Global Marketing Management

Chapter 16 Global e.marketing

Warren J. Keegan

Overview
aThe Death of Distance aTargeting the individual customer aRelationship markting aSpeed to market aChanging rules of competition aComponents of the electronic value chain aSummary

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Learning Objectives
aUnderstand the main drivers of the information and communication technology (ICT) aAppreciate the role of the Internet in providing a platform for e-commerce aLearn how the new technological environment impacts on global marketing activities aKnow the components of the electronic value chain
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IT-Environment: Important Facets

aE-Commerce aExtranet aInternet aPortals aWeb Browser aWorld Wide Web aVirtual Reality aEDI (electronic data exchange)
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The Age of Technological Discontinuities

aThe speed of technological change has accelerated dramatically aOur environment is characterised by
`technological convergence and `technological ubiquity

aThe internet is the most important driver of technological change

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Uptake of Consumer Technologies

120 100 Telephone

80

Cable Radio

Millions of Users 60
40

Internet

20 TV

Source: Morgan Stanley, The Internet Advertising Report

19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95

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Development of Internet Hosts

120 .000 .0 0 0 100 .000 .0 0 0

80 .000 .0 0 0

60 .000 .0 0 0

40 .000 .0 0 0

20 .000 .0 0 0

Source: Adopted from: http://www.mids.org/mapsale/data/trends/trends-199907/sld004.htm, 30. Aug. 1999

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Geographical Distribution of Internet Users

Source: http://www.nua.ie /surveys/graphs_c harts/1998graphs /location.html, 30. August 1999

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The Evolution of E-Commerce

tom orr ow

today

yesterday

New Marketing Tool

New Distribution System

New Drive for Efficiency

New Business Model

Evolution

Revolution

Source: Roland Berger & Partner ( 1999) Erfolgsfaktoren im Electronic Commerce: Auszug aus den Ergebnissen der Studie, Wien/Frankfurt am Main, p. 12

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Evolution in Business Context and Strategies

Old Economy Market share Technology as an enabler Seller-centric market Physical assets Vertical integration based on size Decreasing return to scale Firm-centric marketing strategies New Economy Strategic control Technology as a driver Buyer-centric markets Knowledge assets Vertical integration based on speed Increasing return to scale Network-centric marketing strategies

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New Economy Forces Companies to ...

1. secure a dominant market position as quickly as possible 2. form alliances based on their potential for market access and synergies 3. anticipate very high start-up investments 4. defend positions through an ongoing process of innovations.

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1. Importance of Dominant Market Positions

aCases where returns achieved through increased market share grow until market saturation has been reached i.e. ain markets
`with high fixed costs `with high degree of intellectual factor input `when the product becomes more valuable when used by more people (network effect)

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2. Importance of Strategic Alliances

aStrategic alliances = cooperation of legally independent firms aICT leads to a reduction of transaction costs a3 types of alliances
`vertical (eg manufacturer & retailer - marketing of an innovative product) `horizontal (in the same industry, eg r&d) `diagonal (different industries, eg r&d)
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Keegan: Global Marketing Management

3. Importance of Anticipating High Start-up Investments

aIn many e-based industries high start-up costs are necessary to achieve the desired market share aMoney is needed
`either from well established financially strong partners `or from the stock exchange (internet stocks)

aPayback might only be achieved on a long-term basis (in comparison with traditional companies)

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Market Valuations: New Versus Old Economy

Digital Economy Valuations (1998) Company Annual Market Cap Revenues ($m) ($m) AOL 2,600.0 149,800 Yahoo 203.3 34,500 ebay 47.4 24,000 Amazon 610.0 23,000 Priceline 35.2 17,900 @Home 48.0 16,800 E*Trade CMGI RealNetworks 285.0 91.5 64.8 12,900 11,200 5,700 Traditional Economy Valuations (1998) Market Cap Annual Company ($m) Revenues ($m) 149,800 14,700 Pfizer 34,700 15,100 Allied Signal 24,300 18,400 J.P. Morgan 23,000 15,500 Alcoa 17,700 15,900 Fed Ex 16,900 26,300 Lockheed Martin 13,500 19,200 AMR 11,400 8,300 Ingersoll Rand 5,500 11,200 Toys R Us

Sources: Fortune, April 26 and May 24, 1999; Hoover.com; Arvind Rangaswamy, Toward a Model San Francisco, Performance, Presentation at the American Marketing Association Summer Educators Conference, of eBusiness August 7-10, 1999.

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Ongoing Innovations
aDiffusion speed of new products has increased significantly aInnovation is necessary to keep a compnys market share aICT leads to greater efficiencies in all stages of the new product development process

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Location of Value Chain Across Countries

Supplier
Country A Country B Country C Country D Country E Purchasing R&D Production Sale Customer Service

Customer

Support Level
low medium high

Support Level

Source: Adapted from J. Griese, Auswirkungen globaler Informations- und Kommunikationssysteme auf die Organisation weltweit ttiger Unternehmen, in W.H. v. Staehle and P. Conrad (eds) Managementforschung 2, (Berlin / New York), de Gruyter, 1992, p. 423

Legend:

In Country Presence

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Middlemen as Networks of Specialists

Payments Specialist Context Supplier Sales Agents Market Makers Purchase Agent Context Supplier CUSTOMER

SUPPLIER

Logistic Specialist

Source: Adapted from Paul F. Nunes and Brian S. Pappas, Der Vermittler auf der Suche nach Reichtum und Glck, Outlook, Andersen Consulting, Heft 1, 1998, p. 55

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Summary
Rapid advances in IT are profoundly affecting the way global marketing is conducted:
`additional distribution & communication channels (ecommerce) `precise targeting (segment of one), customisation and interaction

`fundamentally new business models (network organisations) `empowered customers

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