Decision 1 Market and product development strategies

In Chapter 1, we introduced the Ansoff matrix as a useful analytic tool for assessing online strategies for manufacturers and retailers. This tool is also fundamental to marketing planning and it should be the first decision point since it can help companies think about how online channels can support their marketing objectives, but also suggest innovative use of these channels to deliver new products and more markets (the boxes help stimulate 'out-of-box' thinking which is often missing with Internet marketing strategy). Fundamentally, the market and product development matrix (Figure 4.10) can help identify strategies to grow sales volume through varying what is sold (the product dimension on the horizontal axis of Figure 4.10) and who it is sold to (the market dimension on the y axis). Specific objectives need to be set for sales generated via these strategies, so this decision relates closely to that of objective setting. Let us now review these strategies in more detail.

Diversification strategies

Using the Internet to support:

• Diversification into related businesses

• Diversification into unrelated businesses

• Upstream integration (with suppliers)

• Downstream integration (with intermediaries)

Product development strategies

Use Internet for:

• Adding value to existing products

• Developing digital products (new delivery/usage models)

• Changing payment models (Subscription, per use, bundling)

• Increasing product range (Especially e-retailers)

Existing products New products

Product growth

Figure 4.10 Using the Internet to support different growth strategies 1 Market penetration

This strategy involves using digital channels to sell more existing products into existing markets. The Internet has great potential for achieving sales growth or maintaining sales by the market penetration strategy. As a starting point, many companies will use the Internet to help sell existing products into existing markets, although they may miss opportunities indicated by the strategies in other parts of the matrix. Figure 4.10 indicates some of the main ways in which the Internet can be used for market penetration:

Market development strategies

Use Internet for targeting:

• New geographic markets

• New customer segments ke Market penetration strategies ar

2 Use Internet for

Market share growth - compete more effectively online cc

£ • Customer loyalty improvement - migrate existing customers online and add value to existing products, services and brand

Customer value improvement - increase customer profitability by decreasing cost to serve and increase purchase or usage frequency and quantity

• Market share growth - companies can compete more effectively online if they have web sites that are efficient at converting visitors to sale as explained in Chapter 7 and mastery of the online marketing communications techniques reviewed in Chapter 8 such as search engine marketing, affiliate marketing and online advertising.

• Customer loyalty improvement - companies can increase their value to customers and so increase loyalty by migrating existing customers online (see the mini case study on BA later in the chapter) by adding value to existing products, services and brand by developing their online value proposition (see Decision 4).

• Customer value improvement - the value delivered by customers to the company can be increased by increasing customer profitability by decreasing cost to serve (and so price to customers) and at the same time increasing purchase or usage frequency and quantity. These combined effects should drive up sales.

2 Market development

Here online channels are used to sell into new markets, taking advantage of the low cost of advertising internationally without the necessity for a supporting sales infrastructure in the customer's country. The Internet has helped low-cost airlines such as easyJet and Ryanair to enter new markets served by their routes cost-effectively. This is a relatively conservative use of the Internet, but is a great opportunity for SMEs to increase exports at a low cost, though it does require overcoming the barriers to exporting.

Existing products can also be sold to new market segments or different types of customers. This may happen simply as a by-product of having a web site. For example, RS Components (www.rswww.com). a supplier of a range of MRO (maintenance, repair and operations) items, found that 10% of the web-based sales were to individual consumers rather than traditional business customers. The UK retailer Argos found the opposite was true with 10% of web site sales being from businesses, when their traditional market was consumer-based. EasyJet also has a section of its web site to serve business customers. The Internet may offer further opportunities for selling to market sub-segments that have not been previously targeted. For example, a product sold to large businesses may also appeal to SMEs that they have previously been unable to serve because of the cost of sales via a specialist sales force. Alternatively a product targeted at young people could also appeal to some members of an older audience and vice versa. Many companies have found that the audience and customers of their web site are quite different from their traditional audience.

3 Product development

The web can be used to add value to or extend existing products for many companies. For example, a car manufacturer can potentially provide car performance and service information via a web site. But truly new products or services that can be delivered by the Internet only apply for some types of products. These are typically digital media or information products, for example, online trade magazine Construction Weekly has diversified to a B2B portal Construction Plus (www.constructionplus.com) which has new revenue streams. Similarly, music and book publishing companies have found new ways to deliver products through the new development and usage model such as subscription and pay-per-use as explained in Chapter 5 in the section on the product element of the marketing mix. Retailers can extend their product range and provide new bundling options online also.

4 Diversification

In this sector, new products are developed which are sold into new markets. The Internet alone cannot facilitate these high-risk business strategies, but it can facilitate them at lower costs than have previously been possible. The options include:

• Diversification into related businesses (for example, a low-cost airline can use the web site and customer e-mails to promote travel-related services such as hotel booking, car rental or travel insurance at relatively low costs);

• Diversification into unrelated businesses - again the web site can be used to promote less-related products to customers, which is the approach used by the Virgin brand, although it is relatively rare;

• Upstream integration - with suppliers - achieved through data exchange between a manufacturer or retailer and its suppliers to enable a company to take more control of the supply chain;

• Downstream integration - with intermediaries - again achieved through data exchange with distributors such as online intermediaries.

The benefits and risks of market and product development are highlighted by the creation of smile (www.smile.co.uk). an Internet-specific bank set up by the Co-operative Bank in the UK. smile opened for business in October 1999 and its first year added 200,000 customers at a rate of 20,000 per month. Significantly, 80% of these customers were market development in the context of the parent, since they were not existing Coop Bank customers and typically belonged to a higher income segment.

www.smile.co.uk)"/>
Figure 4.11 Smile (www.smile.co.uk)

The risks of the new approach to banking were highlighted by the cost of innovation; with it being estimated that in its first year, costs of creation and promotion of smile increased overall costs at The Co-operative Bank by 5%. However, within five years, smile was on target, profitable and growing strongly, and continues to do so today.

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Responses

  • Sheldon
    How to used the internet to increase market penetration in develop new markets?
    8 years ago

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