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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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© 1998-2005, Arvind Rangaswamy (All Rights Reserved)
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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© 1998-2005, Arvind Rangaswamy (All Rights Reserved)
Some of My ResearchRelated to e-Marketing
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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© 1998-2005, Arvind Rangaswamy (All Rights Reserved)
Some of My ResearchRelated to e-Marketing
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.
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© 1998-2005, Arvind Rangaswamy (All Rights Reserved)
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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© 1998-2005, Arvind Rangaswamy (All Rights Reserved)
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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© 1998-2005, Arvind Rangaswamy (All Rights Reserved)
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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© 1998-2005, Arvind Rangaswamy (All Rights Reserved)
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© 1998-2005, Arvind Rangaswamy (All Rights Reserved)
Grading
Class participation (30%)
Group case presentations and write-ups (40%)
Individual Assignment (To be announced) (30%)
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© 1998-2005, Arvind Rangaswamy (All Rights Reserved)
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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© 1998-2005, Arvind Rangaswamy (All Rights Reserved)
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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© 1998-2005, Arvind Rangaswamy (All Rights Reserved)
Grading Criteria (Contd)
Illustrative criteria for evaluating presentations Focused? Captured audience attention? Quality of report/charts/presentation materials
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© 1998-2005, Arvind Rangaswamy (All Rights Reserved)
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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© 1998-2005, Arvind Rangaswamy (All Rights Reserved)
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.
Current State of e-Marketing
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© 1998-2005, Arvind Rangaswamy (All Rights Reserved)
What are e-Business and e-Marketing?
e-Commerce
e-tailing
e-Business
e-Marketing
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© 1998-2005, Arvind Rangaswamy (All Rights Reserved)
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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© 1998-2005, Arvind Rangaswamy (All Rights Reserved)
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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© 1998-2005, Arvind Rangaswamy (All Rights Reserved)
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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© 1998-2005, Arvind Rangaswamy (All Rights Reserved)
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© 1998-2005, Arvind Rangaswamy (All Rights Reserved)
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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© 1998-2005, Arvind Rangaswamy (All Rights Reserved)
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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© 1998-2005, Arvind Rangaswamy (All Rights Reserved)
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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© 1998-2005, Arvind Rangaswamy (All Rights Reserved)
eBiz is Dead.Long Live eBiz!
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© 1998-2005, Arvind Rangaswamy (All Rights Reserved)
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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© 1998-2005, Arvind Rangaswamy (All Rights Reserved)
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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© 1998-2005, Arvind Rangaswamy (All Rights Reserved)
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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© 1998-2005, Arvind Rangaswamy (All Rights Reserved)
Average Web Use at Work(United States, October 2004)
Source: Nielsen NetRatings
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© 1998-2005, Arvind Rangaswamy (All Rights Reserved)
What Does this Statistic Have to do With e-Marketing?
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© 1998-2005, Arvind Rangaswamy (All Rights Reserved)
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March 2, 2001
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© 1998-2005, Arvind Rangaswamy (All Rights Reserved)
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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© 1998-2005, Arvind Rangaswamy (All Rights Reserved)
Internet Trends for 2005(From eMarketer)
Health Care and IT
VoIP: Service Offerings
Linux
IT Security
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© 1998-2005, Arvind Rangaswamy (All Rights Reserved)
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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© 1998-2003, Arvind Rangaswamy (All Rights Reserved)
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© 1998-2005, Arvind Rangaswamy (All Rights Reserved)
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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© 1998-2005, Arvind Rangaswamy (All Rights Reserved)
• 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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© 1998-2005, Arvind Rangaswamy (All Rights Reserved)
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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© 1998-2005, Arvind Rangaswamy (All Rights Reserved)
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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© 1998-2005, Arvind Rangaswamy (All Rights Reserved)
"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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© 1998-2005, Arvind Rangaswamy (All Rights Reserved)
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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© 1998-2005, Arvind Rangaswamy (All Rights Reserved)
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.