1 © 1998-2005, arvind rangaswamy (all rights reserved) january 11, 2005 e-marketing (ebiz/mktg 543)...

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© 1998-2005, Arvind Rangaswamy (All Rights Reserved)

January 11, 2005

e-Marketing (eBiz/MKTG 543)

Introduction and Course Overview

Arvind Rangaswamy

Web address: www.arvind.infoemail: [email protected]

My Background in e-Marketing

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Some of My ResearchRelated to e-Marketing

Rangaswamy, Arvind and G. Richard Shell (1997) “Using Computers to Realize Joint Gains in Negotiations: Toward An ‘Electronic Bargaining Table,’” Management Science, Vol. 43, No. 8 (August), p. 1147-1163.

Burke, Raymond R., Arvind Rangaswamy, and Sunil Gupta (1999), “Rethinking Marketing Research in the Digital World” in Digital Marketing: Global Strategies from the World's Leading Experts, Jerry Wind and Vijay Mahajan (Editors), p. 226-255.

Starke, Katrin and Arvind Rangaswamy (1999) “Computer-mediated Negotiations: Review and Research Opportunities,” Encyclopedia of Microcomputers, Vol. 26, Marcel Inc., NY: New York.

Gary L. Lilien and Arvind Rangaswamy (2000), “Modeled to Bits: Decision Models for the Digital, Networked Economy.” Commentary on “Building Models for Marketing Decisions: Past, Present and Future” by Peter S.H. Leeflang and Dick R. Wittink, International Journal of Research on Marketing. Vol. 17, Nos. 2-3, p. 227-235.

Degeratu, Alexandru, Arvind Rangaswamy, and Jianan Wu (2000), “Consumer Choice Behavior in Online and Traditional Supermarkets: The Effects of Brand Name, Price, and Other Search Attributes,” International Journal of Research in Marketing, Vol. 17, No. 1, p. 55-78.

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Rangaswamy, Arvind and Sunil Gupta (2000), “Innovation Adoption and Diffusion in the Digital Environment: Some Research Opportunities,” in New Product Diffusion Models (International Series in Quantitative Marketing, 9), Kluwer Academic Publishers, Vijay Mahajan, Eitan Muller and Jerry Wind (Editors), p. 75-96.

Wind, Jerry and Arvind Rangaswamy (2001), “Customerization: The Next Revolution in Mass Customization,” Journal of Interactive Marketing, Vol. 15,. No. 1, p. 13-32.

Srinivasan, Raji, Gary L. Lilien, and Arvind Rangaswamy (2002), “The Role of Technological Opportunism in Radical Technology Adoption: An Application to e-Business,” Journal of Marketing, Vol. 66, No. 3 (July), p. 47-60.

Jianan Wu and Arvind Rangaswamy (2003), “A Fuzzy Set Model of Consideration Set Formation Calibrated on Data from an Online Supermarket,” Marketing Science, Vol. 22, No. 3, p. 411-434.

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Coupland, Jennifer Chang, Jayesh R. Tekchandaney, Arvind Rangaswamy, and Timothy W. Simpson (2003), “A Good Web Site can Convey the Wrong Brand Image! Available at www.ebrc.psu.edu/pubs.html.

Rangaswamy, Arvind and Anant Balakrishnan (2003), “From Many to One: Personalized Product Fulfillment Systems,” in The Power of One: Leveraging Value from Personalization Technologies (Nirmal Pal and Arvind Rangaswamy, Editors). eBRC Press.

Rangaswamy, A, Shaikh, N.I., and Balakrishnan, A., (2003), “Small-World Markets and Their Use in Forecasting the Sales of New Products”, Management of Research and Development in the New Millenium, Macmillan India Ltd.

Shankar, Venkatesh, Amy Smith, and Arvind Rangaswamy (2003), “The Relationship Between Customer Satisfaction and Loyalty in Online and Offline Environments,” International Journal of Research in Marketing, Vol. 20, No. 2 (June), p. 153-175.

http://www.ebrc.psu.edu/pubs.html

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Outline for Today’sSession

Course overview

The emerging space of real-time, global, digital, networked organizations

Role of e-Marketing in a connected world

Course OverviewCourse web site at Angel

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Course Objectives

Provide a broad understanding of the technological and business infrastructure behind e-Marketing.

Expose students to the essential vocabulary they need to meaningfully discuss current developments in e-Marketing.

Offer some useful frameworks for dissecting the elements of the value creation and the customer relationship processes that are (and will be) developed in the convergence economy, and to use these frameworks to identify and exploit market opportunities.

Help students to critically evaluate an e-Marketing situation and develop strategic and operational plans appropriate for that situation.

Identify and articulate the key management issues that arise in implementing e-Marketing strategies.

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Course Materials

Required Materials

Case packet with cases (available at bookstore).

Recommended Materials

Text: Internet Marketing by Mohammed, Rafi, A., Robert J. Fisher, Bernard J. Jaworski, and Aileen M. Cahill (2003). Also, check out www.marketspaceu.com)

Recommended Reading

Reading: Carl Shapiro and Hal R. Varian (1999), Information Rules, Harvard Business School Press.

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Grading

Class participation (30%)

Group case presentations and write-ups (40%)

Individual Assignment (To be announced) (30%)

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Class Preparation/Participation

Meet with group to prepare for class

Quality of participation is far more important than quantity of participation

Everyone is here to learn from each other

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Grading Criteria

Illustrative criteria for evaluating content Actionable and specific recommendations (versus general

recommendations) Conceptual framework (rationale for recommendations) Overall strategy Basic financials Operational/implementation considerations Use of course concepts Coverage of discussion questions Internal consistency Insightful--brought out key lessons learned

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Grading Criteria (Contd)

Illustrative criteria for evaluating presentations Focused? Captured audience attention? Quality of report/charts/presentation materials

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Grading

-- - + ++

++ Outstanding – on your way to getting the “Nobel prize” in e-Marketing

+ Clearly beats my expectations/norms for the course

Meets my expectations for the course

- Below my expectations, but can improve

-- Shouldn’t be in the course

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Useful Web Sites

Good free content and newsletter on e-Marketing issues: www.ceoexpress.com; www.clickz.com; www.emarketer.com; www.marketingprofs.com.

Articles and News about e-Commerce: www.ecommercetimes.com; www.business2.com.

Questions about technology: www.techweb.com; www.techtarget.com; www.wikipedia.org.

Statistics about the Internet: www.netratings.com.

An interesting way to navigate on the Internet: www.e-map.com.

Searching for information on the web: www.google.com.

General financial information about companies: www.hoovers.com.

Research about e-Business: www.ebizsearch.org.

http://www.ceoexpress.com/

http://www.clickz.com/

http://www.emarketer.com/

http://www.marketingprofs.com/

http://www.ecommercetimes.com/

http://www.business2.com/

http://www.techweb.com/

http://techtarget.com/

http://www.wikipedia.org/

http://www.netratings.com/

http://www.e-map.com/

http://www.google.com/

http://www.hoovers.com/

http://www.ebizsearch.org/

Current State of e-Marketing

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What are e-Business and e-Marketing?

e-Commerce

e-tailing

e-Business

e-Marketing

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What is e-Marketing?

Marketing is the process of planning and executing the conception, pricing, promotion, and distribution of ideas, goods, and services to create exchanges that satisfy individual and organizational goals.

— American Marketing Association

e-Marketing (Internet marketing) is an adaptive and collaborative process of building and maintaining customer relationships through online activities to facilitate the exchange of ideas, products, and services that satisfy the goals of both parties.

— Adapted from textbook

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More Succinct Definitions

e-Marketing is whatever our key customers want us to be.

-- Senior Executive

e-Business is the viagra of big business-- Jack Welch

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Supplier network

Customer/Market network

Extranet Intranet Internet

e-Operations e-Marketing

Company’s digital

infrastructure

Real-timeEnterprise

Real-time is an organizational capability, powered by customer-centered information and process management architectures, for anticipating and responding to changing customer and market needs as fast, or faster than, those changes.

Customer-drivenActivities and flows

Emerging Global Real-Time Enterprises Focused on Customers

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Digital-Networked

MarketSpace

Digital

Physical

Standalone Networked

Software

Computing

TelecomRetailing

Manufacturing

Education

Business processes

Tractors, Crop Fields

Emerging Digital-Networked MarketSpace

Customer Relationship Management

Mar

keti

ng

Sal

es

Cu

sto

mer

Ser

vice

Selling Chain ManagementSelling Chain Management

Customers, Resellers

KnowledgeManagement

Order Management

Fin

ance

/Acc

ou

nti

ng

/Au

dit

ing

Man

agem

ent

Co

ntr

ol S

takeholders

Stakeholders

Ad

min

istr

ativ

e C

on

tro

lH

RM

S/O

RM

S

Employees

Employees

Supply Chain ManagementSupply Chain Management

Enterprise Resource PlanningL

og

isti

cs

Pro

du

ctio

n

Dis

trib

uti

on

Suppliers, Distributors, Partners

Source: Adapted from Ravi Kalakota

The New TechnologyInfrastructure

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General IT Trends InfluencingComputing and Communications

Typical Today Coming Soon

Backbone bandwidth 155 Mb/s 2.5Gb/s Tb/s

Transoceanic bandwidth 45 Mb/s 80+ Gb/s

Access (home) bandwidth 56 kb/s 10Mb/s 100Mb/s

Wireless bandwidth 14 kb/s 2Mb/s 100 Mb/s

Enterprise Database 10 TB 100 Tb PB

Supercomputer GOPS 12 TOPS POPS

Display 0.5 Mpel, 0.5 sq ft 9 Mpel, 60 sq ft

(M=106, G=109, T=1012, P=1015)

Source: Stu Feldman, IBM

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The Marketing Process in a Connected World

Sustainvalue

Augmentvalue

Realizevalue

Communicatevalue

Architectvalue

Refinevalue

Findvalue

CustomerRelationshipRepository

Adapt

• Sense market trends • Understand customers• Identify opportunities• Redefine markets • Segment customers

• Choose desirable segments • Craft value propositions• Validate/adapt value propositions

• Create offerings• Customize offerings• Simplify channels• Design customer experience

• Expand touchpoints• Price to maximize yield• Bundle/unbundle offerings• Adapt pricing/revenue strategy

• Manage brand• Deliver consistent message• Optimize communications mix• Integrate communications

• Build platforms• Generate externalities• Expand ecosystem • Enhance customer

experience

• Monitor customer experience • Personalize relationships• Offer complete offerings• Institute loyalty programs

Source: Adapted from Mohan Sawhney

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eBiz is Dead.Long Live eBiz!

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0

15

30

45

60

75

90

105

120

1997 '98 '99 '00 '01 '02 '03 '04

million

Growth in registered Users at eBay. Source: eBay/SEC filings

Continuing Growth of Real-time Businesses

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0255075

100125150175200225250275300325350

1997 '98 '99 '00 '01 '02 '03 '04

million

Number of New Items Listed at eBay

Continuing Growth of Real-time Businesses

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Notes: Active users had Internet access and used the Internet the past month.

Average Web Use at Work(United States, August 2003)

Source: Nielsen NetRatings

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Average Web Use at Work(United States, October 2004)

Source: Nielsen NetRatings

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What Does this Statistic Have to do With e-Marketing?

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35

March 2, 2001

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Internet Trends for 2005(From eMarketer)

Paid Search Advertising

Cross-Channel Shopping

Blogs and Really Simple Syndication (RSS)

Strong Broadband Adoption in Japan, China, the UK and France

Wireless Broadband – mobile services

Radio Frequency Identification (RFID)

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Internet Trends for 2005(From eMarketer)

Health Care and IT

VoIP: Service Offerings

Linux

IT Security

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Online Business FunctionalityEvolution at Leading Companies

Fun

ctio

nali

ty

1997

Static content

Dynamic content

Transactions

1995 1999 2001 2003

Process management

Value ChainManagement

2005

Physical KnowledgeAssets Deployed

DiscountedCash Flow

RealOptions

Valuation “Converging Economies”

Consultingfirms

Brick andMortar

.COMsR&D

Firms

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Some Ways of Deriving Business Value from the Digital Infrastructure

ReduceReduceCosts ofCosts ofBusinessBusiness

DevelopDevelop e-Enhancede-Enhanced

ProductsProducts

EnhanceEnhanceCustomerCustomer

ExperienceExperience

AttractAttractNewNew

CustomersCustomers

AccessAccessNew MarketsNew Marketsand Channelsand Channels

ExpandExpandOfferingsOfferings

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• Customers create “power plant” on the Web.• Virtual meetings between various teams and

customers eliminates costs.• Blueprints exchanged and modified in real time on

the Web.• Customers can watch as turbine is built.

- 20-30% reduction in time to build turbine- 1-2% increase in turbine output- 30% increase in sales revenue

Example Business Value at GE(http://www.gepower.com/online_tools/index.htm)

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Dell -- Consolidated Statements

Year ending 30-Jan-04 31-Jan-03 1-Feb-02 2-Feb-01 28-Jan-00 29-Jan-99

Revenue Net sales 41,444 35,404 31,168 31,888 25,265 18,243 Cost of sales (33,629) (29,055) (25,661) (25,445) (20,047) (14,137) Gross profit 7,552 6,349 5,507 6,443 5,218 4,106 Gross margin (%) 18.22 17.93 17.67 20.21 20.65 22.51

Operating costs and expenses Selling, general, administrative (3,544) (3,050) (2,784) (3,193) (2,387) (1,788) Research, development, engineering (464) (455) (452) (482) (374) (272) Special chages - - (482) (105) (194) -

Total operating expenses (4,008) (3,505) (3,718) (3,780) (2,955) (2,060) Operating income (loss) 3,544 2,844 1,789 2,663 2,263 2,046 Investment/other income (loss) 180 183 (58) 531 188 38 Net Pre-tax income (loss) 3,724 3,027 1,731 3,194 2,451 2,084 Net margin (%) 9 9 6 10 10 11

Current Assets

Cash equivalents 4,317 4,232 3,641 4,910 3,809 1,726 Short-term investments 835 406 273 525 323 923 Accounts receivable 3,635 2,586 2,269 2,424 2,608 2,094 Inventories 327 306 278 400 391 273 Long term investments 6,770 5,267 4,373 2,418 1,048 532 Total assets 19,311 15,470 13,535 13,670 11,471 6,877 Total current liabilities 10,896 8,933 7,519 6,778 5,192 3,695 Long-term debt 505 506 520 509 508 512 Total liabilities 13,031 10,597 8,841 8,048 6,163 4,556

All information derived from company annual reports and SEC filings.

(All figures in millions)

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Amazon -- Consolidated Statements

Year (Dec 31) 2003 2002 2001 2000 1999 1998

RevenueNet sales 5,263,699 3,932,936 3,122,433 2,761,983 1,639,839 609,819 Cost of sales (4,006,531) (2,940,318) (2,323,875) (2,106,206) (1,349,194) (476,155) Gross profit 1,257,168 992,618 798,558 655,777 290,645 133,664 Gross margin (%) 23.88 25.24 25.57 23.74 17.72 21.92

Operating costs and expenses Technology and content (207,809) (215,617) (241,165) (269,326) (159,722) (46,424) Marketing and fulfillment (599,819) (517,850) (512,563) (594,489) (413,150) (132,654) General and Administrative (88,302) (79,049) (89,862) (108,962) (70,144) (15,618) Stock-based compensation (87,751) (68,927) (4,637) (24,797) (30,618) (1,889) Amortization of goodwill/intangibles (2,752) (5,478) (181,033) (321,772) (214,694) (42,599) Impairment-related and other (140) (41,573) (181,585) (200,311) (8,072) (3,535)

Total operating expenses (986,573) (928,494) (1,210,845) (1,519,657) (896,400) (242,719) Operating income (loss) 270,585 64,124 (412,287) (863,880) (605,755) (109,055) Net interest expense and other (234,877) (209,888) (114,170) (242,797) (37,444) (12,586) Net Pre-tax income (loss) 35,282 (149,132) (670,924) (1,411,273) (719,968) (124,546) Net margin (%) 1 (4) (21) (51) (44) (20)

Current Assets (Dec 31)

Cash equivalents 1,102,273 738,254 540,282 822,435 133,309 71,583 Marketable securities 292,550 562,715 456,303 278,087 572,879 301,862 Inventories 293,917 202,425 143,722 174,563 220,646 29,501 Total assets 1,820,809 1,990,449 1,637,547 2,135,169 2,465,850 648,460 Total current liabilities 1,252,701 1,065,958 921,414 974,956 733,234 161,575 Long-term debt 1,945,439 2,277,305 2,156,133 2,127,464 1,466,338 348,140

All information derived from company annual reports and SEC filings.

(All figures in thousands)

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"We are not profitable. We could be. It would be the easiest thing in the world to be profitable. It would also be the dumbest. We are taking what might be profits and reinvesting them in the future of the business. It would literally be the stupidest decision any management team could make to make Amazon.com profitable right now." Jeff Bezos, President, Amazon.com (1998)

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JC PenneyConsolidated Statements

Date of Annual Report Feb 26 2004 Jan 25 2003 Jan 26 2002 Jan 27 2001 Jan 29 2000 Jan 30 1999

RevenueNet sales 17,786 32,347 32,004 31,846 31,743 29,761 Cost of goods sold (11,166) (22,573) (22,789) (23,031) (22,286) (20,621) Gross profit 6,620 9,774 9,215 8,815 9,457 9,140 Gross margin (%) 37.22 30.22 28.79 27.68 29.79 30.71

Operating costs and expenses SG&A expenses (5,830) (8,667) (8,459) (8,637) (8,604) (7,966) Other unallocated (17) (93) (25) (27) (13) (18) Net interest expense and operations (261) (388) (386) (427) (294) (387) Acquisition amortization (42) (121) (122) (125) (112) Restructuring and other charges - net (21) (488) (169) (22)

Total operating costs and expenses (17,222) (31,763) (31,801) (32,732) (31,491) (29,126) Income (loss) from continuing operations before taxes 546 584 203 (886) 278 715 Income taxes (182) (213) (89) (318) (104) (277) Income (loss) from continuing operations 364 371 114 (568) 174 438

Other income Income from discontinued operations - - - 159 162 156 Loss on sale of discontinued operations (1,292) (16) (296) - - Net income (loss) (953) 405 98 (705) 336 594 Net margin (%) (5) 1 0 (2) 1 2

Current assets (cash, receivables, inventory, etc.) 6,513 8,353 8,677 7,257 8,177 11,007 Total assets (land, building, equipment, goodwill, etc.) 18,300 17,867 18,048 19,742 20,908 23,508 Total current liabilities 3,754 4,159 4,499 4,235 4,272 5,912 Long-term debt 5,114 4,940 5,179 5,448 5,844 7,143 Total liabilities 11,497 11,919 13,483 13,660 16,406 12,875

All information derived from company annual reports and SEC filings. Change in revenue in 2003 reflects sales of Eckerd drugstores.

(All figures in millions)

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Summary

e-Marketing is technology-mediated marketing. It is bringing about major changes in how an organization interfaces with its customers and its markets, and how it implements its marketing functions internally.

e-Marketing is here to stay and is growing in importance.

Emerging real-time/adaptive organizations are further increasing the role and impact of e-Marketing.

1 © 1998-2005, arvind rangaswamy (all rights reserved) january 11, 2005 e-marketing (ebiz/mktg 543)...

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