Effect of Internet
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Transcript of Effect of Internet
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Henley Business School 2012 www.henley.reading.ac.uk
Marketing & Consumer Behaviour
The Impact of the Internet
Peter Cook
17th February
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2
Communications
A Brief History
"nothing contributes more to facilitate commerce than the safe,
speedy and cheap conveyance of letters." John McCulloch 1883
Postal System
Universal Long Distance Communication Telegraph
Fast Universal Long Distance Communication
Telephone
Real Time Personal Communication
Cellular Phone Mobile Communication
Internet
Computer to Computer Communication
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50 Million People
To get a market of 50 Million People Participating: Telephones took 100 years
Radio took 38 years
TV took 13 years
The PC took 16 years
Once open to the Public, The Internet took 6 years
All technologies drive business change
The post gave us mail order
The telephone gave us telesales
The Internet has
Simply sped up existing process?
Not really changed things?Yet!
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The Internet
A network of networks
Allows one computer to talk to another
A dominant design has emerged
Standards set by agreement (RFCs) Strong Network effects
Key Applications
E-mail
Information Access (WWW & search engines) Distribution of Digitised Products (Music/Video)
Social networking
Cloud Computing?
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Consumer use of the Internet
E-Commerce is principally a B2B channel
Most is Computer to Computer.
UK E-Commerce Sales in 2010 totalled 385Bn.
25% via a website, 75% by other ICT means.
UK Retail sales in 2011 averaged 5.8Bn/week UK Internet retail sales in 2011 were 523M/week
Tesco retails 900M/week in the UK (55M 6%
online)
The Internet B2C market is small(ish) 5.6 % of the Total E-Commerce market
8-10% of the Total Retail market
In the UK 60% of Tescos business
But! see its impact on promotionSources ONS, Tesco
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Internet Business Models
Sell The Internet Hardware & Software for the Internet
ISPs
The Sales Model Sell content over the Internet
Products and Services
The Media Model Give content away
Sell advertising, and access to customer information
The Synergy Model The Internet supports other revenue sources
Reduces Operating Costs
Increases Revenues
From Stewart & Zhao (2000)
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4Ps of marketing Product
What are we selling
Functionality, Representationality, Services
Price
How much can we charge
Who pays and how
Place
Where we sell it
How we supply it
Promotion How do we advertise
What is our message
What is the impact of the Internet
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Product
Conventional Products No Real Difference Internet is a Sales Channel
Information Products
Internet is also a Distribution Channel
Digitized Product
DRM Issues
Piracy
Try before you Buy
Internet Products??
Online gaming?
Cloud Services?
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What Does Google Sell
They give away Search
Goole Mail
Google Apps
Google Phone
Google+
Chrome
Android
..
9
Revenues US$38,491Million
Profits US$11,815 Million
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Product
Conventional Products No Real Difference Internet is a Sales Channel
Information Products
Internet is also a Distribution Channel
Digitized Product
DRM Issues
Piracy
Try before you Buy
Internet Products??
Online gaming?
Cloud Services?
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Price on the Internet
A more efficient market
Lower Prices
Less Price Dispersion
More frequent price changes
Price comparisons easier
Price changes easier (and cheaper)
Low cost provider gets the advantage
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The Other side of Price
Thin markets get thicker
Rare or Inimitable Goods
More potential purchasers
Value based pricing
What the traffic will bear
Auctions
Reverse Auctions
Yield management systems
Pricing changes as goods get more valuable
Customer Surprises
Distribution Costs (Post & packaging) Currency Risks (Fluctuations)
Additional Charges (Tax, Customs Duties etc)
Is this the Future?
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Free Is it a price?
Two prices on the Internet Free & Anything Else
Direct Cross Subsidy
Free entices you to pay for something else
E.g. free shipping
Three Party Market
Two sided market someone else paysyou get the free
Media model
Google, Facebook ..
Freemium
Basic product is free to most, premium product pays the cost.
Non Monetary Markets
Something given away with no expectation of payment
Done for the reputation, fun, self expression..
13Anderson 2009 Free
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Place
The Disappearance of Geography?
What is place on the Internet Search Engine Position
Domain Address
Twitter Feed
Banner Ads on High Traffic sites Infomediaries
Able to target a global market
Distribution methods
Parcels Couriers Next day Delivery Timescales
Cost of Shipping borne by the Customer
Electronic
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The Problems of Place
Channel Conflict
Administration Costs Web site maintenance
Catalogue Details
Currencies
Stock Availability One or two at a time vs Bulk Shipments to Wholesalers
Customer Complaint handling
Distribution Low Volumes
Delivery Timescales Cost of Shipping
Getting Paid
Legal, Regulatory and Tax Issues
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Legal Issues
The Customer is in the UK
The Supplier is in China
The Order Processing Website is Hosted in India
The payment intermediary is legally based in Luxembourg
The payment is made in US$ via a server in the US
The Courier is Australian
Which legal jurisdiction controls things
What tax rate is paid
By whom
To which authorities
GermanyArgentina
Mexican
The Cayman Islands
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The Problems of Place
Its POSSIBLE that every customer will be different!!!!!
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Promotion
Advertising Another One to Many Communications Channel
Post Print
Broadcast Advertisement placement How do you get people to look?
Banner Ads Pop-up
Direct E-mail (Spam?)
Something for the Customer? Free Information Entertainment
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Promotion on the Internet
One to One Advertising Targeted Advertising
Customise the Page for the User
Prices
Product Linkages Many to many advertising
Get customers involved
Viral marketing
Social networking
Blogs
An Information Supply Channel
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Search is Important
Things Internet users have done on line in a month(US) 92% Use a search engine to find information
92% Send or read e-mail
83% Look for health/medical info
81% Check the weather 78% Look for information about a service or product
76% Get news
71% Buy a product
71% Watch a video on a site like YouTube or Vimeo
67% Visit a local, state or federal government website 65% Buy or make a reservation for travel
65% Use an online social networking site
61% Do banking online
Source Pew Internet & American Life Project Tracking surveys 2010 & 2011
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Information in the market Information Intensity of marketplace
Search Negotiation Monitoring & Enforcement
Regular Purchases Repeated Purchases
Food, Energy, Transport Information from past Experience Low Information intensity
Occasional Purchases Stochastic Purchases by the Individual
Information Needed to Find Goods Understand Capability Understand Quality
High Information Requirement
( from Casson, M. (1997). Information and Organization a New Perspective on the Theory of the Firm. Oxford, Clarendon Press.)
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The Rise (& Fall) in Occasional Goods
50%
52%
54%
56%
58%
60%
62%
64%
66%
68%
70%
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
Year
UK Household final consumption expenditure (excluding housing)less Food, Energy & Transport as a % of Total
Source: National Statistics website: www.statistics.gov.ukCrown copyright material is reproduced with the permission of the Controller of HMSO
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The Problems of Promotion An Advertising Channel
Hard to Segment
Geographic differences Pricing
Culture
Branding
A source of Information for Customers The happy keep quiet
The dissatisfied make waves
Its also a source for Competitors
Many Important users of websites are Robots Price comparison Sites
Search Engine Spiders
They are not people!!!
Click Fraud?
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Synergistic use of the Internet
As an adjunct to an existing business model
Promotion
E-catalogue
Market Research
New Product Ideas
Internet as a support Channel
Product Information
Updates
Support Desk
Self-help Forums
Account management
Payments
Warranty
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The Long Tail?
Demand has been constrained by inventory costs
The profit on sales of a product
The cost (inc opportunity costs) of keeping it in stock
Niche suppliers aggregate demand
The Internet
Aggregates demand from (much) wider markets
Reduces Inventory Costs (particularly for Digital products)
Very small volumes can make a profit
Aggregate demand for many small sales is big business
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The Long Tail
Ignored
Revenues from each Class
Products Listed by Frequency of Sale
Cost of supplying each Class
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Winner Takes All?
The Attraction of the Best
Recommenders
A network effect
People who have bought also bought
Recommend on Sales Data
Cannot Recommend New Products
Recommend Most Popular Products
Individual Diversity Increases
Aggregate Diversity Decreases The Successful get More Recommendations Positive Reinforcement
The Specialised Get Fewer
The death spiral
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Diversity
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The long tail vs the Stars
The Mid MarketLoses eitherway?
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Ethical Issues
Spam
Customer Information Security
Data Mining What do you use it for
How do you get it
Opt in or Opt Out
Webwise/Phorm
Contacting the customer Information Network Effects
The more data you have the more information you can extract
The Value of YOU
Direct marketing E-mail
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Virtual Worlds?
Virtual Spaces Product?
Promotion?
Price?
Place?
Second Life MMOGs
World Of Warcraft
In game advertising placement
Monetisation of Virtual Profits? BitCoin - Virtual Money
Over to You!!!
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Thank you for listening
And remember
Be careful what you tell yourcomputer
You never know what herInternet friends might be
doing with the information!!