Deciding on which markets to target through digital channels to generate value is a key strategic consideration for e-commerce strategy in the same way as it is key to marketing strategy. Managers of e-business strategy have to decide whether to use new technologies to change the scope of their business to address new markets and new products. As for De- cision 1, the decision is a balance between fear of the do-nothing option and fear of poor return on investment for strategies that fail. The model of Ansoff (1957) is still useful as a means for marketing managers to discuss market and product development using electronic technologies. This decision is considered from an e-marketing perspective inChapter 8. The market and product development matrix (Figure 5.19) can help identify strategies to grow sales volume through varying what is sold (the product dimension on the horizontal axis of Figure 5.19) and who it is sold to (the market dimension on they-axis). Specific objectives need to be set for sales generated via these strategies, so this decision relates closely to that of objective setting. Let’s now review these strategies in more detail.
Table 5.9
Right-channelling strategy example Application and tactics to achieve Typical sector and company
channel adoption examples
3 Encourage consumers to buy Customers buying online have lower Insurance companies such as through online channels. cost of sale. However, there is a risk of DirectLine.com and morethan.com.
customers’ evaluating competitor Retailers such as Tesco and Comet.
offerings and lower conversion rates during the sales process.
Customer channel adoption encouraged by reduced ‘Internet prices’ compared to offline channels and explaining proposition of more choice, more convenience.
4 Provide offline conversion to sale Offer a phone callback or live chat Insurance companies such as options during sales process. facility from within web sales process DirectLine.com and morethan.com.
since strategy 3 may involve lower conversion rates than an in-store or call-centre customer interaction.
Customer channel adoption
encouraged by providing clear contact numbers on site (but not on home page, when part-way through customer journey).
5 Migrate customers to web Customers are encouraged to use the B2C. Service providers such as mobile self-service. web to manage their accounts which phone companies, utility companies,
results in a lower cost-to-serve for the banks and government (tax returns).
company. E-mail notification and e-billing.
Customer channel adoption encouraged by marketing campaigns which encourage e-channel adoption, possibly including savings on service.
6 Selective service levels for different With integrated CRM systems Most companies would not publicly customer types. (Chapter 9), companies can determine, admit to this, but the practice is
in real time, the value of customers common amongst financial services and then assess where they are companies, mobile phone network placed in queue or which call-centre providers and some pureplays.
they are directed to.
Continued
1 Market penetration. This strategy involves using digital channels to sell more existing prod- ucts into existing markets. The Internet has great potential for achieving sales growth or maintaining sales by the market penetration strategy. As a starting point, many companies will use the Internet to help sell existing products into existing markets, although they may miss opportunities indicated by the strategies in other parts of the matrix.Figure 5.19indi- cates some of the main ways in which the Internet can be used for market penetration:
Market share growth– companies can compete more effectively online if they have web sites that are efficient at converting visitors to sale and mastery of the online marketing communications techniques reviewed inChapter 9such as search engine marketing, affiliate marketing and online advertising.
Customer loyalty improvement– companies can increase their value to customers and so increase loyalty by migrating existing customers online (seeMini Case Study 5.1on BA earlier in the chapter) by adding value to existing products, services and brand by devel- oping their online value proposition (see Decision 6).
Customer value improvement– the value delivered by customers to the company can be increased by increasing customer profitability by decreasing cost to serve (and so price to customers) and at the same time increasing purchase or usage frequency and quan- tity. These combined effects should drive up sales.
2 Market development. Here online channels are used to sell into new markets, taking advan- tage of the low cost of advertising internationally without the necessity for a supporting sales infrastructure in the customer’s country. The Internet has helped low-cost airlines such as easyJet and Ryanair to enter new markets served by their routes cost-effectively.
This is a relatively conservative use of the Internet, but is a great opportunity for SMEs to increase exports at a low cost, but it does require overcoming the barriers to exporting.
Figure 5.19 Using the Internet to support different growth strategies NewmarketsMarketgrowth Existingmarkets
Market development strategies
Existing products New products
Product growth
Diversification strategies Using the Internet to support:
•Diversification into related businesses
•Diversification into unrelated businesses
•Upstream integration (with suppliers)
•Downstream integration (with intermediaries)
Market penetration strategies Use Internet for:
•Market share growth – compete more effectively online
•Customer loyalty improvement – migrate existing customers online and add value to existing products, services and brand
•Customer value improvement – increase customer profitability by decreasing cost to serve and increase purchase or usage frequency and quantity
Product development strategies Use Internet for:
•Adding value to existing products
•Developing digital products (new delivery/usage models)
•Changing payment models (Subscription, per use, bundling)
•Increasing product range (Especially e-retailers) Use Internet for targeting:
•New geographic markets
•New customer segments
Existing products can also be sold to new market segments or different types of customers.
This may happen simply as a by-product of having a web site. For example, RS components (www.rswww.com), a supplier of a range of MRO (maintenance, repair and operations) items, found that 10% of the web-based sales were to individual consumers rather than tra- ditional business customers. The UK retailer Argos found the opposite was true with 10% of web-site sales from businesses, when their traditional market was consumer-based. EasyJet also has a section of its web site to serve business customers. The Internet may offer further opportunities for selling to market sub-segments that have not been previously targeted. For example, a product sold to large businesses may also appeal to SMEs they have previously been unable to reach because of the cost of sales via a specialist sales force. Alternatively, a product targeted at young people could also appeal to some members of an older audience and vice versa. Many companies have found that the audience and customers of their web site are quite different from their traditional audience, so this analysis should inform strategy.
3 Product development. The web can be used to add value to or extend existing products for many companies. For example, a car manufacture can potentially provide car performance and service information via a web site. But truly new products or services that can be deliv- ered by the Internet only apply for some types of products. These are typically digital media or information products, for example online trade magazineConstruction Weekly has diversified to a B2B portal CN Plus (www.cnplus.co.uk) which has new revenue streams. Similarly, music and book publishing companies have found new ways to deliver products through the new development and usage model such as subscription and pay per use as explained inChapter 8in the section on the Product element of the marketing mix.
Retailers can extend their product range and provide new bundling options online also.
4 Diversification. In this sector, new products are developed which are sold into new markets.
The Internet alone cannot facilitate these high-risk business strategies, but it can facilitate them at lower costs than have previously been possible. The options include:
Diversification into related businesses(for example, a low-cost airline can use the web site and customer e-mails to promote travel-related services such as hotel booking, car rental or travel insurance at relatively low costs).
Diversification into unrelated businesses– again the web site can be used to promote less- related products to customers – this is the approach used by the Virgin brand, although it is relatively rare.
Upstream integration– with suppliers – achieved through data exchange between a manufacturer or retailer with its suppliers to enable a company to take more control of the supply chain.
Downstream integration– with intermediaries – again achieved through data exchange with distributors such as online intermediaries.
The danger of diversification into new product areas is illustrated by the fortunes of Amazon, which was infamous for limited profitability despite multi-billion-dollar sales.
Phillips (2000) reported that for books and records, Amazon sustained profitability through 2000, but it is following a strategy of product diversification into toys, tools, electronics and kitchenware. This strategy gives a problem through the cost of promotion and logistics to deliver the new product offerings. Amazon is balancing this against its vision of becoming a
‘one-stop shop’ for online shoppers.
A closely related issue is the review of how a company should change itstarget market- ing strategy. This starts with segmentation, or identification of groups of customers sharing similar characteristics. Targeting then involves selectively communicating with dif- ferent segments. This topic is explored further inChapter 8. Some examples of customer segments that are commonly targeted online include:
the most profitable customers– using the Internet to provide tailored offers to the top 20 per cent of customers by profit may result in more repeat business and cross-sales;
larger companies (B2B)– an extranet could be produced to service these customers, and increase their loyalty;
Target marketing strategy
Evaluation and selection of appropriate segments and the development of appropriate offers.
smaller companies (B2B)– large companies are traditionally serviced through sales repre- sentatives and account managers, but smaller companies may not warrant the expense of account managers. However, the Internet can be used to reach smaller companies more cost-effectively. The number of smaller companies that can be reached in this way may be significant, so although individual revenue of each one is relatively small, the collective revenue achieved through Internet servicing can be large;
particular members of the buying unit (B2B)– the site should provide detailed information for different interests which supports the buying decision, for example technical documentation for users of products, information on savings from e-procurement for IS or purchasing managers and information to establish the credibility of the company for decision makers;
customers who are difficult to reach using other media– an insurance company looking to target younger drivers could use the web as a vehicle for this;
customers who are brand-loyal– services to appeal to brand loyalists can be provided to support them in their role as advocates of a brand as suggested by Aaker and Joachimsthaler (2000);
customers who are not brand-loyal– conversely, incentives, promotion and a good level of service quality could be provided by the web site to try and retain such customers.