Business to Consumer MarketingBy: Scott Mollet Scott Mollet Liz McGee Laura Wisdom Laura Wisdom John Adams John Adams

Business to ConsumerBusiness to ConsumerMarketingMarketing

By:By: Scott MolletScott MolletLiz McGeeLiz McGee

Laura WisdomLaura Wisdom John AdamsJohn Adams

Presentation OverviewPresentation Overview

DemographicsDemographics

Internet AdvertisingInternet Advertising

Online DVD Rental Online DVD Rental IndustryIndustry

B2C Legal IssuesB2C Legal Issues

ConclusionConclusion

Business-to-Consumer Business-to-Consumer (B2C) Industry(B2C) Industry

Industry has incurred significant changes Industry has incurred significant changes since dotcom industry bust since dotcom industry bust

Business plans need to provide proof of Business plans need to provide proof of profits to receive venture capital dollarsprofits to receive venture capital dollars

Industry has matured, providing a second Industry has matured, providing a second stage of growthstage of growth

Growth has led to an increase in legal Growth has led to an increase in legal issuesissues

DemographicsDemographics

By:By:

Scott MolletScott Mollet

World Wide Internet GrowthWorld Wide Internet Growth

Active Internet Users by CountryActive Internet Users by Country

0 20,000,000 40,000,000 60,000,000 80,000,000 100,000,000 120,000,000 140,000,000

United States

Japan

Germany

United Kingdom

Italy

France

Brazil

Spain

Australia

Netherlands

Sweden

Switzerland

Hong Kong

Source: Clickz 2003

Percentage of US Age Groups OnlinePercentage of US Age Groups Online

75.70%

71.10%53.40%

48.60%19.40%

65.40%

18-24 25-34 35-44 45-54 55-64 65+

Source: Pew Internet & American Life Project 2003

United States Web UsageUnited States Web Usage

Average Web Usage, U.S., December 2003

Home Work

Number of Sessions/Visits Per Person 31 63

Number of Domains Visited Per Person 55 99

PC Time Per Person 27:00:53 72:27:48

Duration of a Web Page Viewed 0:00:55 0:00:59

Active Digital Media Universe 132,151,758 47,180,918

Current Digital Media Universe Estimate 186,494,767 51,273,980

Source: Nielsen//Net Ratings

Worldwide Web UsageWorldwide Web Usage

Average Worldwide Web Usage, 2002

Number of Monthly Surfing Sessions 18

Number of Unique Domains Visited Monthly 48

Page Views per Month 797

Time Spent Online per Month 9:50:00

Time Spent Online per Surfing Session 0:32:00

Source: Nielsen//Net Ratings 2002

Why Consumers Shop OnlineWhy Consumers Shop Online

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

Convenience Product Depth BetterExperience

Rich Content Value Brand CustomerService

InteractiveTools

Novelty

Source: Forrester Research, Sep 2002

Most Popular WebsitesMost Popular Websites

0 10,000 20,000 30,000 40,000 50,000 60,000

Microsoft

Time Warner

Yahoo!

Google

eBay

United States Government

RealNetworks

Amazon

Terra Lycos

Viacom International

(000’s)

Unique Audience: Week Ending February 8, 2004

Source: Neilson/Net Ratings

Online Revenue of Top 10 Online E-Online Revenue of Top 10 Online E-Retailers (In U.S. Dollars)Retailers (In U.S. Dollars)

$0 $500 $1,000 $1,500 $2,000 $2,500 $3,000 $3,500

Millions

Amazon.com

Office Depot

Staples

Gateway

Costco Wholesale

Barnes & Noble.com

Buy.com

QVC.com

Spiegel Group

J.C. Penney

Source: RetailForward, Jul. 2002

Internet AdvertisingInternet Advertisingby: Liz McGeeby: Liz McGee

Internet AdvertisingInternet Advertising

ButtonsButtons

BannersBanners

Pop-UpsPop-Ups

FloatersFloaters

Internet CommercialsInternet Commercials

Source: The Wall Street Journal, OctobSource: The Wall Street Journal, October 28, 2003er 28, 2003

ButtonsButtons

Use is decliningUse is declining– Use has dropped 80% Use has dropped 80%

over last yearover last year

Source: The Wall Street Journal, OctobSource: The Wall Street Journal, October 28, 2003 & Business Week, December 28, 2003 & Business Week, December 8, 2003er 8, 2003

BannersBanners

Most widely used Most widely used form of Internet form of Internet AdvertisingAdvertising– Use is also declining, Use is also declining,

but only 4% over last but only 4% over last yearyear

AdvantagesAdvantages– Very Low CostVery Low Cost

EffectivenessEffectiveness– .5% click through rate.5% click through rate

Source: Business Week, December 8, 2Source: Business Week, December 8, 2003003

Pop-Up AdsPop-Up Ads

Most successful form of Internet Most successful form of Internet advertisingadvertising– Use is increasing rapidlyUse is increasing rapidly

CostsCosts– $3 to $75 per 1000 ads displayed$3 to $75 per 1000 ads displayed

EffectivenessEffectiveness– 2% to 6% click through rate2% to 6% click through rate

Graphic taken from a Red Lobster pop-Graphic taken from a Red Lobster pop-up adup ad

Types of Pop-UpsTypes of Pop-Ups

RegularRegular

AdwareAdware

Source: The Fayetteville Observer, NovSource: The Fayetteville Observer, November 11, 2003 & The New York Timesember 11, 2003 & The New York Times, January 19, 2004, January 19, 2004

Regular Pop-UpsRegular Pop-Ups

Hosted by the web site they show up onHosted by the web site they show up on

Cost to advertiserCost to advertiser– $3 to $6 per 1000 ads displayed$3 to $6 per 1000 ads displayed

DisadvantagesDisadvantages– Annoying to consumersAnnoying to consumers– May not be relevant to viewersMay not be relevant to viewers

Source: Atlanta Journal Constitution, ApSource: Atlanta Journal Constitution, April 10, 2004ril 10, 2004

Inventor of Pop-UpsInventor of Pop-Ups

Source: The Motley Fool, July 17, 2002 Source: The Motley Fool, July 17, 2002 & EContent, February 2003& EContent, February 2003

AdwareAdware

Embedded in free Embedded in free software the consumer software the consumer downloads off the Internetdownloads off the Internet

Cost to advertiserCost to advertiser– $75 per 1000 ads displayed$75 per 1000 ads displayed

Benefits over regular pop-Benefits over regular pop-upsups– Ads are targeted to viewersAds are targeted to viewers

Source: The Motley Fool, July 17, 2002Source: The Motley Fool, July 17, 2002

How Adware WorksHow Adware Works

Contains tracking software, or spywareContains tracking software, or spyware– Tracks web sites visited, purchases made and Tracks web sites visited, purchases made and

zip code lived inzip code lived in– Uses this information to display ads for you Uses this information to display ads for you

that are relevant to youthat are relevant to you

Benefits to AdvertisersBenefits to Advertisers

Advertising money is spent on consumers Advertising money is spent on consumers that are likely to buythat are likely to buy

Brand image is not damaged by annoying Brand image is not damaged by annoying customerscustomers

Source: The Wall Street Journal, AugusSource: The Wall Street Journal, August 27, 2003t 27, 2003

Negative Effects of AdwareNegative Effects of Adware

Invasion of consumers privacyInvasion of consumers privacy

Use of unfair competitive practicesUse of unfair competitive practices

Source: The Motley Fool, July 17, 2002Source: The Motley Fool, July 17, 2002

Privacy IssuesPrivacy Issues

Consumers Internet surfing is tracked and Consumers Internet surfing is tracked and recordedrecorded

Most consumers are unaware they have Most consumers are unaware they have downloaded the software because of:downloaded the software because of:– Disclosure is hidden in lengthy legal Disclosure is hidden in lengthy legal

documentsdocuments– Trickle downloadsTrickle downloads– Tricky wordingTricky wording

Weatherbug AdwareWeatherbug Adware

?

Are you sure you want to completely remove Weatherbug from your system? Some programs may stop working

if you uninstall Weatherbug.

Yes No

Weatherbug AdwareWeatherbug Adware

Weatherbug is about to be uninstalled. Would you like to abort the process.

?

Yes No

Source: The Fayetteville Observer, NovSource: The Fayetteville Observer, November 11, 2003ember 11, 2003

Pop-Up ScamsPop-Up Scams

One California company used it’s adware One California company used it’s adware to bombard consumers with pop-ups for to bombard consumers with pop-ups for weeksweeks

Finally displayed pop-ups ads for software Finally displayed pop-ups ads for software to block pop-ups for $40to block pop-ups for $40

Charged customers $40 to stop harassing Charged customers $40 to stop harassing them!them!

Source: The Wall Street Journal, AugusSource: The Wall Street Journal, August 27, 2003t 27, 2003

Competition IssuesCompetition Issues

Displaying ads on competitors web sitesDisplaying ads on competitors web sites

Pasting ads over competitors banner adsPasting ads over competitors banner ads

Source: Fast Company, May 2002 & BuSource: Fast Company, May 2002 & BusinessWeek, December 8, 2003sinessWeek, December 8, 2003

AdvergamesAdvergames

Pop-up ads that encourage viewer Pop-up ads that encourage viewer interactioninteraction

Orbitz ad generated 13% click through on Orbitz ad generated 13% click through on first dayfirst day

http://www.mindcomet.com/solutions/prodhttp://www.mindcomet.com/solutions/products/getgames/portfolio/?PHPSESSID=0eucts/getgames/portfolio/?PHPSESSID=0e2feb6805a3118086d6b60df14e86622feb6805a3118086d6b60df14e8662

Source: New Media Age, October 30, 2Source: New Media Age, October 30, 2003003

Rich Media AdsRich Media Ads

Offer a more dynamic advertisement Offer a more dynamic advertisement – More appealing to the viewerMore appealing to the viewer– Blends in as part of web siteBlends in as part of web site

– http://www.mini.co.uk/http://www.mini.co.uk/

Source: Guardian Newspapers Limited, Source: Guardian Newspapers Limited, January 26, 2004; Graphic taken from January 26, 2004; Graphic taken from McDonalds.comMcDonalds.com

FloatersFloaters

Ad is shaped like productAd is shaped like product

Ad moves around screen making it difficult Ad moves around screen making it difficult to closeto close

Source: CanadaIT.com, January 22, 20Source: CanadaIT.com, January 22, 200303

Internet CommercialsInternet Commercials

Plays on your screen as you leave one Plays on your screen as you leave one web site and the next one downloadsweb site and the next one downloads

Viewer cannot close until next page Viewer cannot close until next page downloadsdownloads

Source: The Wall Street Journal, OctobSource: The Wall Street Journal, October 28, 2003er 28, 2003

Internet Advertising FutureInternet Advertising Future

Rich media ads are increasing by 10% per Rich media ads are increasing by 10% per quarterquarter– More dynamicMore dynamic– More appealingMore appealing– More viewer interactionMore viewer interaction

Sources: http://www.dvdmegasale.ru/neSources: http://www.dvdmegasale.ru/new150603.htm http://www.lovetripper.cow150603.htm http://www.lovetripper.com/issues/issue-34/lord-rings-tours.html m/issues/issue-34/lord-rings-tours.html http://www.digitalplus.com.au/ Dathttp://www.digitalplus.com.au/ Date viewed 04/12/2004e viewed 04/12/2004

DVD Rental IndustryDVD Rental Industry

By:By:Laura WisdomLaura Wisdom

http://www.animationlibrary.com/a-l/?n=ihttp://www.animationlibrary.com/a-l/?n=image.php3&image_id=1536 Date viemage.php3&image_id=1536 Date viewed 04/12/2004wed 04/12/2004

SWOT Analysis Of Online DVD SWOT Analysis Of Online DVD Rental IndustryRental Industry

StrengthsStrengths– Relatively new industryRelatively new industry

WeaknessesWeaknesses– Easy to imitateEasy to imitate

OpportunitiesOpportunities– Potential customer growthPotential customer growth

ThreatsThreats– Satellite/CableSatellite/Cable– TivoTivo– Downloading through Downloading through

broadbandbroadband

Sources: http://www.netflix.com http://wSources: http://www.netflix.com http://www.filmcaddy.com http://www.walmart.cww.filmcaddy.com http://www.walmart.com Date viewed 04/12/200om Date viewed 04/12/20044

DVD RentalsDVD Rentals

Online StoresOnline Stores

http://www.netflix.com Dhttp://www.netflix.com Date viewed 04/12/2004ate viewed 04/12/2004

Almost 2 Million membersAlmost 2 Million members

More than 18,000 movie titlesMore than 18,000 movie titles

20 shipping centers20 shipping centers

Reach 70% of members with one day Reach 70% of members with one day deliverydelivery

Ships more than 2.5 Million DVD’s per Ships more than 2.5 Million DVD’s per weekweek

http://www.netflix.com http://www.netflix.com Date viewed 04/12/2004 Date viewed 04/12/2004

Stock PriceStock Price

Source: http://www.wamufinance.com/bSource: http://www.wamufinance.com/ba_cash_flow.asp a_cash_flow.asp Date viewed 04/12/2004 Date viewed 04/12/2004

Online StoresOnline Stores

ProsPros– Less expensive for serious Less expensive for serious

movie watchersmovie watchers– ConvenienceConvenience– Unlimited viewing timeUnlimited viewing time– No late feesNo late fees– Movie ListMovie List– Large selection of titlesLarge selection of titles

ConsCons– Mailing delay of 1-3 daysMailing delay of 1-3 days– No cost savings for mostNo cost savings for most

Sources: http://jeffstatesife.com/SIFEBuSources: http://jeffstatesife.com/SIFEBuy.htm http://www.varietystl.com/ http://wy.htm http://www.varietystl.com/ http://www.walmart.com Date vieww.walmart.com Date viewed 04/12/2004wed 04/12/2004


Walk-in StoresWalk-in Stores– BlockbusterBlockbuster– Wal-martWal-mart– SchnucksSchnucks

Walk-in StoresWalk-in Stores

ProsPros– Viewers can be Viewers can be

spontaneousspontaneous– Immediately viewableImmediately viewable– Personal servicePersonal service

ConsCons– Out of stockOut of stock– Limited viewing periodLimited viewing period– Late feesLate fees

Source: http://www.dtg.org.uk/news/arcSource: http://www.dtg.org.uk/news/archive/sum_0109.htm hive/sum_0109.htm Date viewed 04/12/2004 Date viewed 04/12/2004


Cable/SatelliteCable/Satellite– Pay Per ViewPay Per View– VOD (Video on VOD (Video on

Demand)Demand)

http://www.animationlibrary.com/a-l/?n=ihttp://www.animationlibrary.com/a-l/?n=image.php3&image_id=6759 mage.php3&image_id=6759 Date viewed 04/12/2004 Date viewed 04/12/2004

Cable or SatelliteCable or Satellite

ProsPros– ConvenienceConvenience– No late feesNo late fees– Can record to avoid Can record to avoid

limited viewing timelimited viewing time

ConsCons– Starting times, limited Starting times, limited

length of viewinglength of viewing– Limited selection of Limited selection of

titlestitles

CompetitionCompetition

Is Blockbuster losing customers to online Is Blockbuster losing customers to online stores?stores?– Online stores are gaining customersOnline stores are gaining customers– Walk-in Stores still prevailingWalk-in Stores still prevailing– Walk-in Stores offer online servicesWalk-in Stores offer online services

CompetitionCompetition

Can the online stores survive?Can the online stores survive?– Cable and Satellite are providing better movie Cable and Satellite are providing better movie

servicesservices– Online stores are less convenientOnline stores are less convenient– Cable is adding benefits of online stores to Cable is adding benefits of online stores to

VODVOD


By:By:

John AdamsJohn Adams


Internet Sales TaxInternet Sales Tax

Internet GamblingInternet Gambling

Online Alcohol & Cigarette SalesOnline Alcohol & Cigarette Sales

Internet PharmaciesInternet Pharmacies


Source: Electronic Commerce News, DSource: Electronic Commerce News, December 8, 2003ecember 8, 2003

5050


Internet Tax Freedom Act of 1998Internet Tax Freedom Act of 1998– 5 year moratorium on state & local online 5 year moratorium on state & local online

purchase (with exceptions)purchase (with exceptions)– Expired on 10-31-03Expired on 10-31-03– Attempts to extend moratorium have failedAttempts to extend moratorium have failed– State governments and offline retailers State governments and offline retailers

oppose extensionoppose extension

Source: Electronic Commerce News, NSource: Electronic Commerce News, November 10, 2003ovember 10, 2003

Lamar AlexanderLamar Alexander

Current senator, former governor of TNCurrent senator, former governor of TN

Proposed to extend moratorium 2 years in Proposed to extend moratorium 2 years in exchange for U.S. Treasury paying back exchange for U.S. Treasury paying back states for tax revenue “not received” as a states for tax revenue “not received” as a result of the moratoriumresult of the moratorium

5252

Issues to ConsiderIssues to Consider

1) What is defined as “Internet Access”?1) What is defined as “Internet Access”?

2) What is requisite nexus?2) What is requisite nexus?

3) States authority to tax3) States authority to tax

Source: Computer and Internet Lawyer,Source: Computer and Internet Lawyer, April 2003 April 2003

5353

Issue 1: Definition of “Internet Access”Issue 1: Definition of “Internet Access”

1) There are many ways to connect to the 1) There are many ways to connect to the internet (DSL, wireless connection, cable internet (DSL, wireless connection, cable modem service, dial-up service, etc)modem service, dial-up service, etc)

2) 10 states & D. C. collected tax on internet 2) 10 states & D. C. collected tax on internet access prior to Internet Tax Freedom Act of access prior to Internet Tax Freedom Act of 1998. (Allowed to remain under grandfather 1998. (Allowed to remain under grandfather clause, but no new states allowed. The states clause, but no new states allowed. The states were MT, CT, NH, NM, ND, OH, SD, TN, TX, were MT, CT, NH, NM, ND, OH, SD, TN, TX, and WI)and WI)

5454

Issue 2: Requisite NexusIssue 2: Requisite Nexus

11) Currently a vendor only pays state taxes on ) Currently a vendor only pays state taxes on internet sales if they have a physical presence in internet sales if they have a physical presence in state collecting the tax. Customers only pay tax state collecting the tax. Customers only pay tax if they live in state collecting the tax. (Quill Corp if they live in state collecting the tax. (Quill Corp v. North Dakota; Commerce Clause)v. North Dakota; Commerce Clause)

2) In November 2002, 33 states & D.C. set up an 2) In November 2002, 33 states & D.C. set up an agreement to establish a uniform system for agreement to establish a uniform system for administering and collecting sales and use taxes administering and collecting sales and use taxes on remote transactionson remote transactions

Internet Sales Tax ProjectInternet Sales Tax Project

Source: Computer and Internet Lawyer,Source: Computer and Internet Lawyer, April 2003 April 2003

5656

Issue 2: Requisite Nexus Con’tIssue 2: Requisite Nexus Con’t

3) States contend that since Quill Corp’s 3) States contend that since Quill Corp’s primary sales to out-of-state customers primary sales to out-of-state customers were based on catalogs & flyers and not were based on catalogs & flyers and not over the internet, the Quill case does not over the internet, the Quill case does not apply to their effort to collect taxes on apply to their effort to collect taxes on remote sellers. remote sellers.

Source: Electornic Commerce News, NSource: Electornic Commerce News, November 10, 2003ovember 10, 2003

5757

Issue 3: States Authority to TaxIssue 3: States Authority to Tax

1) State sales tax losses on internet sales 1) State sales tax losses on internet sales are estimated to be $440 billion for 2003-are estimated to be $440 billion for 2003-20112011

2) Many state governors claim that no 2) Many state governors claim that no taxes on internet purchases are “unfunded taxes on internet purchases are “unfunded mandates” and are subject to the mandates” and are subject to the Unfunded Mandates Reform Act of 1995Unfunded Mandates Reform Act of 1995

Source: Electronic Commerce News, NSource: Electronic Commerce News, November 10, 2003ovember 10, 2003

Lamar Alexander QuoteLamar Alexander Quote

““If a majority of the Senate should decide that If a majority of the Senate should decide that banning state and local taxation of the Internet is banning state and local taxation of the Internet is important enough to create an unfunded federal important enough to create an unfunded federal mandate-that is, claim credit up here, but make it mandate-that is, claim credit up here, but make it be done down there-then my amendment would be done down there-then my amendment would provide a way for Congress to pay the bill for provide a way for Congress to pay the bill for that by authorizing the Treasury Department to that by authorizing the Treasury Department to reimburse Tennessee-and other state & local reimburse Tennessee-and other state & local governments each year for this new mandate.”governments each year for this new mandate.”– Lamar AlexanderLamar Alexander

5959

Issue 3: State’s Authority to Tax Issue 3: State’s Authority to Tax

Con’tCon’t3) Interstate vs. Intrastate Commerce3) Interstate vs. Intrastate Commerce

4) Can different states tax separate parts 4) Can different states tax separate parts of one transaction?of one transaction?

5) Tangible Assets (books, CDs) vs. 5) Tangible Assets (books, CDs) vs. Intangible Assets (Trademarks, Intangible Assets (Trademarks, Copyrights)Copyrights)

Source: Journal of American Academy Source: Journal of American Academy of Business, March 2003of Business, March 2003

6060

What Needs to be DoneWhat Needs to be Done

1) Define proper relationship between 1) Define proper relationship between federal and local governments on issues federal and local governments on issues of taxationof taxation

2) Keep tax policy neutral2) Keep tax policy neutral

3) Establish a clear definition of “internet 3) Establish a clear definition of “internet access” and “taxable presence” access” and “taxable presence”

Source: Picture courtsey of RouletteroySource: Picture courtsey of Rouletteroyale.comale.com

6161


Source: Wall Street Journal, January 27Source: Wall Street Journal, January 27, 2003, 2003

6262


$3.5 billion wagered in 2003$3.5 billion wagered in 2003

1,800 sites, most located offshore of U.S.1,800 sites, most located offshore of U.S.

Illegal in U.S., but 60% of revenues come Illegal in U.S., but 60% of revenues come from U.S. based gamblers (40% of total from U.S. based gamblers (40% of total users)users)

Many pay by credit cardMany pay by credit card

Online---casinos.comOnline---casinos.com


6363

Steps to Curb GamblingSteps to Curb Gambling

PayPal ban in NY state of paying internet PayPal ban in NY state of paying internet casinoscasinos

Over 400 banks refuse to process credit Over 400 banks refuse to process credit card payments for online casinoscard payments for online casinos

Software to track users located in the U.S.Software to track users located in the U.S.

Source: Wall Street Journal, August 22,Source: Wall Street Journal, August 22, 2003 2003

6464

MGM Grand ExperimentMGM Grand Experiment

Set up online casino located on Isle of Set up online casino located on Isle of Man in early 2003Man in early 2003

Tight controls to screen out U.S. users Tight controls to screen out U.S. users (tracking software, etc.)(tracking software, etc.)

Closed in June 2003 due to few customers Closed in June 2003 due to few customers because of tight controlsbecause of tight controls

Source: NBC Today Show Transcript, NSource: NBC Today Show Transcript, November 4, 2003ovember 4, 2003

Problem Gambler-Frieda MendickProblem Gambler-Frieda Mendick

Was convicted of embezzling over Was convicted of embezzling over $100,000 13 years ago to pay gambling $100,000 13 years ago to pay gambling debtsdebts

Spent 13 months in prisonSpent 13 months in prison

Had not gambled for 10 years when she Had not gambled for 10 years when she saw gambling pop-up ad…saw gambling pop-up ad…

Source: NBC Today Show Transcript, NSource: NBC Today Show Transcript, November 4, 2003ovember 4, 2003

Frieda Mendick QuoteFrieda Mendick Quote

““In about 3 weeks, I lost over $10,000. I In about 3 weeks, I lost over $10,000. I didn’t have to drive to the casino, I didn’t didn’t have to drive to the casino, I didn’t have to go to the bank and get money. I have to go to the bank and get money. I could just turn my computer on.”could just turn my computer on.”– Frieda MendickFrieda Mendick

6767

Issue to ConsiderIssue to Consider

Do you think that internet gambling should Do you think that internet gambling should be legalized?be legalized?

If so, what steps should be taken to If so, what steps should be taken to convince people to accept it?convince people to accept it?

Online CigarettesOnline Cigarettes

Source: National Petroleum News, JanuSource: National Petroleum News, January 2003ary 2003

6969

Online CigarettesOnline Cigarettes

313 U.S. sellers as of July 2002313 U.S. sellers as of July 2002

Projected sales of $5 billion a year by Projected sales of $5 billion a year by 20052005

For some, its cheaper to buy cigarettes For some, its cheaper to buy cigarettes online than to buy them in storesonline than to buy them in stores

Popular sites include: Popular sites include:

Source: National Petroleum News, JanuSource: National Petroleum News, January 2003ary 2003

7070

Regulation – Jenkins ActRegulation – Jenkins Act

Federal LawFederal Law

Online cigarette sellers must report names Online cigarette sellers must report names and addresses of buyers of customers and addresses of buyers of customers across state lines to state tax authoritiesacross state lines to state tax authorities

Penalty is misdemeanor – rarely enforcesPenalty is misdemeanor – rarely enforces

Less than 10% of retailers complyLess than 10% of retailers comply

Sources: Wall Street Journal, February Sources: Wall Street Journal, February 4, 2002; National Petroleum News, Jan4, 2002; National Petroleum News, January 2003uary 2003

7171

Other RegulationsOther Regulations

In August 2000, NY state passed a law In August 2000, NY state passed a law banning cigarette sales via mail order, banning cigarette sales via mail order, telephone, and the internet. It was telephone, and the internet. It was overturned by the U.S. District Court in overturned by the U.S. District Court in June 2001 as violating the Commerce June 2001 as violating the Commerce ClauseClause

December 2001 – Tobacco Free Internet December 2001 – Tobacco Free Internet for Kids Act introduced in U.S. Congressfor Kids Act introduced in U.S. Congress

Source: Wall Street Journal, SeptemberSource: Wall Street Journal, September 24, 2001 24, 2001

7272

Youth SmokersYouth Smokers

Less than 2% of teenagers buy cigarettes Less than 2% of teenagers buy cigarettes onlineonline

Different sites have varying ways to Different sites have varying ways to screen out underage purchasesscreen out underage purchases

Source: American Journal of Public HeaSource: American Journal of Public Health, June 2002lth, June 2002

7373

2002 Study of Online Cigarette 2002 Study of Online Cigarette VendorsVendors

Survey size of 88 sitesSurvey size of 88 sites

72 featured one or more age warnings72 featured one or more age warnings

24 had a warning on the ordering page24 had a warning on the ordering page

43 sites required self-verification of ace (13 of 43 sites required self-verification of ace (13 of these sites required date of birth to be types in)these sites required date of birth to be types in)

8 sites required license ID# to be verified by 8 sites required license ID# to be verified by vendorvendor

6 sites required photographic ad ID at point of 6 sites required photographic ad ID at point of deliverydelivery

Online Liquor SalesOnline Liquor Sales

Sources: Wall Street Journal, March 1, Sources: Wall Street Journal, March 1, 2001; Inormationweek, April 17,20002001; Inormationweek, April 17,2000

7575

Online Liquor SalesOnline Liquor Sales

Not very successfulNot very successful

Many sites have shutdown in recent yearsMany sites have shutdown in recent years

One successful site is eSkye.com, which One successful site is eSkye.com, which primarily sells to liquor distributors, not primarily sells to liquor distributors, not individualsindividuals

Example:Example:– Beerliquors.comBeerliquors.com

Sources: Wall Street Journal, July 17, 2Sources: Wall Street Journal, July 17, 2003; Wall Street Journal, October 23, 2003; Wall Street Journal, October 23, 2000000

7676

Reasons for FailureReasons for Failure

Each state has separate laws regarding Each state has separate laws regarding shipping of wine to consumers. Ranging shipping of wine to consumers. Ranging from no penalties to felonyfrom no penalties to felony

Excess shipping fees and wait timeExcess shipping fees and wait time– Example at Liquor.comExample at Liquor.com

1.75 liter bottle of Jim Beam1.75 liter bottle of Jim Beam

Cost $23.99 + $8.99 3 day shippingCost $23.99 + $8.99 3 day shipping

Cost to buy at store: $17.99 Cost to buy at store: $17.99

Source: Wall Street Journal, July 17, 20Source: Wall Street Journal, July 17, 200303

Liquor Shipping LawsLiquor Shipping Laws

Rules: Easy to ship toRules: Easy to ship to

States: CA, CO, HI, ID, IL, IA, MN, MO, States: CA, CO, HI, ID, IL, IA, MN, MO, NM, OR, WA, WV, WINM, OR, WA, WV, WI

Rules: Limited quantities can be shippedRules: Limited quantities can be shipped

States: AK, CT, LA, MT, NE, NV, NH, ND, States: AK, CT, LA, MT, NE, NV, NH, ND, VA, WYVA, WY

Source: Wall Street Journal, July 17, 20Source: Wall Street Journal, July 17, 200303

Liquor Shipping Laws Cont’dLiquor Shipping Laws Cont’d

Rules: Direct shipments prohibited, but Rules: Direct shipments prohibited, but some loopholessome loopholes

States: AL, AZ, AR, DE, KS, ME, MA, MI, States: AL, AZ, AR, DE, KS, ME, MA, MI, MS, NJ, NY, OH, OK, PA, RI, SC, SD, TX, MS, NJ, NY, OH, OK, PA, RI, SC, SD, TX, UT, VTUT, VT

Rules: Direct shipments can be a felonyRules: Direct shipments can be a felony

States: FL, GA, IN, KY, MD, NC, TNStates: FL, GA, IN, KY, MD, NC, TN

Source: PR Newswire, October 22, 200Source: PR Newswire, October 22, 20033

7979

Public OppositionPublic Opposition

Public opposition to online liquorPublic opposition to online liquor– Wirthlin Worldwide poll of 918 Americans age Wirthlin Worldwide poll of 918 Americans age

21 and over conducted September 200321 and over conducted September 2003– 83% oppose sales of liquor online83% oppose sales of liquor online– 80% believe the e-commerce is generally 80% believe the e-commerce is generally

good for business and consumers; however, good for business and consumers; however, the social aspects of liquor should be treated the social aspects of liquor should be treated differently from other productsdifferently from other products


Source: Wall Street Journal, March 11, Source: Wall Street Journal, March 11, 20032003


Easier to compare prices than at regular Easier to compare prices than at regular pharmaciespharmacies

Doctors prescription needed for most sitesDoctors prescription needed for most sites

U.S. examples include U.S. examples include Drugstore.comDrugstore.com

Sources: WSJ, January 18, 2001 & MacSources: WSJ, January 18, 2001 & Macleans, November 10, 2003leans, November 10, 2003

Canadian Online PharmaciesCanadian Online Pharmacies

150 sites export drugs to U.S.150 sites export drugs to U.S.

$1 Billion sales to U.S. each year$1 Billion sales to U.S. each year

Can offer between 50% to 70% savings Can offer between 50% to 70% savings compared to U.S. sitescompared to U.S. sites

Offers some generic drugs not yet Offers some generic drugs not yet available in the U.S.available in the U.S.


Popular Canadian SitesPopular Canadian Sites

CanadianDrugstore.comCanadianDrugstore.com

CanadaRX.netCanadaRX.net

CanadaMeds.comCanadaMeds.com


Reasons for PopularityReasons for Popularity

1/3 of U.S. senior citizens have no 1/3 of U.S. senior citizens have no insuranceinsurance

U.S. prices higher due to R&D and patent U.S. prices higher due to R&D and patent costscosts

FDA has lack of manpower to crack down FDA has lack of manpower to crack down on sales to U.S.on sales to U.S.


Related ProblemsRelated Problems

U.S. citizens can only order 3 month U.S. citizens can only order 3 month supply for drugs not available in the U.S.supply for drugs not available in the U.S.

Canadian doctors prescription required Canadian doctors prescription required (usually write new prescription for U.S. (usually write new prescription for U.S. patient)patient)

Quality of medicineQuality of medicine

Source: Wall Street Journal, November Source: Wall Street Journal, November 18, 200218, 2002

Example: Darold LoweExample: Darold Lowe

61 year old retired steel worker61 year old retired steel worker

Lost insurance when former employer Lost insurance when former employer went bankruptwent bankrupt

Needs Glucovance to treat Type II Needs Glucovance to treat Type II diabetesdiabetes

Its components are Glucophage and Its components are Glucophage and GlyburideGlyburide

Source: Wall Street Journal, November Source: Wall Street Journal, November 18, 200218, 2002

Darold Lowe Con’tDarold Lowe Con’t

Cost from Canada for 90 day supply of both pills Cost from Canada for 90 day supply of both pills was $59was $59U.S. cost was $248 for both pillsU.S. cost was $248 for both pillsU.S. cost of Glucovance was $251U.S. cost of Glucovance was $251““Until my supply runs out, I’m taking Until my supply runs out, I’m taking Glucovance. Once it runs out, I’ll switch to Glucovance. Once it runs out, I’ll switch to Glucophage and Glyburide. I’m worried Glucophage and Glyburide. I’m worried somewhat about the quality. But then again, I somewhat about the quality. But then again, I don’t know what other options I’ve got.”don’t know what other options I’ve got.”– Darold LoweDarold Lowe

Sources: WSJ, August 12, 2003 & DeceSources: WSJ, August 12, 2003 & December 26, 2003mber 26, 2003

Drug Makers ResponseDrug Makers Response

Companies such as Pfizer, Companies such as Pfizer, GlaxoSmithKline, AstraZeneca, and Wyeth GlaxoSmithKline, AstraZeneca, and Wyeth have told Canadian pharmacies to prohibit have told Canadian pharmacies to prohibit exporting drugs to the U.S.exporting drugs to the U.S.

Some pharmacies have adopted a Some pharmacies have adopted a “Canadians first” policy“Canadians first” policy

Source: Macleans, November 10, 2003Source: Macleans, November 10, 2003

Political IssuesPolitical Issues

States such as IL, MI, IA, KY, and MN States such as IL, MI, IA, KY, and MN have sent people to Canada to reduce have sent people to Canada to reduce state drug costsstate drug costs

U.S. lawmakers are discussing policy on U.S. lawmakers are discussing policy on importing Canadian drugsimporting Canadian drugs

New Boston Tea PartyNew Boston Tea Party

Sources: WSJ, Novemeber 18, 2002 & Sources: WSJ, Novemeber 18, 2002 & March 11, 2003March 11, 2003

Best PracticesBest Practices

Price shopPrice shop

Look for Verified Internet Pharmacy Look for Verified Internet Pharmacy Practice Sites (VIPPS) seal to find certified Practice Sites (VIPPS) seal to find certified druggistdruggist

Buy in bulk if possible (ex: 3 month supply)Buy in bulk if possible (ex: 3 month supply)

Don’t sacrifice quality of care to cut costs Don’t sacrifice quality of care to cut costs on drugson drugs

ConclusionConclusion

Internet has become an important aspect Internet has become an important aspect in the everyday lives of nearly all in the everyday lives of nearly all AmericansAmericansB2C is in a state of transformation leading B2C is in a state of transformation leading to opportunities for companies that have a to opportunities for companies that have a legitimate business modellegitimate business modelContinued growth of internet will lead to Continued growth of internet will lead to the increase of new legal issues facing the increase of new legal issues facing state and federal agenciesstate and federal agencies

Thank YouThank You

Any Questions?Any Questions?

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Business to Consumer MarketingBy: Scott Mollet Scott Mollet Liz McGee Laura Wisdom Laura Wisdom John Adams John Adams