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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
pers
Hug
gies
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
atio
n
Findings