Ebiz - Batch 2 Handout

(IS3167) MANAGEMENT AND INNOVATION OF E-BUSINESS (2012 Academic Year)
MR JACK KOH
BATCH 2
8/12/2012
Management & Innovation of E-Business

(IS3167, 2790167 ) Slides (Set-2) (Lectures 7 to 12)
Discuss Why did Apple sent me this after I have registered my new iPhone, a few days later?
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Lect-7/8:EBIZ - Mgt & Innovation eBusiness(by JackKoh)
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Marketing concept is a philosophy
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What are the fundamentals of traditional marketing?
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Information technology plays an important role in acquisition of new customers, retaining existing one and customer extension. Perils and Benefits Case study - CRM strategy of a company called Toptable, Chaffey (2011)pg 495
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Chaffeys
arguments Laudons arguments
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what forms of e-marketing channels are available to e-business strategy to facilitate new customer acquisition, retention, and extension of existing customers.
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involves attracting and sustaining customers attention in order to persuade them to purchase a product or service.. ...central to advertising is the use of brands
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Exploit new media marketing such as personalisation, mass customization, search engine optimization, affiliate marketing, online ads (Google Adwords), Viral marketing, email marketing, social media marketing, multichannel integration . . . . .
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New media relating to: Interactivity Intelligence Individualism Integration Industry restructuring Independence of location
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Personalisation - individualisation of content Mass customisation - tailoring content at the group level. Amazons is which one?
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No one look beyond the first page of search results? Higher visibility of web page in search results = higher awareness?
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Where a merchant rewards one or more affiliates for each visitor or customer brought about by the affiliate's own marketing efforts
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Display advertising that appears on the Internet Many forms such as text, logos, photos, location maps including web banners
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Google's main advertising product and main source of revenue AdWords offers pay-per-click / cost per click
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to promote the brand recognition, awareness and sales. relies on existing social networks to provide the compound effects to achieve virality
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directly marketing a commercial message to a group of people using electronic mail (email) using email to send ads, request business, or solicit sales or donations, and is meant to build loyalty, trust, or brand awareness.
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Discuss Table 9.3/ pg 499 in Chaffey (2011)
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Evaluate and identify the marketing channels used by easyJet and Dell as reference case studies, Chaffey pg 402 and Dell pg 425
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Price transparency Commoditization New pricing approaches: Dynamic pricing
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Consumer profiling Privacy. Research online how Amazons recommendation engine works. Based on your findings, critically analyse the privacy issues involved in the profiling of customers. How much does Amazon know about its users and how might this information be misused or abused? Can you imagine a world in which every organisation we do business with has a similar system in place? What happens to the notion of free choice in a world where our tastes and desires are continually predicted by companies trying to sell us products?
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End of Lectures 7 & 8
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Choose what you consider to be one cool brand and one uncool brand for clothing. What are your reasons for choosing them? Are these subjective reasons? What role does experience play? How does the website support the offline brand experience? Search online for information on a recent viral marketing campaign. Try to identify how much the campaign cost the sponsoring company, how the message was spread, what media were used (e.g. video, funny image, etc.) and what sites were involved. Was the campaign deemed successful or unsuccessful? Why? Were there any unexpected problems with the campaign?
Lecture- 9:EBIZ - Mgt & Innovation eBusiness(by JackKoh)
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Consider a product that is subject to dynamic pricing (e.g. airline seats, fashion clothes) and outline the costs and benefits of the practice for both the seller and the buyer. Does dynamic pricing change the behaviour of buyers? Under what circumstances might it not change their behaviour? What is customer segmentation? How does e-marketing contribute to segmentation? Justify your answer using examples. Why is customer relationship management important? How is e-marketing used within customer relationship management? What are the dangers of customer relationship management?
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What is viral marketing? What are the benefits and dangers for companies intending to use viral marketing as part of a conventional marketing campaign? Online revenue contribution can be considered a key objective of an e-marketing plan. What are the factors that contribute to a companys online revenue? Support your answer with relevant examples.(2012) Do social networks reduce the costs of customer segmentation? Justify you answer using examples (2012, Prelim).
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What is SCM? Supply chain management (SCM) involves the optimisation of these material and information flows along networks of suppliers and customers
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Lect-10/11.EBIZ - Mgt & Innovation eBusiness(by JackKoh)
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Improve services Reduce cost/increase profits Speed Attract new clients/ retain clients Competitiveness Management information support
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Uncertainty Supply and demand uncertainty Minimize the Bull whip effect

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Push to customer Pull from customer Key differences

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Restructuring SCM with e-business technology Virtual integration Vertical disintegration Vertical intergration
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Value Chain Value Network Where is the relationship and relevance?

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What is VMI Why would a buyer participate? Benefits Drawbacks

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The underlying concepts of value networks and VMI are part of a wider trend towards what is known as the virtual organisation - new form of organisation. How do we conceptualise businesses with reduced physical assets and whose presence and relationships with partners are almost entirely electronic? The key issues then become collaboration and coordination, rather than the competition.
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3PL is the outsourcing (contracting out) of part or all of the logistics activities by a company Types of services catered Advantages Disadvantages
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What coordination & issues at people level operational ? What technology integration issues?
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Efficient suppy chain Risk-hedging Responsive Agile Case of Zara - was appropriate SCM strategy adopted?

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Global risk Lean supply chain risk. What precautions?

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Select a large company (e.g. UPS, Amazon) and through researching on the web, try to discover how its supply chain works. Try to identify the component processes and who carries them out, and also what strategy the company employs. Explain how the company uses e-SCM technology.
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End of SCM lectures 10 + 11a Next half of session is TEST-1 ( participants will receive sample solution send to their email)
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Case study: Based on your reading, can you think of other companies with very lean supply chains which might potentially face similar or related risks to those encountered by Ericsson? In what ways can computer-based information systems facilitate supply chain management? What is a vendor managed inventory and why is it important? Why is supply chain management of growing importance in many industries? What are the problems with traditional supply chain management? Discuss how computer-based information systems are used to address these problems. Discuss, with examples, the supply chain strategies employed by companies to deal with the uncertainties of supply and demand.
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Uncertainty is often seen as the key problem for supply chain management. Why is this so? What types of uncertainty exist in a typical supply chain and what implications does uncertainty have for the design of a supply chain? (2011) Imagine you are a consultant whose job is to design a new B2B strategy in a firm which intends to open a supplier oriented marketplace. Which factors would you consider in advising the firm whether it is worthwhile pursuing such a strategy? Justify your answer theoretically. (2012) Effective supply chains depend upon the close integration of companies within the supply chain. Discuss how this has been achieved, making use of examples in your answer (2011). Supply chains benefit from cooperation between companies within the supply chain. Discuss how cooperation in supply chain can be facilitated and supported by ICT making use of examples in your answer (2012).
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Management & Innovation of E-Business IS3167, 2790167 (2011) (assembled by JackKoh)
EBIZ Course Material for 2012 (Set-2) Acknowledgment: 1) All text in italics are replicated from the UOL Study Guide, for easy references by students 2) All diagrams are taken from Chaffeys instructor guide Lecture/ Topics (chapter-no refers to the chapter of the UOL study guide) Lesson 1 Chapter-1: Introduction: growth of e-business and strategies (16/9/12) Group Mini-research Assignment: TripAdvisor.com (or Netflix.com or Facebook). Form a group of 2 members (or 3 maximum). Write a research report and post it on the Internet. The report should, at least, explain briefly the nature of its business, and how the 8 key elements of the business model are addressed by them. See www.uol-ebiz.blogspot.com for sample layout-format of report. The leader shall submit their url-link by the start of lecture-4 to Jack Koh (jackkoh@singapore.com cc jackkoh20@gmail.com ). Start-date: Lecture-1 Due/Deadline: Lecture-4 2-3 Chapter-4: Business-to-consumer (B2C) retail systems and strategies 4 Tutorial-1 5 Chapter-6: Business-to-Business (B2B) wholesaler models and strategies Individual Assignment-1: Start-date: lecture-5, Due/Deadline: lecture-7 6 Tutorial-2 7-8 Chapter-5: Marketing for e-business (e-business strategy) Individual Assignment-2: Start-date: lecture-8, Due/ Deadline: lecture-10 9 Tutorial-3 10-11 Chapter-7: Supply Chain Management Individual Test-1: 2nd half of Lecture-11 12 Tutorial-4 13-14 Chapter-3: Economic theories of e-business (economic infrastructure) 15 Tutorial-5 16 Chapter-8: Web 2.0 in business and society (technical infrastructure) Chapter-2: e-Business, technology & infrastructure (technical infrastructure) 17 Chapter-9: New forms of organisation (Managing Change) 18 Tutorial-6 Individual Test-2: 2nd half of Lecture-18 19 Chapter-10: Security issues in the digital environment 20 - 21 Chapter -11: Conclusion & implications of e-business strategies Tutorial-7 Appendix-1: Past year Exam & Discussions Appendix-2: How to publish your group report on the Internet Assignment and Test Schedule You are advised to participate in assignments and tests. One of the benefits is these assignments and tests will add credits to your personal testimonial and will greatly facilitate the writing of reference letter for you later on. 1. Group Mini-research Assignment: TripAdvisor.com (or Netflix or Facebook). Form a group of 2 members (or 3 maximum). Write a research report and post it on the Internet. (For more details, refer to last page of lesson-1). Start-date: Lecture-1 Deadline: Lecture-4 (Participants will receive the Ebiz bible auto-email to them in Mar 2013) 2. Individual Assignment-1: Start-date: lecture-5 Deadline: lecture-7 (Participants will receive the Ebiz bible auto-email to them in Mar 2013) 3. Individual Assignment-2: Start-date: lecture-8 Deadline: lecture-10 (Participants will receive the Ebiz bible auto-email to them in Mar 2013) 4. Individual open-book Test-1: 2nd half of Lecture-11 (sample solution shall be auto emailed to participants later) 5. Individual open-bookTest-2: 2nd half of Lecture-18 (sample solution shall be auto emailed to participants later) Set 2 of 3 sets of Ebiz study notes Page 52/ 153
Lecture 7 & 8: Supporting notes on Chapter-5/ Marketing for e-business (All text in italics are extracts from the UOL Study Guide, for your easy references) (All diagrams are taken from Chaffeys instructor guide) Essential reading Chaffey, D. E-business and e-commerce management. (Harlow: Financial Times/Prentice Hall, 2011) fifth edition Chapters 8 and 9. Kenneth C Laudon & Carol Guercio Traver: E-Commerce 2011: Business, Technology, Society. Pearson (2011) 7 th Edition. Isbn 10:0-273-75084-4 Chapters 6 and 7 Shareslides CRM: http://www.slideshare.net/pgreenbe/crm-the-enterprise-value-chain Videos: Philip Kohler: http://www.youtube.com/watch?v=bilOOPuAvTY and http://www.youtube.com/watch?v=R8mDd8bvUnE&feature=related Michael Porter: http://www.youtube.com/watch?v=2FzYhdS4pqM&feature=related Steve Jobs: http://www.youtube.com/watch?v=c2cDQw-Cmd4&feature=watch_response_rev http://www.youtube.com/watch?v=KuNQgln6TL0&feature=related Marketing strategy/plan: http://www.youtube.com/watch?v=pr9nn04jtPA Aims of the chapter The aims of this chapter are to introduce the basics of marketing before exploring the contribution that e-business can make to marketing. In doing so we consider some ongoing issues with e-business marketing that make it an especially interesting area to study. Key concepts in this chapter include: customer segmentation customer life cycle and customer acquisition cost (retention) customer relationship management (CRM) advertising and branding the contribution of e-business to marketing new media marketing interactivity personalisation and customisation multi-channel integration dynamic pricing behavioural profiling and privacy concerns Learning outcomes By the end of this chapter, and having completed the essential reading and activities, you should be able to: discuss the basic concepts of marketing including segmentation, the customer lifecycle, customer relationship management, and advertising and branding analyse a marketing mix using the 4 Ps framework discuss the balance between CRM technology and strategy identify the techniques used in new media marketing recognise the role played by search engines in marketing and ad vertising recognise the potential contributions from affiliate marketing and viral marketing explain the problems of integrating multiple marketing, sales and distribution channels recognise the role of e-business in dynamic pricing discuss the potential benefits and privacy dangers of consumer profiling. Introduction to marketing (Can you name the top 5 global brands?) The marketing concept is a philosophy. It makes the customer and the satisfaction of his or her needs the focal point of all business activities. It is driven by senior managers, passionate about delighting their customers. The marketing Set 2 of 3 sets of Ebiz study notes Page 53/ 153
concept holds that achieving organisational goals depends on knowing the needs and wants of target markets and delivering the desired satisfaction better than competitors do (P Kohler, 2010). The discipline of marketing is a huge area of study, but it is essential that you grasp the basic concepts in order to appreciate the increasing role that e-business is playing in an area that is key to competitive advantage in many industries and product markets. If you input the term marketing into any search engine, you will see that it has many definitions. There are commonalities and differences among all of them. We find the definition provided by the UKs Chartered Institute of Marketing helpful: Marketing is the management process responsible for identifying, anticipating and satisfying customer requirements profitably. This definition shows us that the customer is central to business objectives, with the understanding, of course, that profitability is also important. However, as with all definitions, there are alternatives. Nonetheless, marketing is a set of customer-oriented strategies and practices. As with most aspects of business, marketing pre-existed what we now refer to as e-business. So it is important to explore briefly the fundamentals of traditional marketing before looking at how e-business changes it. Here we focus on a few basic concepts and models, including customer segmentation, the 4 Ps, the customer lifecycle, and customer relationship management. Who go online and why? Laudon (2011) advised that before firms can market online, they must understand who go online, who shops and why, and what they do. Laudon advised 4 areas to review and understand first. Key features of internet audience:. 70% of U.S households have internet access (with growth slowing to 3% annually) as compared to 98% has TV and 94% has a phone. But intensity and scope of internet usages have increased with 78% of adult users logging in everyday for a wide range of activities (email (62%), search (50%), news (43%), social networking (40%), research, banking (25%), purchases (11%), hobby-related, job hunting, health information, download, dating). Both men and woman participation are equal. Usage age groupings: 20% of age-group below 12 uses the Internet, 95% from ages 12 -29; 85% from ages 30-49, 45% from the above 65 group. There is no significant difference between ethnic groups though the American-Africans are slightly lower by 10% at 70%. Income and educational levels affect the online access and intensity of usage which may differ as much as 40% between the different groups. Concepts of consumer behaviour and purchasing decisions. Where human traffic is heavy, many consumers tend to partake in purchases. Location. Location. But with online consumers, location is of no consequence. Neighbourhood to other online related sites, social network ties, blogs have increasing influence on consumer behaviour. Need to construct consumer behaviour models (involving study of sociology, psychology, economics) to predict or explain consumer behaviour will enlighten firms in their in marketing plans. Background factors, culture (which shape basic human values, wants, perceptions and behaviours), social (reference groups (either direct: family, religion, profession OR indirect: social styles, lifestyles, celebrity blogs. Both have opinion leaders/viral influencers), and psychological aspects (set of needs, drives, motivation, learned behaviours) have great impact on consumer behaviour. So, why consumers chose online transactions? Is it the price, convenience, time saving, transaction cost (search, contract, control), online features (live chat, return policy, trusted trademark, reviews, free delivery, payment policy)? Consumers online behaviour. 72% of online users are online buyers (shoppers), 16% uses online search (browsers) but buy offline. These 88% online audience are interesting for marketers. While e-commerce is a major conduit for online and offline purchases, the reverse is also true. Offline marketing media also influence online purchase decisions. What are purchased online? Surprisingly, both big and small ticket items. Computers, electronics, apparel, office
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supplies, videos, books top the list, with jewelry, flowers, gifts, toys, drug at the bottom half of the list. The top reasons for browsers not buying online are a) uneasy with online payment, b) data privacy, c) shipping reliability and charges. Key concerns of online purchase are trust and utility (best price, condition, delivery, honesty). Competitions on internet marketing. Apply the 5 forces to create a competitive advantage. Competitive markets are ones with lots of substitutes, easy entry, customers and suppliers with strong bargaining power. Marketing seeks to create unique, highly differentiated products or services of one trusted firm (little monopolies). Internet marketing is using the Web, as well as traditional channels, to cultivate long term positive relationship with customers, like Apple, so as to give the firm the competitive edge such as the ability to charge a premium over its competitors. A key purpose of marketing is to avoid pure price competition and to create markets where ROI are higher and competition muffled. Thus, with little monopolies status, the bargaining power of customers and suppliers can be subdued. Marketing brings out the products brand in the minds of customers as unique and a brand associated with trust, quality, reliability, loyalty, affection and ultimately, reputation. Brand creates promises of the products (e.g. CISCO-Linksys wifi routers easy installation, transmission reliability & strength, etc). Based on a specific brand, consumers developed certain expectations. When fully met, a strong brand will culminate, like coca cola. Good marketing involves segmenting, targeting and positioning. Customer segmentation A key concept to [traditional] marketing is customer segmentation. The idea is that businesses divide customers into categories according to characteristics that they share (such as where they live, their values and lifestyles, their brand loyalty), and in turn market products or services based on those subdivisions. Segmentation is the process of breaking down the intended product market into manageable groups; it can be broken down by: o kind of relationship like weak, strong, close partnership o customer-type like manufacturer, government, military, service, non-profit, wholesaler, retailer, end-user. o product use how customer uses the product, either installation, components, accessories, raw material, professional services o buying situation new buy, re-buy, modified re-buy o purchasing method Internet, long term contract, warranty, financing or cash o behavior consists of brand familiarity (unaware, aware, informed, interested) , loyalty status (none, medium, strong) and benefits (quality, service, economy, convenience, speed) o Geographic location city, urban or rural, climate type o Demographics based on income level, sex, age group, stage of family cycle, religion, race, culture o Psychographics lifestyle (interests, hobbies, activities), personality triats, social class (lower, middle, upper, office worker, blue collar) Segmentation is made possible through market research whereby companies collect data on customers through surveys, focus groups or by other means. With this data, companies can use the [traditional] so-called 4 Ps to target their product or service to certain market segments. The 4 Ps( product, price, place and promotion) The 4 Ps (also known as the marketing mix) is the set of controllable tactical marketing tools (the 4Ps itself) that the firm blends to produce the response it wants in the target market or segment (kohler, 2010). It addresses the following questions:
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Product: How do we design the product or service to satisfy the customers needs and wants? Consumers often think that a product is simply the physical item that he or she buys. In order to actively explore the nature of a product further, marketers explore the 3 levels of a product concept: core, actual and augmented. Source: http://www.marketingteacher.com/lesson-store/lesson-three-levels-of-a-product.html The core product is NOT the tangible physical product. You can't touch it. That's because the core product is the BENEFIT of the product that makes it valuable to you. So with the car example, the benefit is convenience i.e. the ease at which you can go where you like, when you want to. Another core benefit is speed since you can travel around relatively quickly. The actual product is the tangible, physical product. You can get some use out of it. Again with the car, it is the vehicle that you test drive, buy and then collect. You can touch it. The actual product is what the average person would think of under the generic banner of product. The augmented product is the non-physical part of the product. It usually consists of lots of added value, for which you may or may not pay a premium. So when you buy a car, part of the augmented product would be the warranty, the customer service support offered by the car's manufacturer and any after-sales service. The augmented product is an important way to tailor the core or actual product to the needs of an individual customer. The features of augmented products can be converted in to benefits for individuals. Features and benefits of a product are also relevant to the three levels of the product. Products tend to have a whole series of features but only a small number of benefits to the actual consumer. Let's look at this another way, if you buy a Nintendo console it has many features; for example you can play games alone or you can play against another opponent or two or three opponents. You can also have access to the Internet. Avatars are adaptable so you can create yourself and your friends. These are all examples of features to the consumer. However a consumer may buy it because he or she wants to stay fit and will use software and peripherals to become healthier. Becoming healthier is the benefit to the consumer. The consistent marketer will aim to discover the consumers preference for benefits and will match individual features to the preference. Price: How do we price the product or service based on the customers ability to pay, while also taking into account the profit margins for wholesalers and retailers? Several ways to price a product: premium pricing, penetration pricing, economy pricing and price skimming. Source: http://www.marketingteacher.com/lesson-store/lesson-pricing.html Premium Pricing. Use a high price where there is a unique brand. This approach is used where a substantial competitive advantage exists and the marketer is safe in the knowledge that they can charge a relatively higher price. Such high prices are charged for luxuries such as Cunard Cruises, Savoy Hotel rooms, and first class air travel. Penetration Pricing. The price charged for products and services is set artificially low in order to gain market share. Once this is achieved, the price is increased. This approach was used by France Telecom and Sky TV. These companies need to land grab large numbers of consumers to make it worth their while, so they offer free telephones or satellite dishes at discounted rates in order to get people to sign up for their services. Once there is a large number of subscribers prices gradually creep up. Taking Sky TV for example, or any cable or satellite company, when there is a premium movie or sporting event prices are at their highest so they move from a penetration approach to more of a skimming/premium pricing approach. Economy Pricing. This is a no frills low price. The costs of marketing and promoting a product are kept to a minimum. Supermarkets often have economy brands for soups, spaghetti, etc. Budget airlines are famous for keeping their overheads as low as possible and then giving the consumer a relatively lower price to fill an aircraft. The first few seats are sold at a very cheap price (almost a promotional price) and the middle majority are economy seats, with the highest price being paid for the last few seats on a flight (which would be a premium pricing strategy). During times of
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recession economy pricing sees more sales. However it is not the same as a value pricing approach which we come to shortly. Price Skimming. Price skimming sees a company charge a higher price because it has a substantial competitive advantage. However, the advantage tends not to be sustainable. The high price attracts new competitors into the market, and the price inevitably falls due to increased supply. Manufacturers of digital watches used a skimming approach in the 1970s. Once other manufacturers were tempted into the market and the watches were produced at a lower unit cost, other marketing strategies and pricing approaches are implemented. New products were developed and the market for watches gained a reputation for innovation. Place (refers to channel, distribution, intermediary): How should the product or service make its way to the customer? That is, where should it be purchased? Obviously be available through the most appropriate marketing channel or combination of channels. Kohler (2010) said A marketing channel is a set of interdependent organisations that help make a product or service available for use or consumption by the consumer or business user. Different channels could be exploited at different stages of the product life cycle. Source: http://www.marketingteacher.com/lesson-store/lessonplace.html Promotion: How do we encourage the customer to purchase the product or service (e.g., advertising, sales promotions)? Promotion is the marketing term used to describe all marketing communications activities and includes personal selling, sales promotion, public relations, direct marketing, trade fairs and exhibitions, advertising and sponsorship. It is how these promotion tools be uniquely blended that the company can use them to persuasively communicate customer value and build customer relationships. The 4Ps concept is simple. Think about another common mix - a cake mix. All cakes contain eggs, milk, flour, and sugar. However, you can alter the final cake by altering the amounts of mix elements contained in it. So for a sweet cake add more sugar! It is the same with the marketing mix. The offer you make to your customer can be altered by varying the mix elements. So for a high profile brand, increase the focus on promotion and desensitize the weight given to price. Another way to think about the marketing mix is to use the image of an artist's palette. The marketer mixes the prime colours (mix elements) in different quantities to deliver a particular final colour. Every hand painted picture is original in some way, as is every marketing mix. A general perception of strategist is to change the mix on product, place or promotion in some way before resorting to price reductions. Note that segmentation is about more than just advertising, as it can also inform the processes of product innovation, pricing and selecting distribution channels. For example, if it is determined that adventure seeking, young professional men are especially keen on a new sporting trend, a company might develop a new product for this market segment and price it based on their purchasing power. While this is very helpful for understanding the fundamentals of the marketing process, the 4 Ps have their limitations. In particular, the 4Ps have been criticised for not being compatible with longer term customer relationships. This is where the idea of managing the customer relationship proves important. The customer lifecycle (CLC) This model emphasises the importance of initiating and building relationships with customers over the long term. The Customer Life Cycle (CLC) has obvious similarities with the Product Life Cycle (PLC). However, CLC focuses upon the creation of and delivery of lifetime value to the customer i.e. looks at the products or services that customers NEED throughout their lives. It is marketing orientated rather than product orientated, and embodies the marketing
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concept. Essentially, CLC is a summary of the key stages in a customer's relationship with an organisation. The problem here is that every organisation's product offering is different, which makes it impossible to draw out a single Life Cycle that is the same for every organisation (source: http://www.marketingteacher.com/lesson-store/lessoncustomer-life-cycle.html ). Let's consider the examples from the Banking HSBC, and Volkswagen Car maufacturer. HSBC has a number of products that it aims at its customers throughout their lifetime relationship with the company. Here we apply a CLC. You can start young when you want to save money. 11-15 year olds are targeted with the Livecash Account, and 16-17 year olds with the Right Track Account. Then when (or if) you begin College or University there are Student Loans, and when you qualify there are Recent Graduate Accounts. When you begin work there are many types of current and savings account, and you may wish to buy property, and so take out a mortgage. You could take out a car loan, to buy a vehicle to get you to work. It would also be advisable to take out a pension. As you progress through your career you begin your own family, and save for your own children's education. You embark upon a number of savings plans and schemes, and ultimately HSBC offer you pension planning (you may want to insure yourself for funeral expenses - although HSBC may not offer this!). This is how an organization such as HSBC, which is marketing orientated, can recruit and retain customers, and then extend additional products and services to them - throughout the individual's life. This is an example of a Customer Life Cycle (CLC). Another important point is that a lifetime CLC is made up many shorter CLC's. So, for example, Volkswagen Cars retains a customer for many years and one can predict the products that meet a customers needs throughout his or her family lifetime. However the purchase of each car, will in itself be a CLC with many Customer Touch Points. The consumer may need a bigger vehicle as his or her family expands - so they visit VW's website and register. The customer reviews models and books a test-drive with her or his local dealer. He or she decides to buy the car and arranges finance. The car is then delivered from the factory, and returns every year for its annual service. Then after three years, the customer decides to trade in his or her car, and the cycle begins again. The longer-term life cycle is simply the shorter-term life cycles viewed consecutively. Generally though, the four main stages of the CLC are: Customer selection: This involves deciding on the types of customers to target (e.g. middle-aged, middle-income women), which ties in directly with market segmentation. Selection might also involve dissuading customers who are unlikely to be profitable. Customer acquisition: This is the process of attracting our customer for their first purchase. With the first purchase, we have acquired our customer. Through market orientation, innovative IT and value creation we aim to increase the number of customers that purchase from us for the first time. Source: http://www.marketingteacher.com/lesson-store/lesson-crm-business-strategy.html (from UOL SG: This is about forming relationships with new customers and involves appropriate marketing communications, both offline and online). What is customer acquisition cost (CAC)? Why is it important to know about it? Check these sites on CAC: http://www.slideshare.net/DavidSkok/customer-acquisition-monetization-keys-to-yourbusiness-plan http://www.wanda.sibaweb.com/2010/10/03/do-you-know-your-customer-acquisition-cost/ Customer retention: Our customer returns to us and buys for a second time. We keep them as a customer. This is most likely to be the purchase of a similar product or service, or the next level of product or service. Through market orientation, innovative IT and value creation we aim to increase the number of customers that purchase from us regularly. This includes the different strategies (e.g. loyalty discounts) a business employs to keep customers from discontinuing the use of a certain product or service or, even worse, switching to a competitors offering.
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Customer extension: Our customers are regularly returning to purchase from us. We introduce other products and services to our loyal customers that may not wholly relate to their original purchase. These are additional, supplementary purchases. Of course once our loyal customers have purchased them, our goal is to retain them as customers for the extended products or services. Through market orientation, innovative IT and value creation we aim to increase the number of customers that purchase additional or supplementary products and services. UOL SG: This stage refers to extending the range of products that customers buy. The objective is to intensify the business relationship by providing additional offerings. For example, a company that sells soap to customers might entice them to try their new deodorant.
Marketing Orientation - means that the wholes organisation is focused upon the needs of customers. Customer needs are addressed by the Three Levels of a Product whereby the organisations not only supplies the actual, tangible product, but also the core product and its benefit, and also the augmented product such as a warranty and customer service. Marketing orientation will focus upon the needs of consumers for all three levels of a product. (N.B. 'market' orientation and 'marketing' orientation are not the same). Value Creation - centres on the generation of shareholder value based upon the satisfaction of customer needs (as with marketing orientation) and the delivery of a sustainable competitive advantage. Innovative IT - is exactly that - Information Technology must be up-to-date. It should be efficient, speedy and focus upon the needs of customers. Whilst IT and/or software are not the entire story for CRM, it is vital to its success. CRM software collects data on consumers and their transactions. Huge databases store data on individuals and groups of individuals. In some ways, CRM means that an organisation is dealing with a segment of one person, since every consumer displays different purchasing habits and preferences. Organisations will track individuals, and try to market products and services to them based upon similar buyer behaviour seen in other individuals (e.g. When Amazon tells you that customers that viewed/bought the same product as you, also bought another product). Customer relationship management (CRM) Customer Relationship Management is the establishment, development, maintenance and optimisation of long-term mutually valuable relationships between consumers and organisations. The customer lifecycle model is part of a larger approach to marketing referred to as customer relationship management (CRM). Despite appearances, when customers interact with a business, they are actually dealing with a number of employees who occupy different roles and are often based in different departments within the company. The point of CRM, then, is to unify these policies, processes and strategies in order to achieve better customer service
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Information technology plays an important role in acquisition of new customers, retaining existing one and customer extension. But CRM is more than just a software solution. It is an approach to doing business that is extended and sometimes intensified with the use of information technology. Some prefer to call it a strategy. Chaffey (2011) Chapter9 , pg 452, describes the different marketing applications of CRM as: automating the sales force managing customer service efforts managing sales processes managing marketing campaigns analysis. There are many case studies that show how CRM is often done poorly by companies, resulting in high costs or elusive benefits. Rigby et al.(2002) discuss the four perils of CRM. When it works well, CRM allows companies to gather customer data responsively, identify the most valuable customers, and increase customer loyalty through customisation. However, things often go wrong. These perils can be summarised as follows: Implementing CRM before there is a customer strategy in place companies often implement CRM without first completing a segmentation analysis or determining their marketing goals, which is like trying to build a house without engineering measures or an architectural plan. Rolling out CRM before changing the organisation to match an organisation that wants to do CRM well must first be interested in actually relating to customers. Assuming that more CRM technology is better CRM does not have to be technology-intensive. It can also be achieved by other means, such as motivating employees to care more about customers. Stalking, not wooing, customers excessive and aggressive marketing communications to current or potential customers might inadvertently turn them away from your brand, product or service. We will return to a discussion of how best to use information technology to achieve e-business marketing goals in the next section. For now it is important to grasp that, for CRM to be successful, companies need to consider not just technological issues, but also organisational, social and strategic ones. Case study for discussion In Chapter 9 of Chaffey (2011)pg 495 on Case study 9.6 discusses the CRM strategy of a company called Toptable, which is an online service for booking restaurants. Originally, Toptable relied on sending undifferentiated, mass emails to their consumers. However, over time this strategy became less and less effective. Recognising the limitations of this approach to CRM, Toptable partnered with a marketing company in order to improve their communications and customer relations. Read through the case study and explore the four key areas that Toptable and its partner focused on. How did they target defectors and lookers? What problems did Toptable face in successfully delivering email messages to potential clients, and how did their new partner overcome these problems? Think critically about these issues, and then consider: in what ways might their strategy be likened to spam operations? The e-business contribution to marketing Until now we have been exploring the conceptual dimensions of marketing, without focusing too much on e-business. Indeed, most if not all of the practices and strategies we discussed above are relevant in both the offline and online worlds. In this section we look specifically at what e-business and information technology can offer to marketing, i.e. what forms of e-marketing channels are available to e-business strategy to facilitate new customer acquisition, retention, and extension of existing customers. Chaffey refers to this topic as e-marketing, which is a term that nicely captures marketing on various e-business platforms such as the internet and mobile phone networks.
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e-Marketing, also referred to as i-marketing, web-marketing, online-marketing or internet Marketing, is the marketing of products or services over the Internet. E-marketing is focused on how a firm and its brands use the web and other digital media such as e-mail, and mobile media to interact with its audiences in order to meet its marketing goals Chaffey argues that the single key objective of an e-marketing plan is online revenue contribution, where this is an assessment of the direct contribution of the internet or other digital media to sales, usually expressed as a percentage of overall sales revenue. Here the fundamental question is: what effect do a companys online activities have on overall sales? In other words, what is the objective for moving the marketing strategy online? Of course, a companys online revenue contribution objectives will depend on a number of factors, including: the product or service they offer the market sector they are in the digital channel they want to exploit (e.g. the internet, mobile telephony or interactive television). For example, a fast-moving consumer goods company that sells ice cream cannot expect high direct online revenue because it is physically impossible to enjoy ice cream over the internet or through a mobile phone, but it can use these platforms to promote its goods by offering discounts or information on the nutritional value of their product (assuming the icecream is of the fat-free variety!). In contrast, the direct online revenue of digital goods such as music is potentially much higher because the product can be delivered online. However, the digital nature of such goods also permits their cheap and unauthorised replication, as the film and music industries have learned the hard way (see SG Chapter 11). Advertising and branding How are new customers acquired, existing customers retain and extended? Perhaps the most popular aspect of marketing is advertising, which involves attracting and sustaining customers attention in order to persuade them to purchase a product or service. Central to advertising is the use of brands. Chaffey tells us that a brand is the sum of characteristics of a product or service perceived by a user (p.464). Branding, then, is the process of creating and evolving successful brands. Brands depend on customers psychological affinity towards certain goods or services, and are much more than names or symbols. Importantly, the value of a brand is highly individualistic some people may empathise with a brand while others are repulsed by it. Brand experience is built up through an individuals interaction with the brand, either through experience with the product or service or through advertising and public relations. Brands are typically developed to promise to fulfil some form of emotional need in the consumer. Thus, if you are a student in your mid-twenties choosing a holiday, you might select a brand that promises fun and adventure. Such a brand would not attract a retiree looking for a private liver transplant. This relationship between brands and customers is an important one that marketers often misjudge. Ultimately it is the customer that counts and the brand itself is secondary. The aim of marketing is to win and retain customers, not to maintain a brand for its own sake: brands exist to serve customers, not the other way around. Brands can come and go, but customers must remain for a business to stay viable. This point led Rust et al. (2004) to formulate seven directives for customer-centric brand management: Decisions about customer relationships must come before brand decisions. Brands should be built around customer segments, not vice versa. Brands should be as narrow as possible but still economically feasible IT makes customer segmentation easier. Plan brand extensions based on customer needs, not component similarities. Facilitate the switching by customers to other brands within the same company. If something catastrophic happens to the brand, drop it and re -brand.
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Reconsider how the company measures brand equity the value of a brand varies dramatically from customer to customer IT may have a role to play here. Through the careful design and functionality of websites and the amount and type of product information provided, ebusiness can add considerably to brand awareness and brand experience. New media marketing That brings us to a discussion of the main differences between marketing offline and online. A handy way of thinking about these differences is in terms of the 6 Is of e-marketing. Interactivity: A key characteristic of the internet is its interactivity. Instead of a company simply pushing a message to a customer, which represents the old media, broadcast way of marketing (think traditional television), customers can now interact with companies online by seeking out information themselves. This distinction is also known as push media versus pull media. Online, the user most often seeks out the information s/he is interested in. The potential for new interactions opens up new marketing opportunities, but it also introduces new problems. For one, marketers have less control over their messages than in traditional media. Also note that not everything online is pulled. Email, for example, is an online push medium. Intelligence: The internet and other new media facilitate new ways of collecting data on customer preferences and perceptions. No longer do companies have to rely on traditional surveys for their market research, as new media offer new ways to understand market segments in much greater detail. For example, software can track a custo mers progress around a website (i.e. which products they consider as well as which ones they purchase) and, at the network level, which websites they visit. Such behavioural profiling raises ethical questions, to which we return in the final section of this chapter. Individualisation: The interactivity of the internet and other new media also permits greater personalisation and customisation of marketing communications. For example, Amazon is famous for its highly customised recommendation system. Integration: The internet (and other new media) enables the integration of various marketing communication techniques in at least two ways. It complements other marketing channels for product promotion and it facilitates customer service. Note how the UK supermarket Tesco (see the case study in Chaffey) integrates its online offering with its offline operations and customer loyalty scheme. This case also shows how the company uses CRM techniques to increase sales. However, as we discuss below, multi-channel integration is a complex problem. Industry restructuring: This has to do with the issue of disintermediation and re-intermediation discussed in SG Chapter-3 . Marketers have to consider how to represent the companys brand and products among the various intermediaries. Independence of location: New media increase the reach of companies and their communications, and so companies need to review how their relationships with various local agents are affected by the globalisation of marketing efforts. Personalisation and mass customisation There is much promise in the new medias capacity to deliver personalised and customised information and marketing communications to current and potential customers. While the terms personalisation and customisation are often used interchangeably, there is a slight difference in meaning. Personalisation involves the individualisation of content, while mass customisation focuses on tailoring marketing content at the group level. A good example of mass customisation is Amazons recommendation system whereby the merchant recommends similar products according to what customers in the same marketing segment have bought. This approach to marketing is referred to as collaborative filtering and is also known as recommendation marketing. Personalisation can use different variables to tailor content, including customers preferences, time or date, upcoming events or users locations. For example, many portals allow users to personalise their home pages to include information such as the local weather, stock prices, the latest news, the scores of their favourite sports teams, and so on.
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However, there is a negative side to personalisation. For one, it can be costly as dynamic content requires database integration and specialised software. Second, users often must log-in to enjoy personalised content. This can be a problem for different reasons. The most obvious one is that we all forget passwords and, more significantly, new users are often put off by having to register (and provide lots of personal information) to access new services. Search engine optimisation Tutorial video: http://www.youtube.com/watch?v=bNN8eDMeNSQ&list=PLC66131AE450A9C55&index=2&feature=plpp_video Search engine optimization (SEO) is the process of improving the visibility of a website or a web page in a search engine's search results. In general, the higher ranked on the search results page and more frequently a site appears in the search results list, the more visitors it will receive from the search engine's users. Search engines such as Google, Yahoo and Microsoft are the gatekeepers to most of the information we seek online. When we need to find something on the internet we almost always do so by searching using certain keywords. If the first page or two of results do not include the information we desire, then we usually try a different set of keywords. Indeed, it is a truism that no one looks beyond the first 1020 search results anymore! As an e-marketing strategy, SEO considers how search engines work, what people search for, the actual search terms or keywords typed into search engines and which search engines are preferred by their targeted audience. Marketers are aware of this and hence rely on search engine optimisation. It is a structured e-marketing approach for improving the position of a company or its products in search engine results listings. Search engines rely on what are known as algorithms to decide which web pages are relevant to certain search terms, and the order in which they should be ranked. These algorithms analyse factors such as the frequency and positioning of certain phrases on a web page, the quantity and quality of links to the site, the content of certain HTML tags and meta-tags, and the text that accompanies images. A technical exploration of how all of this works is beyond the scope of this chapter but, suffice to say that, knowing how these algorithms make their decisions can pay off for websites, which is why search engines such as Google keep the details secret. When search engines do adjust their algorithms and a company falls from the first couple pages of search results, it can result in huge losses for those affected, so much so that you can now find companies that specialise in designing sites so that search engine results are optimised. Search engine optimisation can be seen as a cat-and-mouse game between search engines and marketers. The former try to prevent the spamming of search result listings while the latter do whatever they can to improve their company or products search results. Affiliate marketing Another way in which businesses can increase their revenue online is through affiliate marketing, which is a model made possible by the tracking permitted by internet technology. This is how it works: you (the customer) visit what is referred to as an affiliate site. Affiliate marketing is a type of performance-based marketing in which a business rewards one or more affiliates for each visitor or customer brought about by the affiliate's own marketing efforts. The industry has four core players: the merchant (also known as 'retailer' or 'brand'), the network (that contains offers for the affiliate to choose from and also takes care of the payments), the publisher (also known as 'the affiliate'), and the customer. The market has grown in complexity to warrant a secondary tier of players, including affiliate management agencies, super-affiliates and specialized third party vendors If the affiliate can persuade you to click an advertisement which links to the merchants site and you purchase a product, then the affiliate will be paid a commission by the merchant. Actually, some merchants will even pay affiliates if the sale isnt finalised. They sometimes pay for the click-through because it can generate future leads. As all this
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activity can be tracked online, the merchant now has a better idea of how effective its advertising is, especially compared to the offline world where marketers have wondered for decades about the effectiveness of advertising. Online advertising Display advertising that appears on the Internet are called online advertising. Display advertising appears on web pages in many forms such as text, logos, photos, location maps including web banners. Banner ad standards continue to evolve. From the early days of the dot.com boom, advertising has been seen as an important revenue stream for websites. This was usually in the form of banner or pop-up adverts, on which many of the more reckless ventures of the time depended for revenue. However, unless the site has a large number of visitors (e.g. portals like Yahoo) or enough visitors from a specific marketing segment or niche (e.g. a site that specialises in mountaineering information), few advertisers will be interested. Furthermore, as the novelty wore off, users began to be irritated by the adverts and clickthrough rates fell from 2 per cent in the mid-1990s to 0.3 per cent a decade later. However, Googles AdWords service (see the case study in Chapter 3 of Chaffey, 2011) revolutionised advertising, such that it is frequently referred to as the worlds most valuable online advertising agency masquerading as a search engine. Advertisers bid (handsomely) to appear on the (right-hand side of) screens of information retrieved as the result of a particular keyword search and then payment is based on pay per click as the consumer clicks through to the advertisers website. This is much more focused advertising, and much more likely to lead to a sale, than broadcast advertising on television. The latter is criticised as sending messages to a large, diverse number of people, most of whom are not concentrating and have no interest in the product or the advertiser. In contrast, AdWords provides advertisers with sales opportunities where the consumer has indicated his likely intention to buy by clicking twice: once on the keyword search itself and once on the link from Google to the advertisers site. The success of AdWords can be seen in the fact that advertising currently makes up at least 97 per cent of Googles revenue of around $20 billion (2008). Many companies have switched part of their TV advertising budget to AdWords, causing pain in the commercial television industry. In 2009, the UK advertising spend on internet advertising exceeded that on television advertising for the first time. Although the internet is considered to be the most measurable advertising medium, click-throughs dont tell the whole story about the impact of online advertising. We often treat the offline and online worlds as exclusive, but they are not: online advertising can also stimulate offline sales. Furthermore, many people use the internet as a source of information for comparison before buying the product or service offline. Much of that information is marketing content. Online advertising is normally found on search engine results pages, banner ads, blogs, rich media Ads, social network advertising, interstitial ads, online classified advertising, advertising networks and e-mail marketing, including e-mail spam. Many of these types of ads are delivered by an ad server. Google AdWords is Google's main advertising product and main source of revenue. Google's total advertising revenues were US$28 billion in 2010. AdWords offers pay-per-click, i.e, cost-per-click (CPC) advertising, cost-per-thousand-impressions or cost-per-mile (CPM) advertising, and site-targeted advertising for text, banner, and rich-media ads. The AdWords program includes local, national, and international distribution. Google's text advertisements are short, consisting of one headline consisting of 25 characters and two additional text lines consisting of 35 characters each. Image ads can be one of several different Interactive Advertising Bureau (IAB) standard sizes.
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Viral marketing Marketers make use of all the different ways to disseminate the message to their target audience. They try every innovative idea to make this happen, and there are a number of viral marketing examples that have been created for this purpose. What they do in this type of marketing is they make use of some interesting idea that is different, interactive and has an ability to catch the attention of customers in much less time. They use it to promote the brand recognition, awareness and sales. Viral marketing is another form of e-marketing that is enabled by the internet. It relies on pre-existing social networks through self-replicating viral processes. This is basically old school, word-of-mouth communication enhanced by the network effects of the internet and related new media. The process is called viral as an analogy to how viruses spread during epidemics. Recently there have been some very successful viral marketing campaigns, which often rely on online video clips. The main idea of viral marketing is that an advertisement or other marketing content spreads from user to user so that it reproduces exponentially.The marketing agency does not steer the spread of the message, but rather relies on users to do the work. Many viral marketing campaigns are supplemented with other forms of marketing communications such as traditional public relations and advertising. As with most aspects of marketing, there is a downside to viral marketing as well. For one, it has proved difficult to create successful viral concepts. Some argue that it is merely a fad. There is also a risk that the brand may be damaged if unsolicited messages run amuck. There have also been cases of successful viral marketing campaigns that were actually ironic in origin. Take the example of the Three Wolf Moon T-shirt: the shirt itself is not particularly stylish and has a reputation for being worn by rural people in the USA (rednecks), but after a few users jokingly left positive reviews for the shirt on Amazon that spread virally around the internet, sales increased by 2,300 per cent over a few weeks in 2009. At one point the shirt was the top-selling item in the Amazon clothing store. If youre interested in seeing the t-shirt yourself, follow this link: http://personal.lse.ac.uk/martinak/wolf_tee.jpg However, the company that designs the shirts was not enthusiastic about the user comments left on Amazon. These sorts of comedy reviews are becoming increasingly common. This issue is an interesting one because it shows that marketing is very much a social phenomenon and that firms cannot control what is said about their brands or products. Viral marketing examples (which would not have been possible w/o the Internet and social media): 1. Hotmail. In 1996, Hotmail was a particularly unique email service in that it was free, could be accessed anywhere, and would allow the user to have multiple accounts. One of the interesting things Hotmail did was it would attach the message Get your free email at Hotmail at the bottom of every em ail sent by a Hotmail user. Once the receiving user clicked on the word Hotmail they were taken to Hotmails homepage where the free email service was further explained. The plan, original at the time, worked. By 1998, Hotmail had accumulated 12 million subscribers. Hotmail eventually sold to Microsoft for a cool $400 million! 2. The Blair Witch Project was released on July 14, 1999. The film cost a about $350,000 to produce and went on to gross nearly $250 million worldwide, giving it the highest profit-to-cost ratio of any film in history. The incredible success of the film could be attributed to its unique website that effectively blurred the lines between fact and fiction. http://www.youtube.com/watch?feature=player_embedded&v=HZu1cTg-xUM 3. Salmon Ads. John West Salmon that appeared on the Internet in late 2000. Since their groundbreaking debut, the Bear Fight videos have gone on to attract an astonishing 300 million Internet views. Its low budget, realistic feel would become synonymous with the term viral for years to come. http://www.youtube.com/watch?v=CVS1UfCfxlU&feature=player_embedded 4. XBoxs shocking and provocative 2002 ad raised eyebrows across Europe when it appeared on the web. The ad has been described as graphic, disturbing, and even morbid by some; interesting and innovative
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5.
6.
by others. Whatever the proper description, Microsoft continues to generate buzz around the world http://www.youtube.com/watch?v=fQyx6PCd2F4&feature=player_embedded Barack Obamas presidential win had about as much to do with social media and viral marketing skills as it did with his Harvard Law degree or stance on an array of political issues. Obama got the youth to vote, a task many thought impossible. He accomplished this by strategically tapping into nearly every major social media outlet. At the time of Obamas inauguration in January 2009, the President had 13 million people on his email list, 3 million online donors, 5 million friends on more than 15 different social networking sits including 3 million friends on Facebook, 8.5 million monthly visitors to MyBarackObama.com, nearly 2,000 official YouTube videos (with more than 80 million views and 135,000 subscribers), and more than 3 million people signed up for his text messaging program. Now, that is how you win an election The skydivers linked up to spell H-O-N-D-A in the sky. The British ad was a traditional television ad in Europe, but became a YouTube hit in the United States, generating over 400,000 views. Though the effectiveness of this commercial has been debated, it must be noted that the Accord became the best selling vehicle in America in April 2009 for the first time in its history. Coincidence? http://www.youtube.com/watch?v=MdBESZaB6NA&feature=player_embedded#! Example of viral marketing (w/o the Internet , or old school approach): The Ponzi scheme and related investment pyramid schemes are early examples of viral marketing. In each round, investors are paid interest from the principal deposits of later investors. Early investors enthusiastically recruit their friends, generating exponential growth until the pool of available investors is tapped out and the scheme collapses
At this juncture we would like to bring your attention to Table 9.3/ pg 499 in Chaffey (2011), which summarises the strengths and weaknesses of the various new media marketing channels, including search engine optimisation, affiliate marketing and viral marketing as well as many others. Email marketing It is directly marketing a commercial message to a group of people using electronic mail (email). In its broadest sense, every email sent to a potential or current customer could be considered email marketing. It usually involves using email to send ads, request business, or solicit sales or donations, and is meant to build loyalty, trust, or brand awareness. Email marketing can be done to either cold lists or current customer database. Broadly, the term is usually used to refer to: Sending email messages with the purpose of enhancing the relationship of a merchant with its current or previous customers, to encourage customer loyalty and repeat business, Sending email messages with the purpose of acquiring new customers or convincing current customers to purchase something immediately, Adding advertisements to email messages sent by other companies to their customers Social media marketing This refers to the process of gaining website traffic or attention through social media sites. Social media marketing programs usually center on efforts to create content that attracts attention and encourages readers to share it with their social networks. For instance, Twitter is a social site designed to let people share short messages or updates with others. Facebook, in contrast is a full-blown social networking site that allows for sharing updates, photos, joining events and a variety of other activities. Why would a search marketer or a site about search engines care about social media? Both search engines and social media are very closely related. Social media often feeds into the discovery of new content such as news stories, and discovery is a search activity. Social media can also help build links that in turn support into SEO efforts. Many people also perform searches at social media sites to find social media content.
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Multi-channel integration With all these different ways of marketing, using both offline and online channels, and targeting newer and more specific customer segments, comes what has been called the proliferation challenge. As well as the various marketing techniques, marketers often use a variety of channels, including text-messaging and telephone sales/call centres. The vast amount of customer information that has become available has led to an increasing number of customer segments, calling forth additional brands and products. With the advent of web 2.0, in the shape of social networking sites, blogs, wikis and Twitter (see SG Chapter 8), the complexity of the problem has mushroomed. Company
Intermediary (social media, email, sms, telephone, post , person) Customer
The result is a major headache for marketing managers who, faced with a bewildering choice, must devise a marketing strategy that is effective but stays within budget and is consistent across channels of intermediary. For example, increased spending on AdWords implies less spending on TV advertising, which may make sense for some products (e.g. digital cameras) but not for others (e.g. washing powder). Consistency includes product descriptions and prices, except perhaps where channels can be sufficiently differentiated and incentives or constraints can be applied. For example, one retailer with excellent distribution and warehousing facilities but limited showrooms may focus on online price promotions whereas another, which wants to increase footfall in their stores but suffers from poor logistics, will choose the opposite strategy. Case studies As discussed in the case study on easyJet, in Chaffey (2011)pg 402 of Chapter 8, while the company sells 98 per cent of its tickets online, it still uses other channels (e.g. newspapers) for advertising. The case study on Dell in pg 425 of the same chapter discusses how the company uses various media to market its computers. Watson et al. (2000) talk further about integrated internet marketing. Examine these case studies and evaluate their relevance to the customer life cycle. Dynamic pricing What is the maximum price you are willing to pay for your favourite shampoo? How valuable is that good to you? These are questions that companies interested in dynamic pricing ask. Unlike fixed pricing, with which we are all familiar, dynamic pricing is the dynamic adjustment of prices depending on the value that customers assign to the good. Advances in information technology make this approach to marketing much more feasible than in the past, as companies require access to lots of information about customer preferences and values as well as demand levels for it to work. In a sense, dynamic pricing isnt new. Price discrimination has been around for decades, if not centuries. Movie theatres, buses, trains, airlines and even amusement parks and restaurants offer different prices to children, students and senior citizens. Indeed, airlines have grown very sophisticated in their price differentiation schemes, segmenting business travellers from non-business travellers, who are more flexible in their itineraries and more price-sensitive. Even without e-business, there has been an element of dynamic pricing in the shape of cheap standby tickets for the theatre or cinema and end-of-season fashion sales. The internet has changed the game, however. It facilitates the simple and rapid transformation of list prices while allowing companies to gather and analyse customer data quickly. For example, airlines operate highly sophisticated yield management systems that price tickets for a particular flight based on the sales so far, such that if the flight is half-empty the price drops and if it is nearly full the price increases. This access to data on actual customer behaviour enables companies to micro-manage their marketing and pricing strategies to the extent that every sales offer can be customised. Some argue that its not just companies that benefit from these technologies, but also customers. The emergence of shopping comparison websites (e.g. www.kelkoo.com) Set 2 of 3 sets of Ebiz study notes Page 67/ 153
and shopping bots used to track competitive prices can empower customers to combat the potentially exploitative practices of dynamic pricing. Indeed, as a relatively recentpricing innovation, dynamic pricing opens up certain ethical and legal questions that will surely be debated in the coming years. Consumer profiling and privacy concerns There are few things more irritating to consumers than to be overwhelmed by irrelevant marketing communications, and these constitute much of what we term spam email. Furthermore, many of us appreciate the personalisation offered by websites such as Amazon that remember the books we have already bought and offer us similar ones the next time we log on, rather than insisting that we sift through endless lists of irrelevant titles. As noted above, such personalisation and segmentation is either based on information that we provide to sellers or as a result of them tracking our purchases and browsing behaviour. This consumer profiling allows sellers to focus their marketing efforts and is widely seen as being very effective in increasing sales. More recently, software (e.g. Phorm) is appearing that can be mounted on the network computers of internet service providers (ISPs) that can track the websites that individuals have visited. This information is potentially valuable as it further enhances the profiles of individual consumers maintained by sellers and hence is potentially a valuable revenue source for ISPs. However, how much personal information are you willing to give to companies online in order to enjoy personalised goods and services? Is there a point beyond which you would feel uncomfortable disclosing certain information? Furthermore, should there be legal limits to how much information companies can collect on users, especially information collected without their knowledge? These are important questions that scholars are currently grappling with. As more and more companies collect information about our online habits and shopping histories, they are able to construct rich profiles about us. What does this mean for personal privacy and for our conceptions of ourselves? Conclusion Marketing is a fundamental part of most businesses and, as markets become more competitive, firms are becoming more customer-centric. As a marketing channel, e-business and e-marketing are becoming increasingly important through techniques such as personalisation, affiliate marketing and viral marketing. Meanwhile, Google has evolutionised advertising through its AdWords service. Thus, e-business and new media have contributed hugely to modern marketing and much e-business activity falls under the heading of marketing. As discussed in SG Chapter 8, the opportunities are becoming more sophisticated through web 2.0 offerings. The only clouds on the horizon are the ability of companies to integrate the various channels and techniques and also the threats to personal privacy that emarketing may represent.
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Lecture-9 Tutorial-3 Questions 1. Choose what you consider to be one cool brand and one uncool brand for clothing. What are your reasons for choosing them? Are these subjective reasons? What role does experience play? How does the website support the offline brand experience? 2. Search online for information on a recent viral marketing campaign. Try to identify how much the campaign cost the sponsoring company, how the message was spread, what media were used (e.g. video, funny image, etc.) and what sites were involved. Was the campaign deemed successful or unsuccessful? Why? Were there any unexpected problems with the campaign? 3. Consider a product that is subject to dynamic pricing (e.g. airline seats, fashion clothes) and outline the costs and benefits of the practice for both the seller and the buyer. Does dynamic pricing change the behaviour of buyers? Under what circumstances might it not change their behaviour? 4. Research online how Amazons recommendation engine works. Based on your findings, critically analyse the privacy issues involved in the profiling of customers. How much does Amazon know about its users and how might this information be misused or abused?Can you imagine a world in which every organisation we do business with has a similar system in place? What happens to the notion of free choice in a world where our tastes and desires are continually predicted by companies trying to sell us products? 5. What is customer segmentation? How does e-marketing contribute to segmentation? Justify your answer using examples. 6. Why is customer relationship management important? How is e-marketing used within customer relationship management? What are the dangers of customer relationship management? 7. What is viral marketing? What are the benefits and dangers for companies intending to use viral marketing as part of a conventional marketing campaign? 8. Online revenue contribution can be considered a key objective of an e-marketing plan. What are the factors that contribute to a companys online revenue? Support your answer with relevant examples.(2012) 9. Do social networks reduce the costs of customer segmentation? Justify you answer using examples (2012, Prelim).
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Lecture 10 & 11: Supporting notes on Chapter-7/ Supply Chain Management (importantly, for B2B) Relevant reads: Chaffey, D. E-business and e-commerce management. (Harlow: Financial Times/ Prentice Hall, 2011) Chapter 6. Kenneth C Laudon & Carol Guercio Traver: E-Commerce 2011: Business, Technology, Society. Pearson (2011) 7 th Edition. isbn 10:0-273-75084-4 Chapter 12 pg 794 - 812 The UK Chartered Institute of Logistics and Transport: www.ciltuk.org.uk UK govts business link: http://www.businesslink.gov.uk/bdotg/action/layer?r.i=1075059386&r.l1=1073861197&r.l2=1075422920&r.l3=10744 07649&r.s=m&r.t=CASE STUDIES&topicId=1074407649 https://blog.itu.dk/BEBF-F2011/files/2011/03/supplyprocurement.pdf videos: http://www.youtube.com/watch?v=Mi1QBxVjZAw shareslides: http://www.slideshare.net/anandsubramaniam/supply-chain-risk-management Aims of the chapter The aims of this chapter are to introduce the main concepts of supply chain management (SCM), to identify the problems that supply chains face, and to explore how information technology is used to improve their efficiency, coordination and management. Key concepts in this chapter include: information and uncertainty push and pull supply chain models restructuring supply chains with e-business technology value chains and value networks vendor-managed inventory virtual organisations third party logistics implementation of integration supply chain management strategies.
Learning outcomes By the end of this chapter, and having completed the essential reading and activities, you should be able to: recognise the various types and components of supply chains and appreciate their purposes and functions analyse the role of information and e-business technologies within the supply chain discuss the importance of SCM in the context of value chains and value networks recognise the various actors within the supply chain and appreciate their roles discuss the various levels of integration that are required to facilitate SCM analyse the strengths and weaknesses of particular SCM strategies.
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Introduction to supply chain management (SCM) Is there a need for SCM? Well, surveys reveal a variety of needs and reasons for adoption of SCM. Here is the summary list.
Virtually every business relies on suppliers to provide it with certain goods and services before it can deliver its products to customers. These supply chains can be quite extensive and are made up of diverse companies, transport fleets, warehouses, and production and distribution facilities. A supply chain is the flow of information, materials, goods and services from raw material suppliers (upstream) through manufacturers and warehouses to the final consumer (downstream). For example, imagine all the different actors required to manufacture, deliver and assemble the various parts that comprise a finished car. This is a complex and multifaceted affair. Upstream supply chain - Transactions between an organization and its suppliers and intermediaries, equivalent to buy-side e-commerce. Downstream supply chain - Transactions between an organization and its customers and intermediaries, equivalent to sell-side e-commerce.
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Question: List down what you think is the upstream and downstream activities of petrol (or gas). Supply chain management (SCM) involves the optimisation of these material and information flows along networks of suppliers and customers, and is closely related to the areas of logistics and operations management. Until the mid1990s, supply chains were largely invisible and SCM was an area that few senior managers took much interest in. However, the reduction in global trade barriers, together with increased containerisation of freight traffic and cheap air travel, resulted in a major shift of manufacturing from the West to new low-cost production centres in, for example, China and Eastern Europe. Global supply chains were needed to shift the goods halfway across the world, and their success can be seen in the huge growth of world trade and the widespread availability in our local shops of cheap, high-quality goods that have travelled thousands of miles. However, wherever the goods flow, information must flow as well. In order to make these supply chains work efficiently, good SCM is essential and it is seen now as a key factor in improving organisational effectiveness and competitiveness. In a special supplement published in 2006, The Economist referred to supply chains as the physical Internet, which means that it should be as easy to move goods around the world as it is to access websites around the world. Furthermore, the ideas behind SCM are now also being applied to services as particular service processes (e.g. call centres, the checking of insurance claims, etc.) are being moved offshore in what is termed business process outsourcing. In todays highly competitive markets, customers expect a wide range of cheap goods to be constantly available, which implies that the objectives of supply chains comprise: speed, reliability, control, flexibility to change, low cost, quality and the minimisation of inventory. However, these objectives tend to conflict; for example, flexibility and reliability can be improved by holding more inventory but this adds to the cost. Speed can be increased by sending goods by air, but again the cost increases.
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Perhaps the most important trade-off is between service and efficiency. Firms like to give their customers a high level of service (e.g. delivery arrangements) but this can be expensive. Furthermore, suppliers (for example, of groceries) may wish to give their best customers (the large supermarkets) a better service (e.g. delivery on a Sunday) than their average customers. This adds to the complexity of supply chain management. Traditional supply chains include suppliers, manufacturers, distributors, retailers and consumers. Figure below depicts this traditional arrangement. Note that in this figure, information flows from the customer up the supply chain. Raw Material supplier End Customer
Tier 2 supplier (where materials are processed)
Tier 1 supplier (where goods are manufactured
Warehouse (where goods are stored)
Retailer
flow of goods flow of information
Such traditional supply chains face a number of problems: They can be very slow in terms of response times. They often result in excessive inventories being held just in case. They are subject to poor coordination and customer service. Set 2 of 3 sets of Ebiz study notes Page 74/ 153
They often cannot support a wide range of products. They can be unnecessarily costly. They face problems of uncertainty in forecasting product demand. They encounter shrinkage (i.e. the loss of products along the supply chain) and waste. Information and uncertainty If the demand for products were completely deterministic (i.e. totally predictable), then SCM would be largely a mathematical optimisation exercise. However, in most markets demand can vary considerably and so information concerning sales, enquiries and trends has to be distributed along the supply chain to reduce the levels of uncertainty. It follows that most of the key processes in SCM are information intensive. These include: production planning inventory management distribution management processing customer orders purchasing and procurement. One particular phenomenon, known as the bullwhip effect, is illustrative of some of these problems (see Lee et al., 199, see: http://profit-chain.com/images/The_Bullwhip_Effect_in_Supply_Chains.pdf ). The bullwhip effect occurs when the demand order variabilities in the supply chain are amplified as they moved up the supply chain. Distorted information from one end of a supply chain to the other can lead to tremendous inefficiencies. This phenomenon, depicted in Figure 7.2, arises when businesses, particularly retailers, overestimate customer demand for products that are highly dependent on fashion or weather. A good example is the sale of ice cream in the UK, where the weather is notoriously unpredictable. When hot weather is forecast, retailers dramatically increase their orders, which are transmitted upstream to their suppliers (and raw material producers) who thus crank up production. The impact of these excessive orders reverberates up the supply chain like a bullwhip. If the hot weather doesnt materialise, actual sales fall well below the orders and everyone in the chain is left with excess stock. The next few orders will then be less than actual sales (as shown in Figure 7.2) until the stock is used up. The outcome is that variations are amplified as one moves upstream along the supply chain.
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Its not just demand that may be uncertain. Supply chain uncertainty can also vary depending on the type of product and the stability of both its supply and demand. Certain products have a stable and predictable demand (e.g. basic groceries), while others face high demand uncertainty due to the nature of the product (e.g. innovative computer technology with a small consumer base). Likewise, supply uncertainty can differ depending on the stability of the supply process and how well established it is. New and evolving supply processes can involve high uncertainty, as well as variable weather in the production of crops for food. For further discussion, see Lee (2002) on Aligning Supply chain strategies with product uncertainties see: http://scilab.nl/Scilab/Downloads_files/hau%20lee%20-%20cmr%20-%202002.pdf Figure 7.3 provides examples.
Where in the above uncertainty framework would you place the following products? natural gas books refrigerators solar panels. Consider other products and where they could be placed in the framework. Are products likely to move from one cell to another? Why Push and pull supply chain models As we discuss at the end of this chapter, this uncertainty in supply or demand can impact on a companys SCM strategy. In other words, all supply chains are not the same. One distinction that we would like to make at this stage of the discussion is between push and pull approaches to SCM.
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Push models involve manufacturers developing products, which they then try to market. Chaffey Chapter 6 captures this way of thinking in the question, This is a great product, now who shall we sell it to? The push approach is typically motivated by a desire to lower costs and increase efficiencies during production. Here, the producers seek to control and dominate the supply chain and, in markets where there is little competition, they often have their way. Pull models focus instead on what customers need (i.e. based on customer orders), incorporating their requirements into product development and distribution. The supply chain is geared toward delivering value to customers through reduced costs and improved service quality. In buyers markets, where customers call the tune, pull models are becoming much more prevalent.
The key difference between the push and pull models involves inventory management. In a true push model, stock is pushed up in the supply chain generally at the retail level or an offsite warehouse location to ensure customer demand is satisfied. The limits the occurrence of stock-out. The pull system turns this around and moves inventory further down the supply chain, to the manufacturer and supplier of the raw material. (see: http://kongandallan.com/en/us_pdf/EPPS0711U.pdf ). Push production is based on forecast demand and pull production is based on actual or consumed demand. Push-Pull model. Some companies have come up with a strategy they call the push-pull inventory control system, which combines the best of both the push and pull strategies. Push-pull is also known as lean inventory strategy. It demands a more accurate forecast of sales and adjusts inventory levels based upon actual sale of goods. The goal is stabilization of the supply chain and the reduction of product shortages which can cause customers to go elsewhere to make their purchases. With the push-pull inventory control system, planners use sophisticated systems to develop guidelines for addressing short - and long-term production needs It is difficult for inventory managers to always know how much inventory to order and when. Some items, automobiles for instance, may not be able to be produced with the just-in-time or pull inventory control method. The production of large items, such as automobiles, is too complex and takes too long to only produce the amount needed to fulfill specific customer orders. Computer companies, such as Dell, are incorporating the push-pull system, where raw materials and goods are pre-ordered and stored, but the actual computer is not assembled until the customer makes an order.
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What is the difference between a push orientation to the value chain and pull orientation? A change in supply chain thinking, and also in marketing communications thinking is the move from push models of selling to pull models or combined pushpull approaches. The push model is illustrated by a manufacture who perhaps develops an innovative product and then identifies a suitable target customer market. A distribution channel is then created to push the product to the market. This situation can be characterized by this famous statement This is a great product, now who shall we sell it to or the quip about the original model T Ford you can have any colour, so long as it is black. The typical motivation for a push approach is to optimize the production process for cost and efficiency. Restructuring supply chains with e-business technology Technology, especially the internet, has led to the creation of more efficient and cost-effective supply chains. Keeping in mind that the supply chains of one firm connect with those of others, creating almost seamless virtual organisations, the question of control becomes interesting. Virtual integration is the notion that shareholders are best served if companies focus their investments on specific areas of specialization, thereby achieving unassailable efficiencies and output. These companies then rely on third-parties to perform all other aspects of its operations. Chaffey understands this virtuality as a continuum with vertical integration at one extreme and virtual integration at the other, with vertical disintegration in the middle. Vertical integration is the extent to which supply chain activities are undertaken and controlled within the organisation in order to control the entire supply chain in an industry segment and virtual integration occurs where the majority of supply chain activities are undertaken and controlled outside the organisation by third parties. In essence this means that the vertical integration spectrum of activities is internal; the other extreme is when business processes are outsourced. Chaffey (2011) provides a framework to make sense of why companies choose vertical integration: The direction of any expansion. Should the company aim to direct ownership at the upstream or downstream supply chain? A company can decide to buy into the downstream part of the supply network (downstream vertical integration). This is sometimes referred to as an offensive strategic move since it enables the company to increase its power with respect to customers. The alternative approach of purchasing services or raw materials would be upstream directed vertical integration which is strategically defensive. The extent of vertical integration. How far should the company take downstream or upstream vertical integration? Companies in certain industries have moved from a wide process span to a narrow process span. This change is the main way in which e-business can impact upon vertical integration by assisting the change from a wide to narrow process span. The balance among the vertically integrated stages. To what extent does each stage of the supply chain focus on supporting the immediate supply chain? The idea of vertical integration was taken a step further by Dell Computer, one of the most successful companies of the 1990s. Michael Dell, its founder, said that he combined the traditional vertical integration of the supply chain with the special characteristics of the virtual organisation to create something that he called virtual integration. Dell assembles computers from other firms' parts, but it has relationships with those firms that are more binding than the traditional links between buyer and supplier. It does not own them in the way of the vertically integrated firm, but through exchanges of information and a variety of loose associations it achieves much the same aim what Michael Dell calls a tightly co-ordinated supply chain. Vertical integration is a difficult strategy for companies to implement successfully. It is often expensive and hard to reverse. Upstream producers frequently integrate with downstream distributors to secure a market for their output. This is fine when times are good. But many firms have found themselves cutting prices sharply to their downstream distributors when demand has fallen just so they can maintain targeted levels of plant utilisation. Full details at source: http://www.economist.com/node/13396061
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Vertical disintegration means that various diseconomies of scale or scope have broken a production process into separate companies, each performing a limited subset of activities required to create a finished product. Acers supply chain management strategy can perhaps best be characterized as a strategy of vertical disintegration. In the recent past, Acer sold majority stakes in both Wistron and BenQ. These companies were main providers of manufacturing services in Acers supply chains. By selling its majority stake in these companies, Acer clearly demonstrates that it intends to disintegrate its supply chains and focus on branding and marketing. The vertical disintegration of Acers supply chain becomes even more evident when analyzing the supply chain of specific Acer products. Components are sourced from many different component manufacturers, while assembly is carried out by a small group of selected contract manufacturers. In some cases, Acer holds a considerable stake in these contract manufacturers, although it almost never owns these companies. The selected contract manufacturers are allowed to manufacture final products for Acer. It does not matter whether a desktop computer or notebook is assembled in China, the Philippines or in the Netherlands. In the end, all Acer products are sold as made in Taiwan. One major reason for vertical disintegration is to share risk. Also, in some cases, smaller firms can be more responsive to changes in market conditions. Vertical disintegration is thus more likely when operating in volatile markets. Stability and standardized products more typically engender integration, as it provides the benefits of scale economies. Above strategies are made possible via technology. Electronic supply chain management (e-SCM), using such technologies as EDI and RFID can help reduce order-to-delivery time, reduce costs of manufacturing, manage inventory more effectively, improve demand forecasting, reduce time to introduce new products, improve aftermarket/ post-sales operations, and lead to faster turnaround in innovation. However, there are also a few risks involved with eSCM. If it is easy to nurture electronic marketplaces, then the relationships built this way are ephemeral and weak, which enables the customer to move to another supplier with little trouble. But there is also the possibility of the reverse happening, where the customer can get tightly locked into a specific supplier because of high overhead costs.
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Value chains and value networks Michael Porter (Porter and Millar, 1985) famously introduced the notion of the value chain to describe what organisations can do to add value to goods or services as they move from creation to delivery to the customer. These value-adding activities can take place internally, within an organisations boundaries, or externally, where activities are performed by supply chain partners. Both internal and external processes can be analysed and redesigned to improve the efficiency and effectiveness of the supply chain, often through the introduction of information technology. A closely related concept is the value stream, which focuses on increasing the efficiency of tasks involved in adding value, particularly during the development and launch of new products. The notion introduces new opportunities for marketing goods and services (see Chaffey, 2011,Chapter 6). As companies rely more and more on external partners for the execution of their core activities and support processes, the relationships between partners begin to resemble a network. These value networks are enabled by information technology that facilitates electronic-based communication. There are many similarities between value chains and value networks, but Chaffey shows us what distinguishes the two concepts. In particular the value network perspective emphasises: The electronic interconnectedness between partners, enabling realtime information exchange. Dynamic relationships between partners. The network is modifiable and responsive to market demands. Partners can be readily added and removed from the network as necessary. Different types of electronic links can exist between partners,depending on their unique relationship. For example, a business may wish to build EDI links with their established suppliers but rely on email communications with occasional or less-strategic ones.
Still didnt understand? Examine the following definitions to realise the links between SCM to value chains and value networks: SCM coordination of all supply activities of an organisation from suppliers, partners to customers Value Chain has similar components such as inbound and outbound logistics, production, sales and marketing. Different orientation which is how to deliver customer value and separate identification of secondary activities such as HR and IS. Value Networks interactions between different value chains of a range of organisations Vendor-managed inventory (VMI) A good example of the changes taking place in relationships between trading partners is vendor-managed inventory (VMI). This close collaboration, facilitated by SCM technology, involves the buyer (typically a retailer) handing over the responsibilities of managing its inventory (including when to order and how much to order) to the supplier. The supplier is able to manage this through information sharing between the two. The key ideas of VMI are: The supplier manages inventory/orders, not the retailer, and this produces an integrated and optimised supplier/retailer value network. Set 2 of 3 sets of Ebiz study notes Page 80/ 153
There are benefits (for the retailer), which include reduced inventory and faster replenishment, and improved collaboration in areas such as joint promotions (special offers). Potential drawbacks (for the retailer) include loss of autonomy and increased dependence upon the supplier. The implementation of VMI is usually driven by large organisations; for example, Procter and Gamble and Wal-Mart in the FMCG industry. In this industry, VMI forms part of initiatives known as continuous replenishment and efficient consumer response, where the underlying facilitator is the electronic exchange of inventory information and orders using EDI networks. The retailer provides the supplier with its inventory information, and the supplier calculates a proposed order (based on past trends and current marketing promotions) and sends it to the retailer for approval before supplying the goods. Virtual organisation The underlying concepts of value networks and VMI are part of a wider trend towards what is known as the virtual organisation. As parts (processes and functions) of an organisations business are increasingly outsourced to partners, interesting questions arise regarding the boundaries of the business. Is it more meaningful (or interesting) to consider an entire supply chain, made up of separate companies collaborating closely together to provide goods to consumers, as opposed to the activities of an individual member company within the chain? How do we conceptualise businesses with reduced physical assets and whose presence and relationships with partners are almost entirely electronic? We discuss virtual organisations in detail in SG Chapter 9, as there are many important issues that transcend the realms of SCM, which is still rooted in the production and distribution of physical goods. Nevertheless, it is worth starting to think about the concept here and Chaffey (2011) provides a useful introduction. In particular, his definition of a virtual organisation is as follows:An organisation which uses information and communications technology to allow it to operate without clearly defined physical boundaries between different functions. It provides customised services by outsourcing production and other functions to third parties. The key point is to consider the supply chain as an entity, or virtual organisation, that is made up of individual companies collaborating closely with each other to meet a particular objective profit-seeking in a commercial market. The key issues then become collaboration and coordination, rather than the competition that is emphasised in traditional business writing. Third party logistics (3PL) A typical outcome of the diffusion of information and communication technologies in SCM is the externalisation of logistics activities. Third party logistics (3PL) is the outsourcing (contracting out) of part or all of the logistics activities by a company that used to perform such activities in-house. Third party logistics describes businesses that provide one or many of a variety of logistics-related services. Types of services would include public warehousing, contract warehousing, transportation management, distribution management, freight consolidation. An even more strategic move in the area of 3PL is now called 4PL which shifts the focus from operational services to supply chain coordination, which is more information intensive. Some of the logistics services that are usually outsourced to a 3PL provider are transportation,warehousing, order entry, customs clearance, reverse logistics, product labelling, fleet management, transportation management and other such logistics-related activities. All of these activities are eased and indeed made more strategic and cost effective through the heavy use of up-todate e-SCM technology. A move towards 3PL can become a strategic advantage for a company, but there is a need to consider a number of issues before taking such a step. Below you will find a list of possible advantages and disadvantages of 3PL provision by an external company. In practice, 3PL is a relationship that needs to be managed with great care, strategic alignment and clear goals.
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Advantages of 3PL The client company can focus on core competency and outsource all non-core activities to external experts. There are cost related advantages through economies of scale. Labour costs are shared between client and provider. Offshore suppliers can be managed and trained by 3PL providers. Capacity utilisation can be optimised. Outsourcing to external experts can increase the satisfaction of customers through the ability to pay greater attention to their needs. It can provide access to international distribution networks. It is a technique that enables risk sharing with an external expert. It provides access to state of the art technology. It allows for inventory reduction. There is more flexibility to cope with changing demand. Disadvantages of 3PL As with all outsourcing, 3PL can lead to a loss of in-house expertise. Logistics itself can be a core competency that is better not outsourced. Overdependence on external expertise can lead to loss of control. It can cause a breakdown of responsiveness to customer needs (think about reverse logistics like returns, repairs, etc. from customers). There is the potential of an inability to provide customised products through a breakdown of communication channels between the client company and its customers. Contracts, as in all outsourcing arrangements, need to be carefully specified and are often prone to abuse. Cost reduction promises are often not met. There is an inability to form sustainable and trusting relationships between 3PL providers and clients. Performance measurement seems to be the only accurate manner of measuring 3PL success, but this only rates aspects such as delivery timeliness, order fill rates and inventory turns, and ignores issues such as trust and long-term relationships, thus making 3PL success difficult to assess accurately. Implementation of integration So far, we have discussed vertical and virtual integration at a rather strategic level. However, in practice, it is essential that supply chains operate seamlessly on an everyday, 24-7 level and this means that the various components within the supply chain people, processes and technology must be tightly integrated. In other words, they have to fit together well, all the way along the supply chain, regardless of whether the strategy is one of vertical or virtual integration. At the people level, it is essential that organisations (and their staff) trust each other and can collaborate together across organisational boundaries to ensure the success of the overall supply chain. In the past, suppliers would send salesmen to take orders from customers and sometimes this selling was particularly aggressive and trust was lacking. However, with VMI, the ordering process can be almost automated, but supplier-customer relationships become more important. Typically, large suppliers will now form account teams to interact with their customers, not to discuss individual orders, but rather to work together to improve service levels, logistics, distribution, returns and promotions for the benefit of both parties. As soon as something starts to go wrong, there should be clear channels between the trading partners to solve the problem. Integration between the business processes and the technology is also very important. An effective supply chain doesnt just mean using state-of-the-art technology; it requires organisations to pick and choose particular technologies to
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provide advantages for specific processes, keeping in mind the context of the company (in terms of culture, governance structure, specifics of product/service, etc). A nice example of this is provided by the case of Zara.. Finally, at the lowest level, the various technologies themselves have to fit together well, both within individual organisations and among the supply chain partners. As noted in SG Chapter-2, this technological integration within companies can be achieved through the purchase of integrated ERP software packages. In SCM, this integration is often taken a stage further, such that the ERPs of individual organisations are customised to link together, or talk to each other, in addition to the integration achieved through common RFID standards (see SG Chapter 2. The network links between the trading partners are provided by EDI systems (or their equivalent), which offer standard message formats and protocols. The linking together of these technologies is not trivial but much experience has been gained in this area through SCM, and such integration is now commonplace in many industries SCM strategy Although we have emphasised the importance of the integration of the various components of a supply chain, this does not mean that all supply chains are the same, or that there is one best way in terms of strategy. We have already distinguished between the strategies of vertical integration, vertical disintegration and virtual integration, and the discussion of the different combinations of supply and demand uncertainty in the paper by Lee (2002) suggests further differentiation of supply chains. These comprise: Efficient supply chains otherwise known as lean supply chains,where both supply and demand uncertainty are low and thus the member firms can focus on reducing costs and increasing efficiency. Risk-hedging supply chains where supply uncertainty is the main problem and hence it is worthwhile for firms to maintain shared pools of stock that they can call upon when supply is disrupted. Responsive supply chains where demand uncertainty is the main problem and hence the supply chain needs to very flexible in responding to sudden changes in demand. Sales data need to be passed back up the supply chain very quickly and all member firms need to be prepared to adjust their production and other activities. The Zara case is a good example of this. Agile supply chains where both supply and demand are uncertain and where the supply chain needs to be both responsive and risk-hedging. The case of Zara (see Sull and Turconi, 2008) is a particularly good example of a successful responsive supply chain. Zara has been so successful that in 2008, according to some measures, it became the worlds largest clothes retailer with first quarter sales of 1.7 billion. Much of this success is attributed to its particularly nimble supply chain that produces approximately 22,000 new products per annum, taking only 15 days to move from the idea of a new item to actually supplying it to the stores. These figures are much better than the industry average and enable Zara stores to constantly introduce new designs without being left with unwanted stock on hand. This has been achieved through an SCM strategy based on four principles: Limited outsourcing or off-shoring, such that much of the work is performed in-house, backed up by centralised new product development. Shared situation awareness based on real-time information from the stores. Store managers use handheld PDAs to record customer behaviour (e.g. clothes tried on but not purchased; customer enquiries and comments) and this qualitative data is combined with actual sales data from the EPOS tills and sent daily to Zara headquarters for analysis. A proprietary e-SCM system specifically produced for Zaras needs. This was an expensive solution but Zara does not use industry standard tools, such as costly ERP or CRM systems, and their total IT spend is low for the industry.
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The organisational culture of Zara aims to reduce hierarchy and increase face-to-face interaction, not just between the customer and staff but also between various levels of Zara staff, and this makes their business strategy unique and challenging for competitors to imitate. This is not to downplay the role of technology but it does signify the importance of people within the supply chain. Global SCM risk From a success story, we now turn to a disaster concerning Ericsson, the mobile telecommunications supplier (see report on http://www.economist.com/node/7032258 or Norrman and Jansson, 2004). In this highly competitive business, Ericsson had squeezed out costs from its supply chain to make it as lean as possible. However, this lean supply chain depended upon a single supplier for a radiofrequency chip and, when this suppliers plant in Albuquerque, New Mexico (USA) caught fire in March 2000, Ericsson lost months of production, at a cost of $200 million, and finally withdrew completely from manufacturing mobile phones. In 2001 Ericsson decided to quit making handsets on its own. Instead, it put that part of its business into a joint venture with Sony. This is not the only such case, and these disasters demonstrate the fragility of excessively lean supply chains. There are two types of risk in a supply chain, external and internal. As in the Ericsson case, they can conspire together to cause a calamity. This seems to be happening more and more often. It is not just that inventory levels are getting leaner, but the range of items that companies are carrying is also growing rapidly. Just look around a typical supermarket. Where it once stocked mainly groceries, it now also sells clothing, consumer electronics, home furnishings and many other items. This compounds supply-chain problems. In many cases shippers have gone too far in implementing the lean supply chain and have found themselves virtually out of business because of a by now annual catastrophic event. In 2003 a number of companies suffered serious disruption because of severe acute respiratory syndrome (SARS). Even though SARS turned out to be not as virulent as influenza, and only 8,000 people got infected, with one in ten dying, it still cost an estimated $60 billion in lost output in South and East Asia. The latest worry is the spread of avian flu. If the virus concerned were to mutate and become infectious for humans, the consequences could be far more devastating. Sometimes even a political wrangle in Brussels will bring a supply chain to a shuddering halt. Last autumn some 80m items of clothing were impounded at European ports and borders because they exceeded the annual import limits that the European Union and China had agreed on only months earlier. Retailers had ordered their autumn stock well before that agreement was signed, and many were left scrambling to find alternative suppliers. Toyota builds more than 600,000 cars a year in Europe, where it has some 200 first-tier suppliers operating more than 400 factories. They work with second, third and fourth-tier suppliers, so the overall number grows exponentially the further you go down the chain, where problems can be harder to spot. This means the suppliers themselves have to be involved in the risk-management process. A supplier may find it difficult to tell the company that it has a problem. But Toyota emphasises that given the cooperative nature of a supply chain, with early knowledge there is more chance of putting things right. A first step the company would seek to help its suppliers solve their own problems. We are hugely more competent at this than we were a year ago, he adds. And so far, Toyota has been able to act swiftly enough to prevent any supply problems holding up production.
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Is a lean, flexible and highly outsourced supply chain like Toyota's any safer than the vertically integrated production methods of old, as practised at Henry Ford's giant River Rouge manufacturing complex near Detroit? At its zenith in the 1920s, ships carrying raw materials such as iron ore and coal often from Ford-owned operationswould unload directly into the plant. Steel was produced on site, then cast, pressed and machined into all the components needed to assemble a car. The process was inflexiblewhich is why Ford's cars could be any colour as long as it was blackas well as rather inefficient. Toyota has turned that process on its head, making its manufacturing system far more capable of responding to change. That is one of the best insurance policies a company can have. So, how did e-business techcnology support the supply chain? Well, Information systems are used to increase the efficiency of information flow by: delivering more information (e.g. sales data in Tesco TIE system) analysing information (e.g. alerting a large order) delivering it more rapidly (e.g. reduced lead times in e-procurement). Conclusion Supply chains, comprising a combination of companies, people and technologies, are a very important part of the practice of e-business. They represent efficient and powerful supply channels and often competition in a market is between competing supply chains, rather than individual companies. However, they require high levels of integration, collaboration and coordination, which places heavy demands on both the technology and the relationships between organisations. There are various trade-offs, in terms of strategy, especially between lean supply chains and ones that are more responsive to uncertainties or changes in supply and demand. So, in summary, what are the key strategic options in supply chain management? - How to restructure supply chain (vertical integration/disintegration/virtual integration) - How to restructure (disintermediation, reintermediation, countermediation) - How to restructure relationships in a value network - New procurement models e.g. auctions and B2B exchanges
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Lecture-12 Tutorial Questions 1. Case study: In Chapter 6 of Chaffey (2009), you will find Case study 6.1 on the supply chain management strategy of Shell Chemicals. Since implementing a system called SIMON (Shell Inventory Managed Order Network) to manage their supply chain relationships, the company has moved to an online portal known as Elemica. SIMON was based on vendor-managed inventory SCM processes. Read the passage to understand how SIMON worked in practice. What types of information did it handle? How is Elemica different from SIMON? Why did Shell Chemicals switch from SIMON to the Elemica portal? 2. Case study: Select a large (local or international) company (e.g. UPS, Amazon) and through researching on the web, try to discover how its supply chain works. Try to identify the component processes and who carries them out, and also what strategy the company employs. Explain how the company uses e-SCM technology. 3. Case study: Based on your reading, can you think of other companies with very lean supply chains which might potentially face similar or related risks to those encountered by Ericsson? 4. In what ways can computer-based information systems facilitate supply chain management? What is a vendor managed inventory and why is it important? 5. Why is supply chain management of growing importance in many industries? What are the problems with traditional supply chain management? Discuss how computer-based information systems are used to address these problems. 6. Discuss, with examples, the supply chain strategies employed by companies to deal with the uncertainties of supply and demand. 7. Uncertainty is often seen as the key problem for supply chain management. Why is this so? What types of uncertainty exist in a typical supply chain and what implications does uncertainty have for the design of a supply chain? (2011) 8. Imagine you are a consultant whose job is to design a new B2B strategy in a firm which intends to open a supplier oriented marketplace. Which factors would you consider in advising the firm whether it is worthwhile pursuing such a strategy? Justify your answer theoretically. (2012) 9. Effective supply chains depend upon the close integration of companies within the supply chain. Discuss how this has been achieved, making use of examples in your answer (2011). 10. Supply chains benefit from cooperation between companies within the supply chain. Discuss how cooperation in supply chain can be facilitated and supported by ICT making use of examples in your answer (2012).
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Management & Innovation of E-Business IS3167, 2790167 (2011)
Appendix-1: Past Exam Papers BSc degrees and Diplomas for Graduates in Economics, Management, Finance and the Social Sciences, the Diplomas in Economics and Social Sciences and Access Route for Ext Students Management and Innovation of e-business 2790167 Zone-A: 10 June 2011 Candidates are required to answer any THREE of the following SIX questions. All questions carry equal marks.
1. Shopping is not the same as procurement. What does this statement mean in the context of e -business?
Discuss the impact this has on business-to-consumer e-business. How can e-business retailers counteract this problem? Illustrate your answer with examples. Effective supply chains depend upon the close integration of companies within the supply chain. Discuss how this has been achieved, making use of examples in your answer. What do you understand by the term web 2.0? Briefly describe the various collaborative components of web 2.0 and show how each one exhibits the participative nature of web 2.0. What are the main strategic reasons to support supplier oriented market or intermediary oriented market strategies in B2B (business-to-business)? Discuss making use of examples in your answer. In the literature, the impact of IT on markets is either seen as a reason for the reduction of the number of intermediaries or as a reason for an increased role played by intermediation in the exchange processes. Discuss. Transaction costs can be described as frictions in the market. How can ICT (information and communications technology) reduce these frictions? Discuss the theoretical model of transaction costs and explain how and why ICT can reduce or increase transaction costs.
2. 3. 4. 5. 6.
2790167 Zone-B: 10 June 2011 Candidates are required to answer any THREE of the following SIX questions. All questions carry equal marks. 1. What is the general online value proposition for business-to-consumer e-business? Illustrate this value proposition by applying it to one particular sector (e.g. books). Describe the problem of channel conflict and cannibalisation. How can retailers alleviate this problem? Uncertainty is often seen as the key problem for supply chain management. Why is this so? What types of uncertainty exist in a typical supply chain and what implications does uncertainty have for the design of a supply chain? What are the functions (i.e. purposes) of an organisational form (or structure)? Describe the problems inherent in traditional organisational forms. Using one or more examples of new organisational forms, discuss how information & communication technologies (ICTs) are used to address the problems of organisational structure. What problems are often encountered with new organisational forms? The impact of ICT on markets has been traditionally described in terms of disintermediation. Why have many authors recently argued in support of the idea that ICT increases the role played by intermediation in the exchange processes. Discuss, making use of examples in your answer. Discuss the main obstacles to B2B (business-to-business) e-commerce. Justify your answer with examples. Discuss the main technical and security related problems in internet based e-business activities. Critically discuss with examples.
2.
3.
4.
5. 6.
Appendices
A1
2790167 Zone-B: 27 Feb 2012 Preliminary Candidates are required to answer any THREE of the following SIX questions. All questions carry equal marks. 1. 2. 3. 4. 5. 6. What is B2B e-business? Discuss with examples the main advantages and risks of this business strategy? Supply chains benefit from cooperation between companies within the supply chain. Discuss how cooperation in supply chain can be facilitated and supported by ICT making use of examples in your answer. Do social networks reduce the costs of customer segmentation? Justify you answer using examples. When do ICT offers new market opportunities for intermediaries? Justify your answer using examples. What are the main security threats of business-to-consumer e-business? Describe the phases of the transaction lifecycle. Critically analyse, using examples, how ICT can reduce the transaction costs associated to ONE of these phases.
2790167 Zone-A: 23 May 2012 Candidates are required to answer any THREE of the following SIX questions. All questions carry equal marks. 1. Imagine you are a consultant whose job is to design a new B2B strategy in a firm which intends to open a buyer oriented marketplace. Which factors would you consider in advising the firm whether it is worthwhile pursuing such a strategy? Justify your answer theoretically. 2. Discuss the main human threats to e-business security. Support your answer with examples 3. Discuss why e-marketing can be considered a threat to privacy. Suggest how this threat can be reduced. 4. Business-to-consumer (B2C) e-business is now some seventeen years old in the more mature markets of Europe and North America. Why does it only account for a relatively small share of total retail sales in these markets? 5. Why are many companies beginning to use web 2.0 technologies? Give examples of web 2.0 technologies that companies are exploiting. 6. Discuss the benefits and drawbacks of mobile working. 2790167 Zone-B: 23 May 2012 Candidates are required to answer any THREE of the following SIX questions. All questions carry equal marks 1. Imagine you are a consultant whose job is to design a new B2B strategy in a firm which intends to open a supplier oriented marketplace. Which factors would you consider in advising the firm whether it is worthwhile pursuing such a strategy? Justify your answer theoretically. 2. Discuss the main organisational threats to e-business security. Support your answer with examples. 3. Online revenue contribution can be considered a key objective of an e-marketing plan. What are the factors that contribute to a companys online revenue? Support your answer with relevant examples. 4. Why is website design an important aspect of business-to-consumer (B2C) e-business? Make use of examples in your answer. 5. Compare and contrast the business models adopted by social networking sites that are free to users. 6. What are open source communities in the context of software development? What do they offer in this context? What are the problems in building and maintaining viable open source communities? Study guides Sample exam Qs 1. Why is supply chain management of growing importance in many industries? What are the problems with traditional supply chain management? Discuss how computer-based information systems are used to address these problems. 2. Companies engaged in business-to-consumer (B2C) e-business need to understand shoppers, technology and their industry. Discuss with examples. 3. What are the characteristics of most new organisational forms? Why are organisations adopting these forms? What are the implications for managers? What is the role of information systems in new organisational forms? Give examples.
Appendices
A2
4. You have been asked, as a consultant, to begin work on an e-business strategy for a new pure-play, online, businessto-consumer retailer. What areas would you examine regarding this strategy? For each area, briefly discuss an issue that you feel is likely to be important in this context. 5. It has often been argued that information and communications technology (ICT) is disintermediating electronic marketplaces. Infomediaries are however increasing in electronic markets. Discuss with examples. 6. Transaction costs can be described as frictions in the market. How can ICT reduce these frictions? Discuss the theoretical model of transaction costs and explain how and why ICT can reduce or increase transaction costs.
Appendices
A3

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(IS3167) MANAGEMENT AND INNOVATION OF E-BUSINESS (2012 Academic Year)

Management & Innovation of E-Business

Lect-7/8:EBIZ - Mgt & Innovation eBusiness(by JackKoh)

Lect-7/8:EBIZ - Mgt & Innovation eBusiness(by JackKoh)

Marketing concept is a philosophy

Lect-7/8:EBIZ - Mgt & Innovation eBusiness(by JackKoh)

What are the fundamentals of traditional marketing?

Lect-7/8:EBIZ - Mgt & Innovation eBusiness(by JackKoh)

Lect-7/8:EBIZ - Mgt & Innovation eBusiness(by JackKoh)

Lect-7/8:EBIZ - Mgt & Innovation eBusiness(by JackKoh)

Lect-7/8:EBIZ - Mgt & Innovation eBusiness(by JackKoh)

arguments Laudons arguments

Lect-7/8:EBIZ - Mgt & Innovation eBusiness(by JackKoh)

Lect-7/8:EBIZ - Mgt & Innovation eBusiness(by JackKoh)

Lect-7/8:EBIZ - Mgt & Innovation eBusiness(by JackKoh)

Lect-7/8:EBIZ - Mgt & Innovation eBusiness(by JackKoh)

Lect-7/8:EBIZ - Mgt & Innovation eBusiness(by JackKoh)

Lect-7/8:EBIZ - Mgt & Innovation eBusiness(by JackKoh)

Lect-7/8:EBIZ - Mgt & Innovation eBusiness(by JackKoh)

Lect-7/8:EBIZ - Mgt & Innovation eBusiness(by JackKoh)

Lect-7/8:EBIZ - Mgt & Innovation eBusiness(by JackKoh)

Lect-7/8:EBIZ - Mgt & Innovation eBusiness(by JackKoh)

Lect-7/8:EBIZ - Mgt & Innovation eBusiness(by JackKoh)

Discuss Table 9.3/ pg 499 in Chaffey (2011)

Lect-7/8:EBIZ - Mgt & Innovation eBusiness(by JackKoh)

Lect-7/8:EBIZ - Mgt & Innovation eBusiness(by JackKoh)

Price transparency Commoditization New pricing approaches: Dynamic pricing

Lect-7/8:EBIZ - Mgt & Innovation eBusiness(by JackKoh)

End of Lectures 7 & 8

Lect-7/8:EBIZ - Mgt & Innovation eBusiness(by JackKoh)

Lect-10/11.EBIZ - Mgt & Innovation eBusiness(by JackKoh)

Lect-10/11.EBIZ - Mgt & Innovation eBusiness(by JackKoh)

Lect-10/11.EBIZ - Mgt & Innovation eBusiness(by JackKoh)

Lect-10/11.EBIZ - Mgt & Innovation eBusiness(by JackKoh)

Push to customer Pull from customer Key differences

Lect-10/11.EBIZ - Mgt & Innovation eBusiness(by JackKoh)

Lect-10/11.EBIZ - Mgt & Innovation eBusiness(by JackKoh)

Value Chain Value Network Where is the relationship and relevance?

Lect-10/11.EBIZ - Mgt & Innovation eBusiness(by JackKoh)

What is VMI Why would a buyer participate? Benefits Drawbacks

Lect-10/11.EBIZ - Mgt & Innovation eBusiness(by JackKoh)

Lect-10/11.EBIZ - Mgt & Innovation eBusiness(by JackKoh)

Lect-10/11.EBIZ - Mgt & Innovation eBusiness(by JackKoh)

Lect-10/11.EBIZ - Mgt & Innovation eBusiness(by JackKoh)

Lect-10/11.EBIZ - Mgt & Innovation eBusiness(by JackKoh)

Global risk Lean supply chain risk. What precautions?

Lect-10/11.EBIZ - Mgt & Innovation eBusiness(by JackKoh)

Lect-10/11.EBIZ - Mgt & Innovation eBusiness(by JackKoh)

Lect-10/11.EBIZ - Mgt & Innovation eBusiness(by JackKoh)

Management & Innovation of E-Business IS3167, 2790167 (2011) (assembled by JackKoh)

Management & Innovation of E-Business IS3167, 2790167 (2011) (assembled by JackKoh)

Management & Innovation of E-Business IS3167, 2790167 (2011) (assembled by JackKoh)

Set 2 of 3 sets of Ebiz study notes

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Management & Innovation of E-Business IS3167, 2790167 (2011) (assembled by JackKoh)

Set 2 of 3 sets of Ebiz study notes

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Management & Innovation of E-Business IS3167, 2790167 (2011) (assembled by JackKoh)

Set 2 of 3 sets of Ebiz study notes

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Management & Innovation of E-Business IS3167, 2790167 (2011) (assembled by JackKoh)

Set 2 of 3 sets of Ebiz study notes

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