978-0078028946 Chapter 11 Lecture Note

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Chapter 11

Marketing Strategies for a Digitally Networked

World

I. “Opportunities in the App Economy” gives insights into how apps, bite-sized software

programs that run on a mobile phone or within social networks, have revolutionized every aspect

of a consumer’s life.

II. Strategic Challenges Addressed in Chapter 11

This chapter addresses several timely and important questions that marketing managers in

today’s companies and entrepreneurs must ask:

oDoes every company need a digital or social media strategy?

oDo recent technological advances represent threats or opportunities?

oHow should marketers address the development of strategies to take advantage of—

or defend against—the rapid pace of change inherent in today’s networked world?

oWhat marketing roles can the internet, social networking, and other recent and future

technological developments play, and which of these should significant resources be

allocated?

The chapter begins by reviewing several trends that highlight the growing importance of

social networking and other related digital developments.

oIt then identifies the fundamental principles that underlie today’s digital phenomena

and the key advantages and disadvantages inherent therein, all of which every

marketer must clearly understand.

oNext, it identifies some of the roles that digital networking technologies can

plausibly play in marketing strategies, and articulates a decision framework for

managers to use to decide which of the growing array of such tools their firms should

employ—from web-based marketing research to advertising on mobile phones or

tablets to the delivery of digitized information, goods, and services over the web.

oFinally, it takes a brief look into what it is likely to take to effectively serve the

dot-com and mobile markets of tomorrow.

III. Does Every Company Need a Digital or Social Media Strategy?

The rise of consumers’ adoption of personal devices, home networking and broadband,

combined with the increasing importance of the internet in media, retail, banking, and

health care, means that every consumer-facing industry must better understand the

intricacies of technology adoption and use.

The long-term prospects of doing business in the digitally networked world with both feet

are enormous.

The growing market acceptance of the internet and various digitally networked

technologies—both software and hardware—and the inherent advantages that they bring

suggest that nearly every company needs to examine how it will be affected by and can

take advantage of these developments.

The outcome of such an examination might well be the development of the company’s own

digital or social media strategy.

IV. Threats or Opportunities? The Inherent Advantages and Disadvantages of the Digitally

Networked World for Marketers

Eight potentially attractive elements characterize the advantages of the new internet,

telecommunication, and social networking technologies:

oThe ability to optimize

oThe syndication of information

oThe increasing returns to scale of network products

oThe ability to efficiently personalize and customize market offerings

oThe ability to disintermediate distribution

oGlobal reach

oRound-the-clock access

oThe possibility of instantaneous delivery

Collectively, these elements lie at the heart of viral marketing, wherein those who see

something they like on the web or on their mobile phones share it with others.

A. The Ability to Optimize

In many aspects of marketing practice, it can be difficult for marketers to

understand what is working, what’s not, and why.

The beauty of today’s digital technologies is that everything is measurable.

As the digital landscape changes so fast, new companies with new metrics and

techniques are fueling rapid innovation in the digital marketing and big data arenas,

and attracting considerable amount of venture capital as well.

oThus, while marketers are excited about—and even obsessed with—all the

data that is now available to them, knowing exactly what to do with the data,

and how to make the most of it, is not always clear.

B. The Syndication of Information

Syndication involves the sale of the same good—typically an informational good

—to many customers, who may then combine it with information from other

sources and distribute it.

Though internet marketers rarely use the word syndication to describe what they

do, it lies at the heart of many e-commerce business models.

oInktomi, an originator of syndicated content, provides its search engine

technology to many branded search engine sites.

oYellowBrix, a syndicator, provides news articles in electronic form and

delivers them to other sites, each of which appeals to a different target

audience.

oE*Trade, a distributor of syndicated information, brings together from many

sources content relevant to its investor clientele and packages it in ways

useful to these clients.

Why is syndication important?

oFirst, because it delivers informational goods rather than tangibles, a person

or a company can syndicate the same informational goods or services to an

infinite number of customers with little incremental cost.

oThe process can be automated and digitized, enabling syndicated networks to

be created, expanded, and flexibly adapted more quickly than would be

possible in the physical world.

oBy using technology called Really Simple Syndication (RSS), syndicated

content can be fed to users, having preferences for such content.

C. Increasing Returns to Scale of Network Products

The characteristics of informational networks where a product becomes more

valuable as the number of users increases is often called a positive network effect

or network externality.

Given the growing power of digital marketing, marketing professionals now think

of media as divided into three categories:

oOwned media (such as a brand’s website, blog, or Twitter account)

oPaid media (print and broadcast ads and the like, along with such things as

paid search or online display ads)

oEarned media (places where customers themselves—and their Facebook

pages or tweets, for example—become the medium)

D. The Ability to Efficiently Personalize and Customize Market Offerings

Some companies track the products a customer buys and, using a technology

known as collaborative filtering, are able to compare one customer’s purchases

with those of others and thereby recommend products they think a customer would

like, personalized to the customer’s taste.

oIf the companies do this well, the customer’s purchases go up, and he or she

becomes a happier customer because the company helped him or her find

products that he or she wanted.

When formal decision rules can be identified in the way customers behave (for

example, reminding customers of, or making special offers for, upcoming birthdays

or offering supplementary items based on past purchases), rules-based

personalization can be done.

Mass-customization techniques, which are user-driven instead of marketer-driven,

allow customers to specify the nature of what is offered to them.

In today’s highly competitive markets, personalization and customization can help

build customer loyalty and makes it less likely that customers will switch to other

suppliers.

E. Disintermediation and Restructuring of Distribution Channels

The internet makes it possible for marketers to reach customers directly, without the

expense or complication of distribution channels, a phenomenon known as

disintermediation.

Someone must perform the functions normally performed by channel members—

taking orders, delivering products, collecting payment, etc.—so those who consider

disintermediating their channels and selling direct must determine how they will

perform these functions and must evaluate whether doing so is more effective and

efficient than using intermediaries.

F. Global Reach, 24/7 Access, and Instantaneous Delivery

With the internet, typically there is no extra cost entailed in making information,

digital goods, or services available anywhere one can gain access to the web—

literally, global reach, making the offering available 24 hours per day, seven days

per week, 52 weeks per year and, in some cases, providing instantaneous delivery.

oIn our increasingly time-pressed world, access and service like this can be of

great value to customers.

G. Are These Digital World Fundamentals Opportunities or Threats?

Most marketers can choose to take advantage of one or more of the fundamental

attributes and benefits offered by today’s digital and social networking

technologies.

oTo that extent, these technologies constitute opportunities available to

marketers who employ them.

Viewed differently, however, they raise complex ethical issues, and they also

present potentially significant threats:

oThe fact that the variable cost for syndicated goods approaches zero sounds

good, until one realizes that for most products, price, over the long run, is not

far from variable cost.

oThere are few barriers to entry, and many internet strategies are easily

imitated.

oOther threats include privacy and security issues, which can drive away

customers rather than attract them is they are not handled with care.

H. First-Mover Advantage: Fact or Fiction?

In the internet gold rush in the late 1990s, and again in the later rush to build social

networking sites, the key to success was said to be first-mover advantage.

oThe first firm to establish a significant presence in each market niche would

be the one that succeeded.

Being the first mover can bring some potential advantages, but not all first movers

are able to capitalize on the advantages.

oThus, many are surpassed by later entrants.

V. Developing a Strategy for a Digitally Networked World: A Decision Framework

A. Marketing Applications for a Digitally Networked World

The consumer experience process is a six-stage process that begins with

communicating one’s wants and needs to prospective sellers; moving through the

awareness, purchase, and delivery processes; obtaining any necessary service or

support after the purchase to support its use or consumption; and ultimately

sometimes returning or disposing of the product.

Customers first provide information about their needs to sellers, whose customer

insight permits them to develop goods or services intended to meet the customer’s

needs.

While there may be several back-and-forth iterations in the insight stage, as new

product developers invent and refine their product ideas, ultimately some good or

service is developed, and information about the product—promotion, customer

acquisition, and brand building—then flows to customers to inform and

encourage them to buy.

If the customer likes what is offered, a transaction—an agreement to buy—ensues,

requiring that information about pricing, terms, delivery, and so on flows to the

customer, and cash—either now or upon delivery—flows the other way.

With a transaction consummated, delivery of the good or service is made, with the

product flowing to the customer and money or other compensation flowing to the

seller.

But the seller’s job is not yet done for the customer may need some kind of

customer support or service during use, in which case additional information may

flow in either direction or additional goods or services may flow to the customer,

possibly in exchange for additional revenue.

Finally, the customer may need to return, dispose of, or discontinue use of the

good or service, at which point the product may be returned to the seller, cash may

flow back to the customer (as a result of the product’s return or some kind of

trade-in, perhaps), and another transaction—with this or another seller—may ensue,

thereby repeating much of the process.



Applications for Customer Insight

oDigital and social networking technologies generate the insight essential to the

development of compelling new products in the following ways:

Sifting through the trove of data posted daily on social networking sites

—and providing it in an organized manner to customers willing to pay

for it—is becoming a big business. In some industries, keeping track of

what customers are saying about your business can be crucial.

Marketing researchers are increasingly turning to the internet to conduct

marketing research due to its cost-cutting, time-saving advantages over

traditional survey methods.

oTraditional researchers debate the web’s merits on a number of dimensions:

In terms of representativeness of the current makeup of the web

audience, somewhat whiter, richer, younger, and more educated than the

population as a whole

In terms of self-selection biases, where people volunteer to participate

in web-based polls

In terms of randomness, or lack thereof, of web samples



Applications for Product Promotion, Customer Acquisition, and Brand Building

oThe tools that today’s au courant web marketers use comprise a variety of

time-tested tactics like banner ads, search engine marketing (SEM), search

engine optimization (SEO), e-mail marketing, blogs, and promotional

websites.

oSEM and SEO enable marketers to take best advantage of consumers’ search

efforts on search engines.

oThe confluence of GPS technology and mobile phones makes it possible for

marketers to deliver promotional messages to customers who are nearby.

oThough the commercial potential of video search has not yet been widely

tapped, some observers believe that it is a plausible candidate on the short list

for the web’s “next big thing.”

Applications for Conducting Transactions

oDynamic pricing is a controversial system that gauges a customer’s desire to

buy, measures his means, and sets prices accordingly.

oAnother arena where internet and mobile transactions are growing in number

is banking, with or without banks.

oWith services like Google Wallet on an Android phone, the user simply taps

her phone at a point of sale terminal, listens for the beep, and the transaction

is done in seconds.

With near field technology (NFT), there is no more swiping a credit

card or scrawling your name at the terminal.



Applications for Delivering Digital Products

oAn increasing array of goods and services can be digitized and thereby

delivered to customers via any digital medium, including the internet,

satellites, and mobile telephones.

oHealth care appears to be an arena where digital delivery offers significant

benefits.

A fast-expanding array of telemedicine applications, some using

two-way video, is bringing medical expertise to the most remote places.

oDelivering products digitally is not confined to consumer marketing.

An entire industry , software-as-a-service (SaaS) has sprung up to

deliver the benefits of software without the hassle involved in owning

and maintaining the software itself.



Application for Customer Service and Support:

oSavvy marketers know that, for all the hoopla about acquiring new customers,

the real driver of the bottom line is the ability to profitably retain existing

ones and that effective, responsive customer service is a key ingredient in

doing so.

They also know that customer retention is a competitive necessity.

oThe growing number of web-based or app-based customer service

applications offers the tantalizing combination of better service and

significant cost savings.

The trick is to focus on the customer service benefits first, rather than

mere cost cutting.

oOne myth some companies have bought into is that the internet is a

self-service medium.

They assume that they can let customers do all the work, but most

customers really do not want to do more.

One solution is coproduction, in which companies carefully consider

which burdens they can remove from the customer, using digital

technologies, and which customers can perform, assessing costs and

benefits to both parties.



Applications for Product Return and Disposal

oCustomers’ experiences with goods and some services do not end until the

products are consumed, returned, or disposed of.

Some companies have found ways to use digital technologies to

facilitate these processes.

B. Developing Digital World Marketing Strategies: The Critical Questions



Can We Digitize Any or All of the Necessary Flows at Each Stage in the

Consumer Experience Process?

oIn considering whether to employ new digital technologies at any stage of the

consumer experience process, a company should ask whether any of the flows

—information, goods or services, or cash—can be digitized.

For cash, the answer is an automatic yes.

For goods and services the question is more difficult.

Text, audio, and visual images (moving or still) can be digitized,

as can books, music, photos, and, given enough bandwidth,

movies and other videos.

But, not taste, fragrance, etc.



Can We Do So First and/or In a Proprietary Way?

oA key question in deciding whether or not to employ a new digital application

is whether one can do so in a proprietary way, thereby deterring imitation, or

do so with a sufficient head start so that competitive advantage can be

established before others follow.



How Valuable and How Time-Critical are What Kinds of Information to the

Recipient?

oThe more valuable and time-critical the information, the more sensible it is to

invest in digital applications to provide easy, timely, 24/7 access to those who

can benefit from the information.



Can Digital and Social Networking Tools Reach and Build Relationships with

Customers in the Target Market?

oSimply, reaching customers with digital tools may not be enough, especially

for marketers of commodity-like products.

oGoing beyond reach to build mutually beneficial relationships may be what is

needed.



Are Digital Tools Measurably Effective and Efficient Compared to Other

Solutions?

oMarketers’ concerns over the effectiveness and efficiency of their websites

have led to the development of web analytics, software solutions that monitor

and summarize website usage patterns.

oThe technology can uncover a variety of problems that can plague websites:

Cumbersome navigation

Content that cannot be easily found

Underperforming search engine strategies

Unprofitable online marketing partnerships.

oThe result of these analyses can improve customer satisfaction and response to

the website, strengthen the marketer’s hand in negotiating terms of

partnership deals, and even identify new market segments that might be better

served with tailored sites.

oSetting SMART objectives that the latest tools or activities are intended to

meet—specific, measurable, attainable, relevant, and timebound—and

running cost-benefit analyses to assess their likely performance are necessary

for making go/no-go decisions and for prioritizing which initiatives should be

pursued first.

VI. Managing Digitally Networked Strategies: The Talent Gap

Setting out the opportunities that new digitally networked technologies provide—for

almost any company, of any size, in any industry, anywhere—and the fundamental

principles and forces driving these technologies is easy, relatively speaking, as is providing

conceptual frameworks for thinking about the issues and trade-offs involved.

oA much more difficult challenge is finding the people to manage and lead the

necessary efforts and initiatives in this complex and rapidly changing arena,

especially when it comes to marketing, rather than purely technological issues.

It is difficult to reach a wide audience with many of today’s highly targeting tools as well

as to figure out how to buy the new media efficiently.

Changing habits is never easy, for marketers or for anyone else.

VII. Developing Strategies to Serve Digital And Social Networking Markets

A. Serving the Digitally Networked Markets of Tomorrow

Internet or social networking entrepreneurs should consider the various ways in

which revenue can be generated on the web or in other settings such as mobile

phones.

oUnderstanding one’s revenue model and being willing to change it as market

and technological conditions warrant are essential.

Such entrepreneurs must ask not what can I sell but what do today’s and

tomorrow’s customers need, and how and where they might want to consume what

I have to offer?

Would-be entrepreneurs must realize that barriers to entry are incredibly low in this

new world.

oIt is not really the ideas that count.

oWhat matters is the team that will execute an idea to deliver the performance

and value that customers, whether businesses or consumers, or even potential

acquirers of the nascent business want and will pay for.

oThus, execution is key.