Chapter 15

New (and Old) Marketing

Channels:
Electronic Marketing Channels and
Direct Selling

Major Topics for Ch. 15

1.What is EMC?
2.Trends in EMC
3.Structure of EMC*
4.Advantages and Disadvantages of
EMC*
5.Implications of EMC
6. Direct Selling

Electronic Marketing
Channels

Topic1:

Computers
Technology
Internet

Impact on
Design & Management of Marketing Channels

Topic2

Electronic Marketing
Channels

Not physical availability

Internet, Web-TV, Cell Phone

The use of online media to make products & services

available so that the target market with access to
enabling technologies can shop
& complete the transaction via
interactive electronic means
Actually purchasing products through the use
of PCs, Web-TV, Cell Phones

Developments & Trends in EMC

Electronic
Marketing
Channels

Online
to
Onlineshopping
shopping
toover
over$200
$200billion
billion
from
from
mid-1990s
mid-1990sto
tothe
theend
endof
of2012*
2012*
Online
Onlineshopping
shoppinghas
hasbecome
becomeaaroutine
routine
shopping
shoppingchoice*
choice*
PCs,
PCs,peripherals,
peripherals,software,
software,&&books
books
accounted
accountedfor
foraasignificant
significant
portion
portionof
oftotal
totalretail
retailspending
spendingon
on
these
theseproducts
products

* U.S. Department of Commerce

ChannelMigration*
Holiday Shopping across Different Channels
Spending
Distribution

2004

2005

2003

2002

Stores

68%

72%

74%

78%

Catalogs

5%

6%

6%

6%

Online*

27%

22%

20%

16%

Source: A.C. Nielsens Holiday E-spending Report

www.internetretailer.com

* What would do you do if you are a physical store-based ret

Future of Online Shopping

Online Sales as a Percentage of Total Retail
Sales
Year
Online
as %
% Change

of
Retail Sales

from Previous
Year

2002

1.3

19.7

2010

8.0

0.0

2011

9.0

12.5

2012

10.0

11.1

2013

10.0

0.0

Electronic Channels on
Social Network Sites
By 2009, almost of Americans
had a Facebook or MySpace
account
Among American, age 18-33,
almost were registered with
Facebook or MySpace
Businesses are now rapidly
engaging in F-commerce (Facebook
Commerce)

Topic 3

Three
Key
Phenomena

Structure of Electronic
Marketing Channels*

1. Reintermediation versus
disintermediation
2. Information flow versus
product flow
3. Virtual channel structure versus
physical channel structure

1. Disintermediation and
Reintermediation
Disintermediation

Intermediaries become
superfluous because producers
gain exposure to vast numbers of
customers in cyberspace

Dell
Computer Corp.

Reintermediation

Shifting, changing, or adding

middlemen to the channel

Amazon.com
Auto-By-Tel Corp.
Peapod, Inc.

Disintermediation versus
Reintermediation*
No matter how

technologically
sophisticated the
Internet becomes, the
laws of economics as
they relate to channel
structure do not change.

Efficiency in the
performance of
distribution tasks is what
ultimately determines what
form channel structure will
take.

=
The Internet has not eliminated middlemen,
or caused total disintermediation.

2. Marketing Channel Flows

ProductFlow
NegotiationFlow
OwnershipFlow
InformationFlow*
How can a middleman add value?
Ex) Pharmaceutical
PromotionFlow

Marketing Channels for Pharmaceuticals

Physical Distribution Flow

Information Flow

Manufacturer

Manufacturer

PBM*

Distributor

Pharmacy

patient

Insurer/
HMO

Doctor

Pharmacy

DTC
patient
* Pharmacy Benefit Manager (www.medco.com)

Internet Limits as a Stand-alone

Channel
Five
FiveChannel
ChannelFlows
Flows

Some
Somecan
cannot
notbe
be
handled
handledby
byinternet
internet

Ex) Physical Product Flow in Channel

Cannot be digitized
Processed slowly, often by people
Is basis for all other flows
negotiation,
ownership, information, &

3. Virtual (Online) Channel Structure

Versus Conventional (Store) Channel
Structure
Different Market Segments
Different Product or Services
Complements rather than Replaces
Each Other*

Topic4

Advantages & Disadvantages of

EMC*
Advantages of
Electronic
Marketing Channels

1.
2.
3.
4.

Global scope & reach

Convenience/rapid transaction processing
Information processing efficiency & flexibility
Data-based management & relationship
capabilities
5. Lower sales & distribution costs

Advantages & Disadvantages of EMC*

Disadvantages of
Electronic
Marketing Channels

1. Lack of contact with actual products & delayed

possession
2. Fulfillment logistics not at Internet speed or
efficiency*
3. Clutter, confusion, & cumbersomeness of
Internet
4. Nonpurchase motives for shopping not
addressed*
5. Security concerns of customers

Topic5

Implications of EMC

Objectives & strategies of the firm & EMC*

Role of EMC in the marketing mix
Channel design & EMC*
Channel management & EMC*
Evaluation & EMC

Objectives & Strategies of the Firm and

EMC*
Role of distribution becomes more complex
because of electronic marketing channels
=
How to Integrate Online with Offline channels

* Offline only Online only Offline + Online (multichan

Ex) My research project

EMC Impact on The Marketing Mix

The Internet arms large numbers of customers with
more information about products & services
to level the playing field

The fourth P, place (distribution), may assume a

larger role relative to the other three variables for
more & more firms

EMC and Channel Design*

The channel manager should provide channelsurfing consumers with whatever channels or
combinations of channels they desire
=
a) A facet of the development of an
effective multichannel marketing strategy
b) Unbundle Channel Functions
* A special topic: PIC (Partially Integrated Channel)

DUAL DISTRIBUTION WITH EMC :

CHANNEL STRUCTURE OPTIONS

(a)Manufacturerhasownonlinepresence
(e.g.,Tupperware)
(dottedlineindicatescommonownership)
Manufacturer
(Tupperware)
Owned Internet Sales
Channel
(tupperware.com)

Standard Channel
(independent
direct salespeople)

Consumers

DUAL DISTRIBUTION WITH EMC:

CHANNEL STRUCTURE OPTIONS
(b)Manufacturersellsthroughthird-party
onlinereseller
(e.g,CallawayGolfsellingthroughbuy.com)
Manufacturer
(Callaway Golf)

Standard Channel
(pro shops, bricks &
mortar sports/golf outlets)

Independent Internet Sales

Channel
(buy.com)

Consumers

DUAL DISTRIBUTION WITH ONLINE SELLING:

CHANNEL STRUCTURE OPTIONS
(c)Manufacturersellsthroughsomestandardchannelsthat
dooperatetheirownonlinestore,andsomethatdonot
Manufacturer
(Simon & Schuster, Publisher)

Standard Channel
(bricks & mortar
bookstores)

Barnes & Noble

Barnes & Noble

bricks & mortar
bookstores

Consumers

Barnes & Noble Internet

Sales Channel
(bn.com)

EMC and Channel Management*

Multichannel challenge of conventional and
electronic channels

=
The fundamental issues of motivating channel
members, building cooperation, managing
conflict, & coordinating elements of the
marketing mix requires managers full attention
Key Issue: Managing Conflict between Marketing
Channels

EMC and Evaluation of

Channel Performance
Likely to change

Specific criteria for

performing evaluations &
technological means for
doing so
Ex) Store Traffic Measure

Unlikely to change

Performance expectations,
criteria, & measurement of
how well they are being met
by channel members

Whatdrivessalesimpactof
onlinechanneladdition?

Steve Kim (ISU) and Sam Min (CSULB)

Question: For store-based retailers, does

adding
online channel lead to more
sales?

LikelyDrivers
Channel Disruption (Potential for
Displacement)*
Timing: Chronological Time and
Order of addition
Incumbent Retailer Resource:
Scale of Physical store-based
business
Incumbent Retailer Resource:
Retailers Brand Equity

AnalysisResults

15

Channel Disruption (Potential for

Displacement): Search good > Experience
good
Timing: Chronological Time (0) and Order
of channel addition (+)
Incumbent Resource: Scale of Physical
store business:(-)*
Incumbent Resource: Retailer Brand
Equity: (+)

Topic6

Direct Selling

Definition: the sale of a consumer product or service

person-to-person, away from a fixed retail location
Three key points:
Goes directly to consumers homes,
offices, or other locations
Concerned with the sale of consumer
products in consumer markets rather than
industrial products
Involves salespeople meeting fact-toface with customers

Structure & Trends

in Direct Selling
- Markets Served
- Types of Products Sold
- Firms Involved in Direct Selling
- Problems & Prospects for Direct
Selling

Markets Served
Location of Direct Selling Channel Sales
Location

Percent of Sales

Home

64.4

Telephone

14.7

Workplace

8.7

Internet

5.5

Temporary locations

4.1

Other

2.6

Types of Products Sold

Major Product Categories Sold through Direct Selling
Channels as a Percentage of Total Sales
Product Category

Percent of Total Sales

Personal Care Products

26.4

Home/Family Care
Products

33.7

Leisure/Educational
Products

6.5

Services/Miscellaneous/
Other

33.4

Firms Involved in Direct Selling

Hundreds exist

Range in size from those with

Facts annual sales over $1 billion to
those with sales well under $1
million

Tupperware Corp.*

Avon Products, Inc.*

Examples http://www.avon.com/

Cutco Cutlery Corp.

Amway Corporation

Rationale for Designing

Direct Selling Channels

method of distribution for providing

products & services to customers

But:

The decision should be based on an

objective analysis of the
advantages or
disadvantages of each channel
alternative.

Variables To Consider for Direct Selling*

1)

Market variables & DS channel*

2)Product variables & DS channel*

3)Company variables & DS channel
4)Intermediary variables & DS
channel
5)Behavioral variables & DS channel

1) Market Variables
Developments in consumer attitudes &
behaviors
that could make direct selling more
attractive:
1.
Consumers have less
time available for shopping
in traditional stores.

3.
Consumers are seeking
increased convenience
in shopping.

2.
Consumers are becoming more sophisticated
and demand more & better product information.

2) Product Variables
Products that are high quality, that are unique, or
that require specialized information & advice are logical
choices for direct selling:

Product quality may become Consumer satisfaction may

apparent only when consumers depend on whether the
are informed about them
consumer has proper
in conjunction with hands-on
information.
demonstrations.

Product uniqueness may become apparent only through

the direct help of salespeople.

3) Company Variables
Basic variables to consider:
1.
Size of the
company

2.
Financial capacity
of the company

4.
Basic objectives &
policies of the company

3.
Managerial expertise
in distribution*

4) Intermediary Variables
Basic intermediary variables to consider:

1.
Availability of
alternatives

2.
Cost of
using channel
alternatives

3.
Services that
alternatives are
capable of or
willing to provide

5) Behavioral Variables
The people side of the marketing channel:

Communications
processes

Conflict
Power

Role

Topic 4

Problems & Prospects

for Direct Selling*

1. Lack an awareness of DS as an
alternative.
2. Negative impression on DS in general.*
3. Lower availability of consumers for athome
sales calls and parties.*
4. The perceived risk by consumers is
high compared to other modes of
shopping.