Past paper: Discuss the advantages and disadvantages of the new economy for marketers (60%). How might companies develop a new economy strategy for their products or services (40%)? Illustrate your answer with examples.
* Does every company need a new-economy strategy
* Definition: new economy means the industries that stimulate the development or play an important role in electronic commerce and the internet, market computer hardware and software, and provide any of growing arrays of telecommunications services. E.g. dot-com retailers—Amazon, web portals—Google and Yahoo!
* The growing adoption of new-economy technologies in consumer and commercial sectors illustrates the importance of an internet strategy. E.g. high-speed broadband connection is revolutionizing the possibilities of what the internet can offer, in U.S. 2010, more than 70% households wanted to be broadband connected, compared to 31% in 2004.
* The growing market acceptance of the internet and other new-economy technologies and the inherent advantages that they bring suggest that nearly every company needs to examine how it will be affected by and can take advantage of these new technologies.
* Forms of e-commerce: B2B (Cisco) C2B (Priceline/ www.elance.com) B2C (Amazon) C2C(eBay)
* E business models: Bricks and Mortar only; Bricks and back up clicks; Bricks and clicks and clicks only. * Threats or opportunities? (seven attractive elements)
1) The syndication of information (lies at the heart of e-commerce business models) * Syndication involves the sales of the same good (information good) to many customers, who may then combine it with information from other sources and distribute it. * Why syndication is important:
a) Syndication delivers informational goods, variable cost of which is zero. b) Syndication process can be automated and digitized, enabling syndicated networks to be created, expanded, and flexibly adapted far more quickly than physical goods. * Syndication via the internet opens up endless opportunities for markets, replacing scarcity with abundance, processing the information timely and can be distributed everywhere. * However, companies should identify and occupy the most important niches in syndication networks, which can maximize the number and strength of links to other companies and customers. 2) Increasing returns to scale of network products
* Positive network effect (network externality): the characteristic of informational networks—a product becomes more valuable as the number of users increases. * Companies that can identify and exploit opportunities where they benefit from the increasing returns to scale that result from positive network effects can sometimes grow quickly on relatively modest capital investment. * Though some companies received lofty valuations, most are struggling to find a business model that actually makes any money. 3) The ability to efficiently personalize
* Rules-based personalization: collaborative filtering is one way of personalizing a market offering to each customer, when formal rules can be identifies in the way customer behave, it is done. 4) customize market offerings
* Customization technique: is user-driven instead of marketer-driven, allowing users to specify the nature of what is offered to them. * Personalization and customization can be help build customer loyalty and make it less likely that customers may switch to other suppliers. 5) Disintermediation and restructuring of distribution channels * The internet makes the distribution channels possible for marketers to reach customers directly, without expenses or complication of distribution channels (disintermediation). * Those who consider disintermediation their channels and selling direct must determine how they will perform these functions and must evaluate whether doing so is more effective and efficient than using intermediaries.
* Web-based disintermediation has grown to fill new needs. E.g. eBay→ creates new type of intermediary, the consignment seller. * Other new intermediaries: aggregators and affiliate schemes. E.g. Kayak.com, a travel aggregator (seems like 携程网，assist customers in finding the best deal among hundreds of sites.) The aggregator sites can focus on improving the technologies that allow customers to find exactly what they want, and publishers can specialize in promotion and attracting customers, since they are not involved in managing the product that the customer is actually buying. 6) Global reach, round-the-clock access
* Global reach, making them available 24 hours per day, providing instantaneous delivery. E.g. EasyJet airline, sells low price tickets of flight, allowing customers from different continent confirm the deal instantly at any time. With mobile telephony and GPS technologies develop, such deals can be done via mobiles. 7) The threats of new-economy and defenses
* Raise complex ethical issues and present potentially significant threats * For most products, price usually is not far from variable cost in the long run, syndication implies that the variable of delivery of informational goods approach zero, then what about the price, how do the producers make money? * There are few barriers to entry and many internet strategies are easily imitated. * Privacy and security issues.
* Two best defenses against these advantages: one is through the patent and copyright system. The other one is through versioning. Shapiro and Varian argue that even for information products whose variable costs are zero, the value of information to different kinds of customers is likely to vary substantially. * Versioning dimensions: time, convenience, comprehensiveness, manipulation, community and support * Skills in market segmentation and targeting, differentiation and positioning are needed to enable marketers to best take advantages of new-economy technologies and mitigate their disadvantages.
* Developing a new-economy strategy: a decision framework
* Steps for building marketing strategies for new-economy
* Assess the nature of environment
* Audit environmental influences (using PEST)
* Identify competitive position (strengths and weaknesses via a vis competitors and customers)
* Identify key opportunities and threats
* Strategic position
* Marketing segmentation, targeting and positioning
* Identify bases for segmenting the market
* Develop profiles of resulting segments
* Develop measures of segment attractiveness
* Select target markets
* Developing positioning for each target segment
* Develop marketing mix for each target segment
* Marketing applications for new-economy tools
* A six-stage consumer experience process:
a) Consumer insights: consumer provides information about their need to sellers, which permits producers to develop goods and services intended to meet the customers’ needs. b) Promotion and brand building: information about the new product flows to customers to inform and encourage them to buy c) Transaction: requires that information about pricing, terms, delivery flows both ways. d) Product delivery
e) Customer support or service: in which case additional information may flow in either direction or additional goods and services may flow to the customers. f) Return, dispose: the customer may need to return or discontinue use of the good and service. * Impact of e-marketing on marketing strategy
* Power shift in supply chain (producers and retailers→ consumers) * More comparative information available to consumers. E.g. Amazon.com → leads to higher purchasing power * Increase nature and scope of competition in many industries * Impact of e-marketing on offerings
* Atom based: Still a physical product that needs to be shipped. * Bit based: Digital data or information in electronic form. E.g. MP3 Implications: Online customer has greater information, wider search, online recommendations and price comparisons; competitive strategy must seek to avoid price competition and use web to augment the offering * Developing strategies to serve new-economy markets
* What might tomorrow’s entrepreneurs do to craft marketing strategies to serve new-economy markets? a) Would-be internet entrepreneurs should consider the various ways in which revenue can be generated on the web or in other new-economy settings. Understanding one’s revenue model and being willing to change it as market and technological conditions warrant are essential.
b) Entrepreneurs must ask not what can I sell but what do new-economy customers and markets need, and how and where do new-economy consumers want to consume what I have to offer. c) Would-be entrepreneurs must realize that barriers to entry are incredibly low in the new economy. Conclusion: execution is key and understanding customers and the markets they make up, understanding industries and the competitors that daily do battle in them, and developing marketing programs that can establish and maintain sustainable competitive advantage.