Week-7_All Merged Slides(1)

Go To Market Strategies: Week 7

David Bell (@davidbnz) Xinmei Zhang and Yongge Dai Professor

Section Overview

 Omni-Channel Strategy and Online-Offline Interaction

 How To Find Lead Users and Facilitate Influence and Contagion

 Targeting and Messaging, Pricing to Value, Customer Access and Distribution

 [Examples and “Food for Thought”]

Session Overview

 Recap of Marketing Acronyms, “Marketing Math 101”, Digital Marketing

 Brand Assets

 Customer Assets

 Marketing “Spend” as an Asset

 [Examples and “Food for Thought”]

Recap and Marketing Math 101

Marketing Acronyms

 … Requires assessment of the Five “Constraints” (5Cs): Customers (needs), Competitors (relative strength), Company (resources), Collaborators (partnerships), and Context (change)

 … Requires a response via the “Four Parameters” (4Ps): Product, Price, Promotion, Place

 … Links the 5Cs and the 4Ps through Segmentation, Targeting, and Positioning (STP)

Marketing*

 The product should

 Deliver exceptional value

 Address a large market

 Be easy to explain and describe

 Not require much capital to test and scale

Execution: The Key Question

“What’s Wrong with the Status Quo?”

Four Unstoppable Trends

 Democratization in access (www.coursera.org)

 Value chain disruption (www.harrys.com)

 Collaborative consumption (www.zipcar.com)

 Matching of supply and demand (www.uber.com)

Marketing Math 101

SUCCESS = PRODUCT X MARKETING*

PRODUCT = Product or Service (0 – 10)

*MARKETING = Customer and Brand Fit (STP) and the other 3Ps (price, promotion, place) (0 – 10)

Go To Market Strategies: Online-Offline Competition

David Bell (@davidbnz) Xinmei Zhang and Yongge Dai Professor

Frictions in the Real World

 Friction Number 1: Search Friction

 1987 Rugby World Cup … where do I buy a TV?

 Who will have the best price and assortment?

 2013 … go to http://milo.com/

Frictions in the Real World

 Friction Number 2: Geographic Friction

 New York City versus Iowa City  The location that you live in imposes certain

costs and delivers particular benefits

 The Internet can deliver you from the “tyranny” of your local options

Go To Market Strategies: Online-Offline Competition

David Bell (@davidbnz) Xinmei Zhang and Yongge Dai Professor

Goods and Information

 Prior to the Internet, all markets were “local”

 The Internet allows businesses to pool customers

 In smaller markets the Internet is great for access to goods that you can’t get locally

 In larger markets the Internet is great for giving us information that helps us figure out how to spend our time

Go To Market Strategies: Online-Offline Competition

David Bell (@davidbnz) Xinmei Zhang and Yongge Dai Professor

Content

 A lot of the content delivered by the Internet and through apps is purely local (local services, restaurants, people to date, and so on)

 www.yelp.com  www.okcupid.com

 Research shows that for every additional 1 million residents in a town there are at least 50-60 additional sites devoted to local content

 E.g., http://phillytodo.com/

Product

 The further you live from a single physical store, the less likely you are to visit it; the further you are from any stores the more likely you are to use the Internet for buying things

Benefits Delivered by Online World

 Potentially lower prices and lower search costs

 You can transact with others more efficiently

 Better information about local activities (services, comedy clubs, restaurants)

 Improved consumer convenience (everything is available all of the time)

Go To Market Strategies: Online-Offline Competition

David Bell (@davidbnz) Xinmei Zhang and Yongge Dai Professor

Why Offline is Still Important

 Even though the Internet “liberates” consumers there are still some “disutility costs” associated with buying online as more than 90% of what is sold to consumers is still sold offline

 This is because there are still frictions:  Delivery times  Uncertainty about about “fit and feel” of

certain products  Cost of returns (time and money)

Online / Offline Competition

 Competition is intense for popular products, but almost non-existent for niche products  For example, when an offline bookstore

opens in a neighborhood, Amazon.com sales in that neighborhood decline; but only for popular books like Harry Potter and the Sorcerer’s Stone and not for niche books like 101 Years of All Black Trivia

 Later we will talk about the Long Tail

Go To Market Strategies: Week 7

David Bell (@davidbnz) Xinmei Zhang and Yongge Dai Professor

Overview

 Background

 The Long Tail Concept and Economics of Long Tail

 Research: Long Tail and Omni Channel

 Spatial Long Tail and Critiques

Q1: What is range of quality / satisfaction?

Q2: What does this imply for filtering?

Background

Background

 Historically, we lived in a world of “hits” (and not just for content), but now live in a world of infinite slots

 The economics of distribution have been radically altered for content, and for product as well

Hypotheses

 The Long Tail exists because the economics of storage and distribution have changed; this is the supply side and could be thought out of exogenous

 The Long Tail is itself endogenous (demand side) as there are more ways for us to discover variety; think of Chris Anderson’s example of Touching the Void (1988) versus Into Thin Air (1998)

Old-New Economics

 1897 Vilfredo Pareto found __% of population owned __% of the wealth (in the UK) giving rise to the Law of the Vital Few

 1949 George Zipf found that second most common word used 1/2 as much as the first; third 1/3 as much, etc.

 Power laws … occur with (1) variety, (2) inequality (some things have more of a quality than others), and (3) amplifies or network effects

Key Principles

 The tyranny of locality (relate this idea to the concept of preference minorities)

 An audience that is spread too thin geographically used to not get served, e.g., Lagaan: Once Upon a Time in India opened on only two screens

The Long Tail Concept and Economics of Long Tail

Q1: What is range of quality / satisfaction?

Q2: What does this imply for filtering?

Main Characteristics

 The ratio of niche products to “hits” is changing

 Distribution efficiency is amplifying (digital, search, etc.)

 Recommendations and reviews drive search so that consumers get into the tail

 Collective value of niches > hits

 “A Long Tail is just culture filtered unfiltered by scarcity”

Go To Market Strategies: Week 7

David Bell (@davidbnz) Xinmei Zhang and Yongge Dai Professor

Research Findings

 Disentangling the supply side (larger product availability) from the demand side (easier for consumers to find and sample new products)

 MIT study obtained data from a retailer offering identical product selection and prices through two different channels: Internet and catalog

 Descriptive evidence is that Internet sales are significantly less concentrated (even after controlling for differences in customers and supply side factors such as taxes and shipping)

G = A / (A + B) [.49 v .53]

Research Findings

 The results hold up when differences in the customer groups are controlled for too (Internet customers are younger, have more income)

 The Internet channel has more evenly distributed sales and the difference cannot be attributed to differences in price or availability

 Unit sales of “niche” products: 14.8% v 12.7%  $ sales of “niche” products: 15.0% v 12.7%  (Differences are statistically significant)

Research Findings

 The question is now whether there is a demand side explanation, e.g., customer use of search tools on the Internet

 Key variables to explain sales of niche products:  Directed search  Non-directed search  Recommendation system

 All computed as percentages in terms of page views e.g., Directed Search Views / Total Views

 www.netgrocer.com

 www.diapers.com

 www.warbyparker.com

 www.bonobos.com

Participating Firms

Spatio-temporal Imitation

 Geographic and “Demographic” Neighbors

LA

Chicago

Springfield

Critiques and Summary

 Law of natural monopoly (hits get disproportionate share of light users)

 Law of double jeopardy (unfamiliar things are less well liked)

 But the Long Tail is still a very powerful concept!  Million Short http://tcrn.ch/SPIJ9B  More Anderson

http://www.ted.com/talks/chris_anderson_of_wired_on_tech_s_long_tail.html

Go To Market Strategies: Week 7

David Bell Xinmei Zhang and Yongge Dai Professor

 www.netgrocer.com

 www.diapers.com

 www.warbyparker.com

 www.bonobos.com

 www.citruslane.com

Participating Firms

Data Required

 Work with Participating Internet Retailers  Gather sales information from inception

 Typical Data  Customer ID, Date, Transaction Value, Zip

Code  Geo-demographic “real world” data

 Research Question  Why do some locations have more

customers than other locations do?

What Matters Most in Internet Retailing

Principle 1

 Customer Acceptance of Online Retail Depends on Offline Shopping Costs

  Internet retailers can alter the cost-benefit trade-off shoppers by making things “closer” and more accessible, perhaps even at better prices.

Principle 2

 Sales Evolution is Structured and Predictable

 Social Contagion from communication and observation affects online demand evolution

The Space-Time Sales Pattern

When a zip code is shaded that means that there was at least one customer in that zip code by the time indicated at

the top of the slide

 Customers could be talking to each other

 Customers could be observing each other

What Causes This?

Principle 3

 Migrating from “Good” to “Great” Requires Expansion to Niche Locations

 Spatial Structure follows a pattern of proximity and similarity (spatial “Long Tail”)

  http://www.findyourdoppelganger.com/

Principle 3

 There are two ways to think about distance:

 Geographic distance

 Social, or demographic distance (people live far apart from each other still might be similar in other ways)

Principle 3

 Two important patterns …

 Gin the beginning, sales start out in larger cities and spread by proximity from person to person

  Later on, sales pick up in smaller areas that are qute far apart, but that contain “similar” kinds of people

Long Tail Over Locations

Example: Sales Within Pennsylvania (from best locations to “long tail” locations)

Go To Market Strategies: Week 7

David Bell (@davidbnz) Xinmei Zhang and Yongge Dai Professor

Overview

 Red Ties Versus Blue Ties

 Research Article

 Details and Conclusions

Red Ties Versus Blue Ties

 Imagine that you live in a town where everyone wears ties all the time. Then, imagine that you’d like a blue tie, but everyone else wants a red one.

 Will you get what you want?

Quidsi.com

Diapers.com Research

Principle

  “Isolated” Prospects are Worth Pursuing

 Preference Isolation brings shoppers online and explains geographic breakdown of online brand demand

J. Choi and D. Bell (2011) “Preference Minorities and the Internet,” Journal of Marketing Research.

Anecdotal Evidence

 Measuring Display Space in Philadelphia

“Theory”

 Physical Store Stocking Rules (Key Assumption)

Research Findings

 Unit volumes of different brands in zip code z in MSA m is an integer count, regressed on demographics and Preference Minority Index

 b value significant and > 0 for Preference Minority Index for all brands but largest effect is for niche brands

 Compare 90th percentile vs. 10th percentile PMI  Category sales 50% higher  Niche brand sales 125% higher

900 Others

100 Others

100 Babies

100 Babies

Market A

Market B

10

versus

Assortment at local retailers

Market A Market B

Demand for online retailers

Pam

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Hug

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Luvs

7 G

Popular brands Niche brands

Available in Market B

Available in Market A

Available Online

Sales

Sales Rank

The Long Tail Sales Distribution

Sev

enth

G

ener

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Findings