Stratergic marketing 2

E-Marketing, 3rd edition
Judy Strauss, Adel I. El-Ansary, and Raymond Frost
Chapter 2: Strategic E-Marketing
© Prentice Hall 2003

Strategic Planning
SWOT Analysis
Strategic Objectives
Strategy
Strategy to Electronic Strategy
Business Models to E-Business Models
E-Business Models
Value and Revenue
Strategic E-Business Models
Performance Metrics
The Balanced Scorecard
Overview

Strategic Planning
 Amazon uses strategic planning to get ready for a
profitable and sustainable business future.
 Strategic planning = the “managerial process of
developing and maintaining a viable fit between the
organization’s objectives, skills, and resources and its
changing market opportunities.”
 Two key elements of strategic planning are:
- The preparation of a SWOT analysis,
- The establishment of strategic objectives.

SWOT Analysis
Strengths, Weaknesses, Opportunities, and Threats
 It examines:
- The company’s internal strengths and weaknesses
with respect to the environment,
- The competition and looks at external opportunities
and threats.
 Opportunities may help to define a target market or
identify new product opportunities, while threats are areas
of exposure.

Strength A smart and talented team that stayed focused and
learned what it didn’t know.
Weakness No experience in:
-Selling books
-Processing credit card transactions
-Boxing books for shipment
Opportunity To sell online.
Threat A full-scale push by one of the large bookstore chains to
claim the online market.
Example
The Amazon story


A company’s strengths and weaknesses in the online
world may be somewhat different from its strengths
and weaknesses in the brick-and-mortar world.
 Barnes & Noble has enormous strengths in the brick-
and-mortar world but these do not necessarily
translate into strengths in the online world:

Channel conflict = having to explain to channel
partners why customers can purchase for less online
than in the store.
Example

•
Internal Capability Examples
Customer interactions E-commerce, customer service,
distribution channels
Production and fulfillment SCM, production scheduling,
inventory management
People Culture, skills, knowledge
management, leadership and
commitment to e-business
Technology ERP systems, legacy
applications, networks, Web
site, security, IT skills
Core infrastructure Financial systems, R&D, HR
Exhibit 2 - 1 Key Internal Capabilities for E-Business
Source: Adapted from Kalakota and Robinson (1999)

The firm sets objectives such as:
 Growth. How much can the firm reasonably expect to
grow in terms of revenues, and how fast?
 Competitive position. How should the firm position
itself against other firms in the industry? Viable positions
are:
- Industry leader (Microsoft),
- Price leader (Priceline.com),
- Quality leader (Mercedes),
- Niche firm (Google.com),
- Best customer service (Dell.com).

 Geographic scope. Where should the firm
serve its customers on the continuum of local to
multinational?
 Other objectives. Companies often set
objectives for the number of industries they will
enter, the range of products they will offer, the
core competencies they will foster, and so on.

Strategy
 It is the means to achieve a goal.
 It is concerned with how the firm will achieve its
objectives, not what its goals are:
1. The firm sets its growth and other objectives,
2. It decides which strategies it will use to
accomplish them,
3. The tactics are detailed plans to implement the
strategies.
 It is important to note that objectives, strategies, and
tactics can exist at many different levels in a firm.

From Strategy to Electronic
Strategy
E-business strategy:
• The deployment of enterprise resources to capitalize on
technologies for reaching specified objectives that ultimately
improve performance and create sustainable competitive
advantage.
• Corporate-level business strategies including information
technology components (Internet, digital data, databases, and so
forth) become e-business strategies.
E-Business Strategy = Corporate Strategy
+ Information Technology

P
Legal - Ethical
Technology
Competition
Other factors
E-Business
Strategy
Performance Metrics
SWOT
E-Marketing Plan
E-Marketing
Strategy
E-Marketing Mix
CRM
Markets
Internet
E
S
Exhibit 2 - 1 Focusing on Strategy and Performance
E-business strategy flows from the firm’s environmental
analysis.

Strategy
Marketing strategy becomes e-marketing strategy when
marketers use digital technology to implement the strategy:
E-marketing strategy = marketing strategy
+ Information technology

Strategy
• Most strategic plans explain the rationale for the chosen objectives
and strategies. There are four appropriate types of rationale:
1. Strategic justification shows how the strategy fits with the
firm’s overall mission and business objectives,
2. Operational justification identifies and quantifies the specific
process improvements that will result from the strategy,
3. Technical justification shows how the technology will fit and
provide synergy with current information technology
capabilities,
4. Financial justification examines cost/benefit analysis and uses
standard measures (ROI, NPV).

From Business Models to E-Business
Models
• Business model: a method by which the organization sustains
itself in the long term, and includes its value proposition for
partners and customers as well as its revenue streams.
• A firm will select one or more business models as strategies to
accomplish enterprise goals.

How does a firm select
the best business models?
Critical components:
• Customer value. Does the model create value through its
product offerings that is differentiated in some way from
that of competitors?
• Scope. Which markets do the firm serve, and are they
growing? Are these markets currently served by the firm, or
will they be higher risk new markets?
• Price. Are the firm’s products priced to appeal to markets
and also achieve company share and profit objectives?

How does a firm select
the best business models?
• Revenue sources. Where is the money coming from? Is it plentiful
enough to sustain growth and profit objectives over time?
• Connected activities. What activities will the firm need to perform to
create the value described in the model? Does the firm have these
capabilities?
• Implementation. The company must have the ability to actually make
it happen.
• Capabilities. Does the firm have the resources (financial, core
competencies, and so on) to make the selected models work?
• Sustainability. The e-business model is particularly appropriate if it
will create a competitive advantage over time.

E-Business Models
• The direct connection with information technology makes a
business model an e-business model:
E-Business Model = Business Model
+ Information Technology
• E-business model: method by which the organization sustains
itself in the long term using information technology, which
includes its value proposition for partners and customers as
well as its revenue streams.

E-Business Models
• E-business models can capitalize on digital data collection
and distribution techniques without using the Internet.
• Remember that e-marketing and e-business models may
operate outside the Internet.
⇒The term e-business models to include both Internet and
offline digital models throughout the rest of our discussion.

Value and Revenue
– Whether online or offline, the value proposition involves
knowing what is important to the customer or partner and
delivering it better than other firms.
– Value encompasses the customer's perceptions of the
product’s benefits, specifically its attributes, brand name,
and support services.
– Subtracted from benefits are the costs involved in
acquiring the product, such as monetary, time, energy, and
psychic.
Value = Benefits - Costs

E-Marketing Contributes to the E-Business
Model
E-Marketing Increases Benefits
Online mass customization Personalization
24/7 convenience
Self-service ordering and tracking
One-stop shopping
E-Marketing Decreases Costs
Low cost distribution of communication messages
Low cost distribution channel for digital products
Lowers costs for transaction processing
Lowers costs for knowledge acquisition
Creates efficiencies in supply chain
Decreases the cost of customer service
E-Marketing Increases Revenues
Online transaction revenues such as product, information, advertising, and subscriptions
sales; or commission/fee on a transaction or referral
Add value to products/services and increase prices
Increase customer base by reaching new markets
Build customer relationships and thus increase current customer spending

Menu of Strategic E-
Business Models
• A key element in setting strategic objectives is to take stock of
the company's current situation and decide the level of
commitment to e-business in general and e-marketing in particular.
• Questions prior to embarking on any e-business strategies:
.Are the business models likely to change in my industry?
.What does the answer to question 1 mean to my company?
.When do I need to be ready?
.How do I get there from here?

Pure
Play
Enterprise
Business Process
Activity
Pure dot-com
(Amazon)
Click and Mortar
(eSchwab, most retailers)
Customer
Relationship
Management
Brochureware
E-mail
Levelofbusinessimpact
Business transformation
(competitive advantage,
industry redefinition)
Effectiveness
(customer
retention)
Efficiency
(cost
reduction)
Exhibit 2 - 1 Level of Commitment to E-business
Source: Adapted from www.mohansawhney.com

E-Business Models at Various
Levels of Commitment
• Each level of the pyramid indicates a number of opportunities for
the firm to provide stakeholder value and generate revenue streams
using information technology.
• Because there is no single, comprehensive, ideal taxonomy of e-
business models, we categorize the most commonly used models
based on the firm's level of commitment.

Activity
Level
Business
Process Level
Enterprise
Level
• Order processing
• Online purchasing
• E-mail
• Content publisher
• Business intelligence
(BI)
• Online advertising
• Online sales
promotions
• Dynamic pricing
strategies online
Customer
relationship
management
(CRM)
Knowledge
management
(KM)
Supply chain
management
(SCM)
Community
building online
Database marketing
Enterprise Resource
Planning (ERP)
Mass-customization
• E-Commerce, direct
selling, content
sponsorship
• Portal
• Broker models
Online
exchange, hub
Online auction
• Agent models
Manufacturer’s
agent
Catalog
aggregator
Metamediary
Shopping agent
Reverse auction
Buyer’s
cooperative
Virtual mall
Exhibit 2 - 1 E-Business Model Classification

Activity Level E-Business Models
 Online purchasing. Firms can use the Web to place orders with
suppliers, thus automating the activity.
 Order processing. This occurs when online retailers automate
Internet transactions created by customers.
 E-mail. When organizations send e-mail communications to
stakeholders, they save printing and mailing costs.
 Content publisher. Companies create valuable content or
services on their Web sites, draw lots of traffic, and sell
advertising. Another type of content publishing, the firm posts
information about its offerings on a Web site, thus saving printing
costs = brochureware.

Activity Level E-Business Models
 Business intelligence (BI). This refers to the gathering of
secondary and primary information about competitors, markets,
customers, and more.
 Online advertising. As an activity, the firm buys advertising on
someone else’s e-mail or Web site.
 Online sales promotions. Companies use the Internet to send
samples of digital products (e.g., music or software), or electronic
coupons, among other tactics.
 Pricing strategies. With dynamic pricing, a firm presents different
prices to various groups of customers, even at the individual level.

Business Process Level E-Business
Models
 Customer relationship management (CRM) = retaining + growing
business / individual customers through strategies that ensure their
satisfaction with the firm and its products = keep customers for the long term
+ increase the number and frequency of their transactions.
 Knowledge management (KM) = combination of a firm’s database
contents + the technology used to create the system + the transformation of
data into useful information and knowledge.
 Supply chain management (SCM) = coordination of the distribution
channel to deliver products more effectively and efficiently to customers.
 With community building, firms build Web sites to draw groups of special-
interest users. Firms invite users to chat / post e-mail on their Web sites to
attract potential customers to the site.

Business Process Level E-Business
Models
 Affiliate programs = when firms put a link to someone else’s
retail Web site and earn a commission on all purchases by
referred customers.
 Database marketing = collecting, analyzing, and
disseminating electronic information about customers,
prospects, and products to increase profits.
 Enterprise resource planning (ERP) = a back-office
system for order entry, purchasing, invoicing, and inventory
control.
 Mass customization = Internet’s unique ability to customize
marketing mixes electronically and automatically to the
individual level.

Enterprise Level E-Business Models
 E-commerce refers to online transactions: selling goods and
services on the Internet, either in one transaction or over time
with an ongoing subscription.
 Direct selling refers to a type of e-commerce in which
manufacturers sell directly to consumers, eliminating
intermediaries such as retailers.
 Content sponsorship online is a form of e-commerce in which
companies sell advertising either on their Web sites or in their e-
mail.
 A portal is point of entry to the Internet, such as the Yahoo! and
AOL Web sites. They are portals because they provide many
services in addition to search capabilities.

 A portal is point of entry to the Internet, such as the Yahoo! and
AOL Web sites. They are portals because they provide many
services in addition to search capabilities.
 Online brokers are intermediaries that assist in the purchase
negotiations without actually representing either buyers or
sellers. The revenue stream in these models is commission or
fee-based:

The brokerage model are E*Trade (online exchange), and eBay
(online auction),

A B2B exchange is a special place because it allows buyers and
sellers in a specific industry to quickly connect.

 Online agents represent either the buyer or the seller and
earn a commission for their work.
 Selling agents help a seller move product.
 Manufacturer’s agents represent manufacturing firms that
sell complementary products to avoid conflicts of interest.
 The catalog aggregator, brings together many catalog
companies to create a new searchable database of products
for buyers.
 A special type of agent = the metamediary, it represents a
cluster of manufacturers, online retailers, and content
providers organized around a life event or major asset
purchase

 Purchasing agents represent buyers.
 Shopping agents help individual consumers find specific products
and the best prices online (e.g., www.mysimon.com).
 The reverse auction, allows individual buyers to enter the price
they will pay for particular items at the purchasing agent’s Web site,
and sellers can agree or not.
 An online purchasing agent is called a buyer cooperative or a
buyer aggregator.
 A virtual mall is similar to a shopping mall in which multiple online
merchants are hosted at a Web site.

Pure Play
 Pure plays = businesses that began on the Internet, even if
they subsequently added a brick-and-mortar presence.
 E.g. E*Trade is a pure play, beginning with only online
trading
 Pure plays face significant challenges: They must compete
as new brands and take customers away from established
brick-and-mortar businesses.
 One way to change the rules is to invent a new e-business
model, as Yahoo! and eBay did.

An Optimized System of E-Business Models
E-business is the continuous optimization of a firm’s business activities
through digital technology.
Firms usually combine traditional business and e-business models. E.g.
Schwab = combined its online and offline brokerages in a unified
system.
 The challenge: customers expect a high degree of coordination
between online and offline operations.
 The danger: the established corporate culture might squash e-
commerce initiatives or slow them down with the best of intentions.
 The solution: Many businesses have spun off their e-commerce
operations as wholly owned subsidiaries or pure plays so they can
compete without the weight of the parent business.

An Optimized System of E-Business Models
A fully optimized e-business that uses the
Internet to sell is the sum of multiple e-
business activities and processes: E-
commerce, business intelligence, customer
relationship management, supply chain
management, and enterprise resource
planning as represented in the following
equation:
EB = EC + BI + CRM + SCM + ERP

Performance Metrics
• The only way to know whether a company has reached its objectives is
to measure results.
• Performance metrics = specific measures designed to evaluate the
effectiveness and efficiency of an organization’s operations.
• Armed with this information, the company can make corrections to be
sure it accomplishes the goal.
• Performance metrics should be defined along with the strategy
formulation so the entire organization will know what results constitute
successful.

Performance Metrics
Performance metrics used to measure strategy effectiveness:
- Translate the vision, strategy, or e-business model into
components that have measurable outcomes that various
departments can use to create action plans,
- Communicate to employees what results the firm
values.
⇒When employee evaluations are tied to the metrics,
people will be motivated to make decisions that lead to
the desired outcomes.

BEFORE to measure success, firms used:
- Financial performance,
- Market share,
- The bottom line (profits).
BUT these approaches are narrowly focused and place
more weight on short-term results rather than
addressing the firm's long-term sustainability.

NOW, they use: The Balanced Scorecard
= enterprise performance management systems that measure
many aspects of a firm’s achievements.
- 50% of organizations worldwide have adopted the Balanced
Scorecard with excellent results.
- The scorecard approach links strategy to measurement by
asking firms to consider their vision, critical success factors for
accomplishing it, and subsequent performance metrics in four
areas: Customer, internal, innovation and learning, and financial.

Customer
Perspective
Internal Business
Perspective
Innovation and
Learning
Perspective
Financial
Perspective
Goals Measures Goals Measures Goals Measures Goals Measures
Exhibit 2 - 1 The Balanced Scorecard Has Four Perspectives

Four Perspectives
1. The customer perspective:
- Uses measures of the value delivered to customers.
- These metrics tend to fall into four areas: time,
quality, performance and service, and cost.
E.g. Time from order to delivery, customer satisfaction levels
with product performance, amount of sales from new
products, and industry-specific metrics such as equipment
up-time percentage or number of service calls.

Four Perspectives
2. The internal perspective:
- Evaluates company success at meeting
customer expectations through its internal
processes.
E.g.: cycle time (how long to make the product),
manufacturing quality, and employee skills and
productivity. Information systems are a critical
component of the internal perspective for e-
business firms.

Four Perspectives
3. The innovation and learning perspective
= the growth perspective:
- Companies place value on continuous improvement
to existing products and services as well as on
innovation in new products.
E.g. Number of new products and the percentage of sales
attributable to each; penetration of new markets; and the
improvement of processes such as CRM or SCM
initiatives.

Four Perspectives
4. The financial perspective:
= Income and expense metrics as well as return on
investment, sales, and market share growth.
The point is to understand what the company wants to
accomplish and devise performance metrics to monitor
the progress and see that the goals are reached.

Scorecard Benefits
 Obtain timely information to update its strategy.
 Balance long-term and short-term measures and evaluate every
part of the firm and how each contributes toward accomplishing
selected goals.
 It helps firms leverage their relationships with partners and
supply chain members.
 Go beyond financial metrics in measuring many different aspects
that lead to effective and efficient performance.
 Creates a long-term perspective for company sustainability.

Scorecard Benefits
 Forces companies to decide what is important and translate those
decisions into measurable outcomes that all employees can
understand.
 A great communication tool because employees can use the
scorecard as a guide to coordinate their efforts.
 Support employee evaluation in that individual performance can
be tied to successful outcomes on the metrics.
 A way to measure intangible as well as tangible assets.
 The are flexible and allow firms to select appropriate metrics for
their goals, strategies, industry, and specific vision.

Applying the Balanced Scorecard
to E-Business and E-Marketing
Customer Perspective
Example Goals Possible Measures
Build awareness of a new Web site service Survey target awareness of service
Number of visitors to the site
Position firm as high tech Survey target attitudes
Increase number of software downloads from
the Web site
Number from Web site log
High customer satisfaction with Web site Survey of target at Web site
Number of visits and activity at site
High customer satisfaction with value of
online purchasing
Number of complaints (e-mail, phone)
Number of abandoned shopping carts
Sales of online versus offline for same
products
Customer Perspective Scorecard for E-Business Firm
Metrics for the Customer Perspective

Internal Perspective Scorecard for E-Business Firm
Metrics for the Internal Perspective
Internal Perspective
Improve the quality of online service Target market survey
Number of customers who use the service
Time to run the service software from Web
site
Quality online technical help Amount of time to answer customer e-mail
Number of contacts to solve a problem
Number of problems covered by Web site
FAQ
Customer follow-up survey
Quick product cycle time Number of days to make the product
High product quality for online service Product test statistics on specific
performance measures

Innovation and Learning Scorecard for E-Business Firm
Metrics for the Innovation and Learning Perspectives
Innovation and Learning Perspective
Online service innovation Number of new service products to market in
a year
Number of new service features not offered
by competitive offerings
Percent of sales from new services
Continuous improvement in CRM system Number of employee suggestions
Number/type of improvements over time
High Internet lead to sales conversion Revenue per sales employee from Internet
leads
Number of conversions from online leads
Increased value in knowledge management
system
Number of accesses by employees
Number of knowledge contributions by
employees

Financial Perspective Scorecard for E-Business Firm
Metrics for the Financial Perspective
Financial Perspective
Increase market share for online products Market share percentage (firm’s sales as
percentage of industry sales)
Double digit sales growth Dollar volume of sales from one time period
to the next
Target 10% ROI within one year for each
new product
ROI
Lower customer acquisition costs (CAC) in
online channel
CAC (costs for advertising, etc. divided by
number of customers)

Key Terms
 Affiliate programs
 B2B exchange
 Brochureware
 Business intelligence
 Business model
 Buyer cooperative
 Catalog aggregator
 Community building
 Content sponsorship
 Customer Relationship
Management (CRM)
 Database marketing
 Direct selling
 E-business model
 E-business strategy
 E-commerce
 E-marketing strategy
 Enterprise Resource Planning
(ERP)
 Internet business models
 Knowledge Management (KM)
 Manufacturer’s agents
 Mass customization
 Metamediary
 Objectives

Key Terms
•Online agents
•Online auction
•Online brokers
•Online exchange
•Performance metrics
•Portal
•Purchasing agents
•Pure play
•Return On Investment (ROI)
•Reverse auction
•Selling agents
•Shopping agents
•Strategic e-marketing
•Strategic planning
•Strategy
•Supply Chain Management
(SCM)
•SWOT
•Tactics
•The Balanced Scorecard
•Value
•Virtual mall

Review Questions
1. .What is strategic planning and why do companies prepare a
SWOT analysis during the strategic planning process?
2. .How does e-business strategy relate to strategy on the corporate
level?
3. .Define e-marketing strategy and explain how it is used.
4. .How does an e-business model differ from a business model?
5. .What is the formula for determining value?
6. .What are the four levels of commitment to e-business and what
are some examples of each?
7. .What is customer relationship management (CRM) and why do
companies create strategies in this area?
8. .How is e-commerce defined?
9. .What is an Internet pure play, and what are some examples?
10. .What is the Balanced Scorecard and how do companies use it in
e-business?

Discussion Questions
1. Why is it important for an e-business model to create value
in a way that is differentiated from the way competitors’
models create value?
2. Based on the opening vignette and your examination of the
Amazon.com site (or your experience as a customer), what
strategic objectives do you think are appropriate for this e-
business? What performance metrics would you use to
measure progress toward achieving these objectives—and
why?
3. The Balanced Scorecard helps e-businesses examine
results from four perspectives. Would you recommend that
e-businesses also look at results from a societal
perspective? Explain your response.
4. Should e-businesses strive to build community with non-
customers as well as customers? Why or why not?

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