a business unit designed to compete in niche markets. Niche products would give the company's product development labs a chance to use promising developments that could not achieve the critical market mass required by today’s cost structure.

Place Nabisco needs to quickly develop an on-line customer base and ensure that its products are offered on sites that have all the products consumers want. Promote on-line retailing standards to allow consumers to switch on-line grocers easily, counteracting “sticky” web-sites developed by e-grocers. Encourage standards that would allow consumers to select products from manufacturers' sites even if the purchase and distribution occurred through the on-line grocer. Must maintain relationships w/ manufacturers, suppliers and buyers- the supply chain It is critical to quickly develop a large customer base in on-line commerce. Organizations that are first to offer a large breadth of products to consumers will have an advantage. If done correctly, would allow Nabisco to sell directly to its customers –disintermediation reducing the Supply Chain.

Place Provide an on-line service that allows consumers to navigate their selection of on-line grocery providers. Provide information about on-line grocers that consumers would be interested in such as the price of the service, service quality measures and the geographic area the service is offered in. Sponsoring manufacturers could embed themselves in the on-line grocer’s site by offering promotions through on-line grocers who are complying with industry standards.

Place - Strategies to Avoid Nabisco like other companies will have to be careful not to damage their brands and their relationship with existing distributors and retailers. Most likely strategies would be to keep Nabisco products off on-line grocer sites or not support the on-line grocers. Nabisco would also find it difficult to compete by selling its product on-line because it would not have the reach consumers would want. Nabisco could form alliances with other consumer products companies (e.g. Heinz, Campbell’s, P&G), thus forming B2B Supply Chains.

Price Nabisco should be prepared to respond to increased price pressures on the Internet. Increased price pressures would play to the benefit of the traditional large producers like Nabisco. Nabisco should consider new pricing models for its products, such as product subscriptions (e.g. cookie of the month).

Promotion Nabisco should continue to aggressively promote its brands on the Internet, particularly brands based on experience. Customer Centered An on-line service that allows consumers to navigate their selection of on-line grocery providers would give manufacturers the opportunity to collect additional consumer information- CRM.

Conclusion Although many of the e-commerce strategy frameworks offer a unique contribution to strategic planning, integrating these models into the traditional product, price, place and promotion framework can provide a more complete analysis of strategy. Based on an analysis that uses the traditional four P’s model, along with integrating other on-line strategy frameworks, Nabisco should pursue the following on-line marketing strategies: Use the Internet to develop new products and services. Help the consumer choose an on-line grocer by encouraging standards and disseminating information. Prepare itself to operate in an increasingly price competitive marketplace. Emphasize those brands that relate to experiences over facts. Develop customer centered marketing practices.

Conclusion Integrating previously developed e-commerce frameworks with the traditional 4 P’s model provides a more comprehensive strategic approach to exploiting opportunity offered by e-commerce E-commerce Frameworks Traditional 4 P’s Model + =

E Commerce Marketing Strategies

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E Commerce Marketing Strategies