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Chapter 17 DIRECT AND ONLINE MARKETING: BUILDING DIRECT CUSTOMER RELATIONSHIPS

MARKETING STARTER: CHAPTER 17


Facebook: We Are One Percent Done with Our Mission
Synopsis Facebook is humongous. Its U.S. members alone log a combined equivalent of more than 100,000 person-years on the site every month. With that many eyeballs glued to one virtual space for that much time, Facebook has tremendous impact and influence, not just as a sharing community but also as an Internet gateway. By wielding all of that influence, Facebook has the potential to become one of the worlds most powerful and profitable online marketers. Yet the burgeoning social network is only now beginning to realize that potential. Over time, Facebook has changed its philosophy on advertising. Today, companies can place display or video ads on users home, profile, or photo pages. The ads are carefully targeted based on user profile data. But advertising is only the tip of the marketing iceberg for Facebook. Other money-making ventures are growing even faster than advertising. Will all of this increased marketing on Facebook alienate loyal Facebook fans? Not if its done right. Research shows that online users readily accepteven welcomewell-targeted online advertising and marketing. Its too soon to say whether Facebook will eventually challenge the likes of Google in online advertising or whether its ability to sell entertainment to users will ever expand into selling other types of products on a large scale. But its immense, closely knit social network gives Facebook staggering potential.
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Discussion Objective
This 10-minute discussion will help students understand that Facebook s eye-popping growth and success resulted not just from creating a fun social networking site, but by making it the place to be online, and then selling the value of that social capital to advertisers and marketers. At the same time, students should understand that Facebook itself is continually marketing its own brand and offerings to users in a variety of ways. The online giant must be careful to not drive off its legions of loyal users with too much advertising or marketing that is too overt.

Starting the Discussion


Thanks to your students, you should have no problem bringing Facebook to life in this discussion. Draw upon their own social networking experiences to illustrate how well this online giant is loved, and how it uses that love to leverage its markets in so many different ways. If individual students are willing, have a few of them log in to their accounts for the class so that everyone can see what kinds of customized advertisements appear on their pages. Similarly, what types of marketing initiatives are evident? Ask students about the different ways they use Facebook ways that may extend beyond the usual social networking. How do those uses connect with what Facebook is selling? It is also important to help students understand that when they use Facebook for any reason, they are buying into a host of marketing and advertising services that may or may not be evident to them. Use the following questions to guide the discussion.

Discussion Questions
1. Where does Facebook find its power as an online marketer? (Facebook has tremendous impact and influence, not just as a sharing community but also as an Internet gateway. It is the default home page for many users, and some users have it on their screens 24-7. But Facebooks power comes not just from its size and omnipresence. Rather, it lies in the deep social c onnections between users. Facebooks mission is Giving people the power to share. Its a place where friends and family meet, share their stories, display their photos, and chronicle their lives.)

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2.

How does Facebook generate revenues through its advertising? (Companies can place display or video ads on users home, profile, or photo pages. The ads are carefully targeted based on user profile data. But taking advantage of the core characteristics of its site, Facebook offers engagement ads design ed to blend in with regular user activities. Users can interact with the ads by leaving comments, making recommendations, clicking the like button, or following a link to a brand -sponsored page within Facebook.) Why is Facebook an obvious choice for introducing the chapter on direct and online marketing? (Facebook excels at creating direct, personalized relationships and satisfying online experiences between its users. Many analysts view Facebook as a major model for direct marketing in the digital age. Use facebook.com to illustrate key direct marketing concepts throughout your discussion.)

1.

CHAPTER OVERVIEW
Use Power Point Slide 17-1 here This chapter looks at the final IMC element, direct marketing, and at its fastest-growing form, online marketing. In many ways direct marketing constitutes an overall marketing approach a blend of communication and distribution channels all rolled into one. Remember, although this chapter examines direct marketing as a separate tool, it must be carefully integrated with the other elements of the promotion mix.

CHAPTER OBJECTIVES
Use Power Point Slide 17-2 here 1. Define direct marketing and discuss its benefits to customers and companies. 2. Identify and discuss the major forms of direct marketing. 3. Explain how companies have responded to the Internet and other powerful new technologies with online marketing strategies. 4. Discuss how companies go about conducting online marketing to profitably deliver more value to customers. 5. Overview the public policy and ethical issues presented by direct marketing.

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CHAPTER OUTLINE
p. 492 INTRODUCTION Facebook wields tremendous impact and influence, not just as a sharing community but also as an Internet gateway. That gives it the potential to become one of the worlds most powerful and profitable online marketers. Yet the burgeoning social network is only now beginning to realize that potential. Today, companies can place display or video ads on users home, profile, or photo pages. The ads are carefully targeted based on user profile data. But advertising is only the tip of the marketing iceberg for Facebook. Other money-making ventures are growing even faster than advertising. Research shows that online users readily accepteven welcomewell-targeted online advertising and marketing. Facebooks immense, closely knit social network gives it staggering potential. Assignments, Resources Use Web Resources 1 and 2 here Opening Vignette Questions 1. What is Facebook really selling, and to whom is it selling? 2. As a Facebook user, do you mind viewing customized advertisements on Facebook? Explain. 3. Can you identify any possible limits to Facebooks seemingly limitless growth? What are they? p. 494 With the trend toward narrower targeting and the surge in digital technology, many companies are adopting direct marketing, either as a primary marketing approach or as a supplement to other approaches. Direct marketing consists of connecting directly with carefully targeted consumers, often on a one-to-one, interactive basis. Using detailed databases, companies tailor their marketing
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p. 493 Ad: Facebook

p. 495 Key Term: Direct Marketing

offers and communications to the needs of narrowly defined segments or individual buyers. p. 494 PPT 17-3 THE NEW DIRECT MARKETING MODEL Most companies still use direct marketing as a supplemen- Chapter Objective 1 tary channel or medium. For a growing number of companies direct marketing constitutes a complete model for doing business. Firms employing this new direct model use it as the only approach. p. 495 GROWTH AND BENEFITS OF DIRECT MARKETING Direct marketing has become the fastest-growing form of marketing. U.S. companies spent almost $163 billion on direct and digital marketing in 2011. As a result, direct marketingdriven sales now amount to nearly $2 trillion, accounting for 8.7 percent of the U.S. economy. The Direct Marketing Association predicts that Internet marketing expenditures and Internet-driven sales will grow 11 percent annually through 2016. p. 495 Benefits to Buyers For buyers, direct marketing is convenient, easy, and private. PPT 17-4 Advantages: Gives buyers ready access to a wealth of products Gives buyers access to a wealth of comparative information about companies, products, and competitors Is immediate and interactive p. 496 Gives consumers a greater measure of control Ad: L.L. Bean Benefits to Sellers Can target small groups or individual consumers
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p. 497 Ad: GEICO

p 496 PPT 17-5

Low-cost, efficient, speedy alternative for reaching p. 497 their markets Photo: Southwest Results in lower costs, improved efficiencies Provides opportunities for building close customer relationships Gives sellers access to buyers that they could not reach through other channels Assignments, Resources Use Discussion Question 1 here Use Marketing by the Numbers here Use Additional Project 1 here Use Think-Pair-Share 1, 2, and 3 here Use Web Resource 3 here p. 496 CUSTOMER DATABASES AND DIRECT MARKETING A customer database is an organized collection of compre- p. 496 hensive data about individual customers or prospects, Key Term: including geographic, demographic, psychographic, and Customer Database behavioral data. In consumer marketing, the customer database might contain a customers demographics (age, income, family members, birthdays), psychographics (activities, interests, and opinions), and buying behavior (buying preferences and p. 498 the recency, frequency, and monetary valueRFMof Photo: Customer past purchases). Database, Best Buy Companies use their databases to locate good potential customers and generate sales leads. They mine their databases to learn about customers in detail and then fine-tune their market offerings and communications to the special preferences and behaviors of target segments or individuals. A companys database can be an important tool for build ing stronger long-term customer relationships. Assignments, Resources Use Discussion Question 2 here Troubleshooting Tip Students will have grown up with the Internet, so few concepts in this chapter will be totally new to them. However, the vocabulary and terminology could be new to them, so you will want to go
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PPT 17-6

p. 499

through all the Key Terms carefully. FORMS OF DIRECT MARKETING The major forms of direct marketing are:

Chapter Objective 2 p. 499 Figure 17.1: Forms of Direct Marketing

PPT 17-7

1. 2. 3. 4. 5. 6.

Direct-mail marketing Catalog marketing Telemarketing Direct-response television marketing Kiosk marketing Online marketing (Figure 17.1)

p. 499 PPT 17-8

Direct-Mail Marketing Direct-mail marketing involves sending an offer, announcement, reminder, or other item to a person at a p. 499 physical or virtual address. Key Term: DirectDirect mail (including both catalog and non-catalog mail) Mail Marketing accounts for nearly a third of all U.S. direct marketing spending. Characteristics: Well suited to direct, one-to-one communication Permits high target-market selectivity Can be personalized Is flexible Allows easy measurement of results Costs more than mass media per thousand people reached, but the people reached are much better prospects

New digital forms of delivery have become popular, including e-mail and mobile (cell phone) marketing. Assignments, Resources Use Discussion Question 3 here p. 500 PPT 17-9 Catalog Marketing p. 500 A catalog used to be defined as a printed, bound piece of at Key Term: Catalog least eight pages, selling multiple products, and offering a Marketing direct ordering mechanism. With Internet, more and more catalogs are going digital. A
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variety of Web-only catalogers have emerged, and most print catalogers have added Web-based catalogs. Advantages of Web-based catalogs: Eliminate production, printing, and mailing costs Allow real-time merchandising p. 500 Ad: Lands End

However, printed catalogs are still thriving. Advantages of printed catalogs: One of the best ways to convince consumers to use the online versions Creates emotional connections with customers

Assignments, Resources Use Real Marketing 17.1 here Use Additional Project 2 here Use Small Group Assignment 1 here Use Think-Pair-Share 4 here Use Web Resource 4 here p. 501 Telemarketing

PPT 17-10 Telemarketing involves using the telephone to sell directly p. 501 to consumers and business customers. Key Term: Telemarketing Telephone marketing now accounts for nearly 15 percent of all direct marketing-driven sales. Business-to-business marketers also use telephone marketing extensively, accounting for more than 55 percent of all telephone p. 501 marketing sales. Ad: Carolina Cookie Company Outbound telephone marketing is used to sell directly to consumers and businesses. Inbound toll-free numbers are used to receive orders from television and print ads, direct mail, or catalogs. Do-not-call legislation (National Do Not Call Registry) has hurt the telemarketing industry, but not all that much. Do-not-call appears to be helping most direct marketers more than its hurting them.

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Shifting call-center activity from making cold calls to managing existing customer relationships Development of opt-in calling systems

p. 501

Direct-Response Television Marketing

PPT 17-11 Direct-response television marketing takes one of two p. 501 major forms: Key Term: DirectResponse 1. Direct-response television advertising (DRTV) is Television television spots which describe a product and give Marketing PPT 17-12 customers a toll-free number or Web site for ordering. Viewers can watch 30-minute or longer advertising programs are called infomercials. PPT 17-13 Interactive TV (iTV) lets viewers interact with television programming and advertising. It gives marketers an opportunity to reach targeted audiences in an interactive, more involving way. p. 502 Photo: ZoomShop p. 502 Kiosk Marketing Kiosks are information and ordering machines. Many smart kiosks are now wireless-enabled. Assignments, Resources Use Small Group Assignment 2 here Use Web Resource 5 here ONLINE MARKETING

p. 503

Chapter Objective 3 Online marketing is the fastest-growing form of direct pp. 503 marketing. Key Terms: Online p. 503 Marketing, Internet, Marketing and the Internet Click-Only PPT 17-14 The Internet, a vast public Web of computer networks, Companies, Clickconnects users of all types all around the world to each and-Mortar Companies other and to an amazingly large information repository. Internet household penetration in the United States is approximately 80 percent. Worldwide, more than 2 billion people now have Internet access.

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Click-only companies operate only on the Internet. They include a wide array of firms, from e-tailers such as Amazon to search engines and portals (Google), transaction sites (eBay), and content sites (ESPN.com). Almost all traditional companies have created their own p. 503 online sales and communication channels, becoming click- Ad: Staples and-mortar companies. Assignments, Resources Use Additional Project 3 here Troubleshooting Tip Students will probably not have thought of ecommerce as having spawned new intermediaries, largely because they will not have even heard of that term prior to this class. Therefore, spend some time talking about the differences between click-only and click-and-mortar companies. Also, explain the problems brick-and-mortar companies faced when the dot-com explosion first hitshould they develop their own Web sites and e-commerce facilities. p. 504 Online Marketing Domains p. 504 Key Term: Business-to1. Business to Consumer (B-to-C) Consumer (B-to-C) Business-to-consumer (B-to-C) online marketing is Online Marketing selling goods and services online to final consumers. p. 504 U.S. consumers generate over $202 billion in online Figure 17.2: Online retail sales, expected to grow 11 percent per year over Marketing Domains the next five years. The Internet now influences around 48 percent of total retail sales. p. 504 Key Term: Business-to-business (B-to-B) online marketing is Business-tousing online resources to reach new business customers, Business (B-to-B) serve current customers more effectively, and obtain Online Marketing buying efficiencies and better prices. p. 504 Key Term: 3. Consumer to Consumer (C-to-C) Consumer-to2. Business to Business (B-to-B)
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PPT 17-15 The four major online marketing domains (Figure 17.2) are:

PPT 17-16

PPT 17-17

Consumer-to-consumer (C-to-C) online marketing Consumer (C-to-C) occurs on the Web between interested parties over a Online Marketing wide range of products and subjects. p. 505 eBays C-to-C online trading community of more than Ad: McDonalds 99 million active users worldwide transacted some $60 billion in trades last year. p. 505 Key Term: C-to-C involves interchanges of information through Blogs Internet forums that appeal to specific special-interest groups. Such activities may be organized for p. 506 commercial or noncommercial purposes. Blogs are Key Term: online journals where people post their thoughts, usually Consumer-toon a narrow topic. Business (C-to-B) Online Marketing 4. Consumer to Business (C-to-B)

PPT 17-18 Consumer-to-business (C-to-B) online marketing occurs when consumers communicate with companies. Most companies now invite prospects and customers to send in suggestions and questions via company Web sites. Consumers can also search out sellers on the Web, learn about their offers, initiate purchases, and give feedback. Assignments, Resources Use Think-Pair-Share 5 here Use Web Resource 6 here Troubleshooting Tip Most students will know the terms and concepts B-to-B and B-to-C, but C-to-C and C-to-B may be new to them, at least in terminology. For C-to-B, ask if anyone has ever contacted a company via e-mail to ask a question, lodge a complaint, or send a compliment. Setting Up an Online Marketing Presence p. 506 Creating a Web Site PPT 17-19 For most companies, the first step in conducting online p. 506 marketing is to create a Web site. Key Term: Corporate (or PPT 17-20 Types of Web Sites: Brand) Web Site
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Chapter Objective 4

PPT 17-21 Corporate (or brand) web sites are the most basic. These sites are designed to build customer goodwill, collect customer feedback, and supplement other sales channels. The Marketing Web Site PPT 17-22 PPT 17-23 These sites engage consumers in an interaction that will move them closer to a direct purchase or other marketing outcome.

p. 506 Figure 17.3: Setting Up for Online Marketing p. 507 Key Term: Marketing Web Site

p. 507 Placing Ads and Promotions Online PPT 17-24 Online advertising has become a major medium. p. 507 Ad: Samsung

p. 507 Key Term: Online Total U.S. Internet advertising spending reached $31 billion Advertising last year. It is expected to surpass print advertising in 2012, making it the second-largest medium behind TV. Rich media ads incorporate animation, video, sound, and interactivity. Forms of Online Advertising The major forms include: Search-related ads Content sponsorships Viral marketing

PPT 17-25

The largest form of online advertising is search-related ads PPT 17-26 (or contextual advertising), which accounts for more than 46 percent of all online advertising spending. In search advertising, text-based ads and links appear alongside search engine results on sites such as Google and Yahoo! A search advertiser buys search terms from the search site and pays only if consumers click through to its site. Using content sponsorships, companies gain name exposure PPT 17-27 on the Internet by sponsoring special content on various Web sites.
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Viral marketing is the Internet version of word-of-mouth marketing. p. 508 p. 508 Viral marketing involves creating a Web site, video, e-mail, Key Term: Viral mobile message, advertisement, or other marketing event Marketing that is so infectious that customers will want to pass it along to their friends. p. 508 Ad: Volkswagen Creating or Participating in Online Social Networks

Online social networks give consumers online places to PPT 17-28 congregate, socialize, and exchange views and information p. 509 (examples include Facebook, YouTube, and Twitter). Key Term: Online Social Networks Marketers can engage in online communities in two ways: 1. They can participate in existing Web communities 2. They can establish their own Participating successfully in existing online social networks presents challenges. 1. Most companies are still experimenting with how to p. 509 use them effectively, and results are hard to Ad: Dogster measure. 2. Such online networks are largely user-controlled.

p. 510

PPT 17-29 Sending E-Mail U.S. companies now spend about $1.15 billion a year on e-mail marketing, up from only $243 million in 2001. Spam: The unsolicited, unwanted commercial e-mail PPT 17-30 messages that clog up e-mailboxes. To address these concerns, most legitimate marketers now practice permission-based e-mail marketing, sending e-mail p. 510 pitches only to customers who opt in. Key Term: Spam p. 511 Using Mobile Marketing Mobile marketing features marketing messages and promotions delivered to on-the-go consumers through their mobile devices.

p. 511 Ad: Clorox

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Marketers use mobile marketing to reach and interact with customers anywhere, anytime during the buying and relationship-building processes. PPT 17-31 The widespread adoption of mobile devices and the surge in mobile Web traffic have made mobile marketing a must for most brands. In all, online marketing continues to offer both great promise and many challenges for the future. Online marketing has become a successful business model for some companies. However, for most companies, online marketing will remain as one important approach to the marketplace that works alongside other approaches in a fully integrated marketing mix. Assignments, Resources Use Real Marketing 17.2 here Use Discussion Questions 4 and 5 here Use Critical Thinking Exercises 1 and 2 here p. 512 Ad: Zipcar

Use Additional Projects 4 and 5 here Use Individual Assignment 1 here Use Outside Examples 1 and 2 here
p. 514 p. 514 PUBLIC POLICY ISSUES IN DIRECT MARKETING Irritation, Unfairness, Deception, and Fraud Chapter Objective 5

PPT 17-32 Internet fraud, including identity theft and financial scams, p. 514 has become a serious problem. Ad: FBI Phishing is a type of identity theft that uses deceptive emails and fraudulent Web sites to fool users into divulging their personal data. Online security issues continue to grow. Consumers fear that unscrupulous snoopers will eavesdrop on their online transactions, picking up personal information or intercepting credit and debit card numbers. Access by vulnerable or unauthorized groups is another area of concern. For example, marketers of adult-oriented materials have found it difficult to restrict access by minors.

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p. 515

Consumer Privacy

PPT 17-33 Invasion of privacy is perhaps the toughest public policy issue now confronting the direct-marketing industry. Online privacy causes special concerns. Most online marketers have become skilled at collecting and analyzing detailed consumer information. p. 515 A Need for Action PPT 17-34 All of this calls for strong actions by marketers to curb privacy abuses before legislators step in to do it for them. TRUSTe, a nonprofit self-regulatory organization, works with many large corporate sponsors to audit companies privacy and security measures and help consumers navigate the Web safely. Assignments, Resources Use Discussion Question 6 here Use Critical Thinking Exercise 3 here Use Marketing Technology here Use Marketing Ethics here Use Video Case here Use Company Case here

Use Individual Assignment 2 here Use Think-Pair-Share 6 here

END OF CHAPTER MATERIAL


Discussion Questions 1. Define direct marketing and discuss its benefits to customers and companies. (AASCB: Communication) Answer: Direct marketing consists of connecting directly with carefully targeted consumers, often on a one-to-one, interactive basis. Using detailed databases, companies tailor their marketing offers and communications to the needs of narrowly defined segments or individual buyers. For buyers, direct marketing offers several benefits: convenient, easy, and privatecustomers can shop and purchase from almost anywhere at any time.
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gives buyers ready access to a wealth of productsfor example, unrestrained by physical boundaries, direct marketers can offer an almost unlimited selection to consumers almost anywhere in the world. gives buyers access to a wealth of comparative information about companies, products, and competitorsgood catalogs or Web sites often provide more information in more useful forms than even the most helpful retail salesperson can. interactive and immediatebuyers can interact with sellers by phone or on the sellers Web site to create exactly the configuration of information, products, or services they desire, and then order them on the spot. greater measure of controlconsumers decide which catalogs they will browse and which Web sites they will visit.

Direct marketing also offers several benefits to sellers: powerful tool for building customer relationshipsusing database marketing, todays marketers can target small groups or individual consumers and promote their offers through personalized communications. low-cost, efficient, speedy alternative for reaching markets compared to personal sales calls, lower-cost-per-contact media (such as telemarketing, direct mail, and company Web sites) often prove more cost effective. Similarly, online direct marketing results in lower costs, improved efficiencies, and speedier handling of channel and logistics functions, such as order processing, inventory handling, and delivery. flexibilityit allows marketers to make ongoing adjustments to its prices and programs, or to make immediate and timely announcements and offers. access to buyers that they could not reach through other channelssmaller firms can mail catalogs to customers outside their local markets and post toll-free telephone numbers to handle orders and inquiries. Internet marketing is a truly global medium that allows buyers and sellers to click from one country to another in seconds. 2. Describe the type of information contained in a companys customer database and how that information is used. (AACSB: Communication) Answer: In consumer marketing, the customer database might contain a customers geographic data (address, region), demographic data (age, income, family members, birthdays), psychographic data (activities, interests, and opinions), and buying behavior (buying preferences and the recency, frequency, and monetary value [RFM] of past purchases). In Bto-B marketing, the customer profile might contain the products and services the customer has bought, past volumes and prices, key contacts, competing suppliers, the status of current contracts, estimated future spending, and competitive strengths and weaknesses in selling and servicing the account. Companies use their customer databases in many ways. They use databases to locate good potential customers and generate sales leads. They also mine their databases to learn about customers in detail and then fine-tune their market offerings and communications to the
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special preferences and behaviors of target segments or individuals. In all, a companys database can be an important tool for building stronger long-term customer relationships. 3. Name and describe the major forms of direct-response television marketing. (AACSB: Communication) Answer: Direct-response television marketing takes one of two major forms. The first is directresponse television advertising (DRTV). Direct marketers air television spots, often 60 or 120 seconds long, which persuasively describe a product and give customers a toll-free number or Web site for ordering. Television viewers also often encounter full 30-minute or longer advertising programs, or infomercials, for a single product. A more recent form of direct-response television marketing is interactive TV (iTV), which lets viewers interact with television programming and advertising. Thanks to technologies such as interactive cable systems, Internet-ready smart TVs, and smartphones and tablets, consumers can now use their TV remotes, phones, or other devices to obtain more information or make purchases directly from TV ads. Also, increasingly, as the lines continue to blur between TV screens and other video screens, interactive ads and infomercials are appearing not just on TV, but also on mobile, online, and social media platforms, adding even more TV-like interactive direct marketing venues. 4. Explain the ways in which companies can set up an online marketing presence. (AACSB: Communication) Answer: Companies can conduct online marketing in any of the five ways shown in Figure 17.3: (1) creating Web sites, (2) placing ads and promotions online, (3) setting up or participating in online social networks, (4) using e-mail, or (5) using mobile marketing. For most companies, the first step in conducting online marketing is to create a Web site. Web sites vary greatly in purpose and content. The most basic type is a corporate (or brand) Web site. These sites are designed to build customer goodwill, collect customer feedback, and supplement other sales channels, rather than to sell the companys products directly. Other companies create a marketing Web site. These sites engage consumers in an interaction that will move them closer to a direct purchase or other marketing outcome. The major forms of online advertising include display ads, search-related ads, and online classifieds. Marketers can engage in online communities in two ways: They can participate in existing Web communities or they can set up their own. E-mail is an important and growing online marketing tool. To compete effectively in this cover-more-cluttered e-mail environment, marketers are designing "enriched" e-mail messagesanimated, interactive, and personalized messages full of streaming audio and video. Then, they are targeting these attention-grabbers more carefully to those who want them and will act upon them. Mobile marketing features marketing messages and promotions delivered to on-the-go consumers
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through their mobile devices. 5. Compare and contrast the different forms of online advertising. What factors should a company consider in deciding among these different forms? (AACSB: Communication) Answer: The major forms of online advertising include display ads, search-related ads, and online classifieds. The largest form of online advertising is search-related ads (or contextual advertising). These are text-based ads and links that appear alongside search engine results on sites such as Google and Yahoo! An advertiser buys search terms from the search site and pays only if consumers click through to it site. Other forms of online promotions include content sponsorships and viral advertising. Using content sponsorships, companies gain name exposure on the Internet by sponsoring special content on various Web sites, such as news or financial information or special interest topics. Viral marketing involves creating a Web site, video, e-mail, cell phone message, advertisement, or other marketing event that is so infectious that customers will want to pass it along to their friends. Firms should consider the exposure rate for targeted consumers when selecting a form of advertising. In addition, firms should consider how well the form of advertising delivers the intended message. 6. What is phishing and how does it harm consumers and marketers? (AACSB: Communication; Reflective Thinking) Answer: One common form of Internet fraud is phishing, a type of identity theft that uses deceptive emails and fraudulent Web sites to fool users into divulging their personal data. For example, consumers may receive an e-mail, supposedly from their bank or credit card company, saying that their accounts security has been compromised. The sender asks them to log onto a provided Web address and confirm their account number, password, and maybe even their social security number. If they follow the instructions, they are actually turning this sensitive information over to scam artists. Although many consumers are now aware of such schemes, phishing can be extremely costly to those caught in the net. It also damages the brand identities of legitimate online marketers who have worked to build user confidence in Web and e-mail transactions.

Critical Thinking Exercises 1. In a small group, design and deliver a direct response television ad (DRTV) for a national brand not normally associated with this type of promotion, such as an athletic shoe, automobile, or food product. (AACSB: Communication; Reflective Thinking)

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Answer: Students answers will vary, but they should demonstrate an understanding that d irectresponse television (DRTV) marketing takes one of two major forms: direct-response television advertising and interactive TV (iTV) advertising. Using direct-response television advertising, direct marketers air television spots, often 60 or 120 seconds in length, which persuasively describe a product and give customers a toll-free number or a Web site for ordering. It also includes full 30-minute or longer advertising programs, called infomercials, for a single product. In recent years, a number of large companiesfrom P&G, Disney, Revlon, Apple, and Kodak to Coca-Cola, Anheuser-Busch, and even the U.S. Navyhave begun using infomercials to sell their wares, refer customers to retailers, recruit members, or attract buyers to their Web sites, and students should be encouraged to look for examples from these marketers. 2. Review the FTCs guidelines on sponsored conversations (www.ftc.gov/os/2009/10/091005revisedendorsementguides.pdf) and visit the Word of Mouth Marketing Associations Web site (womma.org) and IZEAs Web site (IZEA.com). Write a report on how marketers can effectively use sponsored conversations within the FTCs guidelines. (AACSB: Communication; Reflective Thinking) Answer: There is considerable information on the WOMMA and IZEA Web sites that help marketers use this form of promotion effectively and ethically. For example, a report on sponsored conversations can be found at http://izea.com/wp-content/uploads/2009/03/Forrester.pdf and a cute video can be found at . See www.web-strategist.com/blog/2009/03/03/running-list-of-sponsored-conversations/ for a running list of sponsored conversations and www.youtube.com/watch?v=U1Bnmrssfqg for a cute video. See www.web-strategist.com/blog/2009/03/02/how-to-make-sponsoredconversations-work/ for case studies of how companies used sponsored conversations. 2. Find articles about two data security breaches in the news. How did the breaches occur and who is potentially affected by them? (AACSB: Communication; Reflective Thinking) Answer: Several large data breaches have been reported in the news, such as the one against TJMaxx and Heartland Payment Systems as well as U.S. veterans. Using data security breaches as search terms in Google brings up several examples of data breaches. For a convenient listing of data breaches, visit www.privacyrights.org/ar/ChronDataBreaches.htm, which is a clearinghouse of data breach information. In some cases, computers or computer files were not involvedsensitive information can often be dug out of the trash!

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Marketing Technology: Marketing to Those on the Go Your smartphone might be the only thing youll need for locking your door, starting a car, paying for purchases, or even just to paying your friend the $20 you owe him. Mobile technologies allow users to do almost anything remotely and allow marketers to target services and promotions directly to consumers based on where they are. You may have noticed some Starbucks customers just wave their phones in front of a scannerno wallet, cash, or card required. Those customers may have gotten discount offers that lured them to Starbucks because their phone tipped the marketer off that they were nearby.

1. What are the barriers to adoption of mobile applications? (AACSB: Communication; Reflective Thinking) Answer: Students responses will vary. A USAToday article pointed out several obstacles specific to mobile payment systems: (1) the way things are done now is fine, so why change? (2) security and privacy concerns, (3) infrastructure concerns, and (4) competition, resulting in fragmented solutions that dont work well together. (See Edward C. Baig, Your Smartphone Could Replace Your Wallet, USAToday, August 11, 2011, p. 1-2A.

Marketing Ethics: Online Tax Battle Online retailing is experiencing phenomenal growth, but struggling states are not reaping the spoilsin taxes, that is. One study estimates lost state and local revenue equals upwards of $10 billion a year on nontaxed e-commerce. Amazon is the biggest beneficiary. States are battling back by introducing, and sometimes successfully passing, laws informally dubbed Amazon laws that require online retailers to collect state sales taxes. The efforts have the support of rivals such as Walmart and Target. Amazon strategically sought to minimize sales tax collection across the country using legal loopholes and even limiting employees activiti es when traveling to certain states deemed bad states because of efforts to enact tax laws to grab a piece of Amazons profits. Credit Suisse estimated Amazon would lose $653 million in sales if it had to collect sales taxes in all states, but surprisingly, Amazon has done an about face on this issue and is currently supporting states initiatives to collect sales taxes. This is because Amazon wants to institute same-day delivery, and to do that, it must have more distribution centers. Distribution centers constitute a physical presence in a state, and, therefore, the online reseller must collect state sales taxes. Other online resellers such as Overstocks.com are opposed to the initiatives, claiming the collection of taxes is based on where customers live and brick-and-mortar resellers dont ask where customers live to collect the proper sales tax. Given that there are already nearly 10,000 state, local, and municipal tax jurisdictions, the task of collecting and distributing the correct tax is untenable for most online resellers. 1. Research online tax rules. Look specifically at the 1992 Supreme Court ruling in Quill Corp. v. North Dakota on which the rules are based. Is this rule still relevant? Are Amazon and
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other online retailers being ethical by using this rule to their advantage? (AACSB: Communication; Reflective Thinking; Ethical Reasoning) Answer: See an interesting article regarding Amazons tactics by Stu Woo: Amazon Battles States over Sales Tax, Wall Street Journal, August 3, 2011, pp. A1, A10; and a useful video interview of the author found at: http://video.foxbusiness.com/v/1092711745001/amazon-continues-fight-against-online-salestax. The Supreme Court ruling can be found at: http://scholar.google.com/scholar_case?case=3434104472675031870&q=Quill+Corp.+v.+N orth+Dakota&hl=en&as_sdt=2,19&as_vis=1 or at any of several other sources. The ruling states that retailers dont have to collect sales taxes in states where they do not have a physical presence (such as a retail outlet). Online retailers like Amazon have warehouses in several states, but the company uses a legal tactic known as entity isolation, which is implemented by controlling those operations through wholly owned subsidiaries. At least 10 states have passed Amazon laws, and Amazon is currently in a legal battle with California, the most recent state to pass such as law. Its debatable whether or not Amazons and other online retailers avoidance of collecting sales tax is ethical. A key issue is whether or not the 1992 ruling is still relevant given the current state of online technology, which did not exist when the case was decided.

Marketing by the Numbers: The Power of Like Marketers know that Facebook is a force to be reckoned with, but until now they have not been able to measure that force and compare it to traditional media. Whereas traditional media have established ratings and other metrics to measure what marketers are getting for their money, an entirely new set of metricssuch as click-through rates and impressionshas evolved for online media. Unfortunately, the two metrics are not comparable. ComScore and Nielsen are two companies attempting to rectify that situation by developing a rating system based on gross rating points to show the power of Facebook as a marketing tool. 1. Research marketing expenditure trends in social media marketing as well as other forms of online advertising. Compare these trends with traditional advertising media expenditures. Develop a presentation illustrating those trends. (AACSB: Communication; Analytical Reasoning; Reflective Thinking) Answer: Students can Google social network advertising spending to find sources of social network advertising expenditures. For example, eMarketer provides this type of data. Although the
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report from this company is very expensive, charts are often included in other sources, such as http://techcrunch.com/2011/01/18/emarketer-global-ad-spending-on-facebook-will-reach-4bby-years-end/. Facebooks worldwide ad revenue is projected to reach almost $6 billion in 2012. One source projected overall online advertising to reach $36.8 billion in 2012 (see www.dmn3.com/_blog/DMN3_Blog/post/Online_Ad_Spending_Growing_Phenomenally_W hy/). Online advertising spending is still small compared to traditional advertising expenditures, which eMarketing projects will exceed $160 billion in 2012 (see http://mktsci.com/blog/2011/04/us-major-media-ad-spending/). All trends indicate projected increases in expenditures. 2. Visit www.comScore.com and www.Nielsen.com to learn more about the metrics these companies have developed for measuring the marketing exposure of brands on Facebook. How do these metrics differ from those that have been used with regard to measuring online advertising impact? (AACSB: Communication; Use of IT; Reflective Thinking) Answer: The distinction of these two metrics is that they develop gross rating points, similar to the metric of multiplying reach times frequency for traditional media. Reach is a measure of the size of an audience, whereas frequency is the number of times the audience is exposed to the media vehicle. By using gross rating points, marketers can now compare online with traditional media using a common metric. ComScores metric considers the audience of a companys fan page of Facebook as well as the friends that are influenced by others on Facebook. A white paper describing this metric and three case studies (Starbucks, Bing, and Southwest Airlines) can be found at www.comscore.com. There is also an interesting video explaining this new metric at www.comscore.com/Press_Events/Presentations_Whitepapers/2011/The_Power_of_Like_H ow_Brands_Reach_and_Influence_Fans_Through_Social_Media_Marketing

Company Case Notes


EBay: Fixing an E-Commerce Pioneer Synopsis EBay represents the classic tale of a successful online company. It started with one person building a website. Within a decade, it had blossomed into a huge corporation with thousands of employees, millions of customers, and billions in revenue. But eBay also illustrates the classic tale of a high-growth venture. At some point, a rapid growth curve must inevitably slow down.

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This case provides a platform for analyzing the factors and issues that led to eBays slowing and even declining revenues. Teaching Objectives The teaching objectives for this case are to: 1. Allow students to analyze the evolution of eBays strategy. 2. Help students understand how an industry can change in response to internal and external forces. 3. Gain an understanding of online marketing domains through application. 4. Allow students to work out recommendations for eBays continued development. Discussion Questions 1. Analyze the marketing environment and the forces shaping eBays business over the years. For this question, students need to return to Chapter 3 and consider the micro and macro environments that affect eBay. Some possible issues that students might identify are: Economic forces This may have obvious implications for a site that is based on retail sales. However, as the case points out, Amazon.com and Walmart.com both experienced increases in site traffic while eBays declined. Also, the case points out that eBay was already showing signs of weakness as the economy slowed. Cultural forces When eBay was young, bidding and the unknown was a thrill. As ecommerce went mainstream, more and more consumers wanted a quick and sure transaction. Technological forces the nature of ecommerce evolved as technology supported quicker and easier shopping methods for online retailers of all kinds. This led to increased competition. eBay sellers students may classify sellers in different ways; as suppliers, intermediaries, or customers. Regardless, the nature of eBay sellers certainly evolved and shifted. The traditional mom-and-pop seller gave way to the corporate power seller. This is a core element of the case. Competitors in the early years, eBay competed against other online auction sites. Because none of them were ever very successful, eBay dominated. However, as ecommerce became a more mainstream retail option for consumers of all kinds and as the nature of sellers and goods on eBay also went more mainstream, it became very apparent that eBays biggest competitors were the other ecommerce giants (e.g., Walmart and Amazon). The Company from small to growing to huge, eBays slowing and declining growth was inevitable. All growing companies eventually face this issue. 2. How has the change in the nature of eBay sellers affected the creation of value for buyers?

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Just as the case highlights the distinction between traditional eBay sellers and power sellers, there are at least two different types of eBay customers; the treasure hunters who are searching for odd and unique items, and the more mainstream customer who is looking for new goods. Thus, as eBay has became more centered on the power seller, the treasure hunters suffered. It became more difficult for them to search for and find the goods that they wanted. Additionally, as some traditional sellers began to pull back, the types of goods that treasure hunters sought became less plentiful. Also, the shift toward more fixed-price postings and fewer auctions would be something that should provide greater value for mainstream customer and less value for treasure hunters. However, there are some aspects of eBays policy changes that would seem to provide value for all customers. These include free shipping and the elimination of seller feedback for buyers. 3. Do you agree or disagree with CEO Donahoe that eBays turnaround strategy is the best way to go? Certainly the numbers are beginning to back Donahoes confidence, as eBay sold $5 billion worth of goods by smartphones and tablets, double the previous year. Students will form their own opinions on whether the turnaround strategy is the best way to go. But it is hard to dispute the positive movement eBay sees in its move toward leadership in cross-channel retailing. eBay has refocused and its core strategies and related acquisitions support its focus. 4. Based on eBays current developments with PayPal and mobile apps, predict the outcome for the company in five years. Students must assess the future of the mobile shopping trend. If it continues to grow, that bodes well for eBay; if trends and technology shift in another direction, eBay must attempt to adapt. Changing directions, and trying to anticipate and lead in new directions is challenging. Students will form their own opinions on the future success of eBay. However, points that should be considered include: eBays heritage as an early leader in online marketing, its keen acquisitions of companies such as PayPal and RedLaser, and its loyal base of buyers, Potential issues include the perception of the company turning its back on its equally loyal base of sellers. With its focus on the mobile shopping trend, will both buyers and sellers on the auction site continue to support eBay? Will eBay attract buyers only familiar with its auction house business focus to adapt to the change of focus? Will the trends of using mobile devices to research products and shop for them continue? Will eBay be able to anticipate further changes

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Teaching Suggestions The instructor may wish to begin discussion of the case by surveying the students to see how many have purchased or sold items on eBay. Students will be willing to discuss their experiences and the issues associated with both aspects. The instructor might also wish to pre-assign students the task of shopping for specific items on eBay. Such experiences may give students perspective and enhance student ability to analyze the case. This case goes well with the marketing strategy chapter (Chapter 2), the product chapter (Chapter 7) and the retailing chapter (Chapter 11).

ADDITIONAL PROJECTS, ASSIGNMENTS, AND EXAMPLES


Projects
1. You are the owner of a small hometown brick-and-mortar gourmet meat store. What, if any, advantage do you see in setting up an online presence? In what ways could this possible help your business? Or could it? (Objective 3) 2. What do you believe to be the future of traditional catalog marketing? Find examples of companies that have discontinued their printed catalog in favor of a fully online version. Has this been successful for them? (Objective 2) 3. Take a look at the three following similar click-and-mortar companies: The Poisoned Pen (www.poisonedpen.com/), M is for Mystery (www.mformystery.com/), and The Mystery Bookstore (www.mystery-bookstore.com/). Talk about their similar approaches (and differences) to online retailing. (Objective 3) 4. How does your college/university use the Internet to attract quality prospective students? Are they doing a good job? What suggestions would you make to them to improve their Web appearance? (Objective 4) 5. Find an example of a company that appears to be doing an absolutely terrible job of connecting with customers via the Web. Make recommendations to improve their Web appeal. (Objective 4)

Small Group Assignments


1. Form students into groups of three to five. Each group should read the Real Marketing 17.2: Mobile Marketing: Customers Come Calling, and then answer the following questions and share their answers with the class. (Objective 3) a. Whom do you believe the mobile marketing movement helps morethe marketer or the consumer? Why?
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b. Do you believe that smartphones will remain the tool of the 18- to 34-year-old age group, or will older consumers adapt them too? Explain your answer. c. Rather than irritating consumers, how can marketers develop more useful mobile applications that make customers say Do call me, pleaseor, I will call you!? 2. Form students into groups of three to five. Each group should answer the following questions and share their answers with the class. (Objective 2) a. Discuss mobile phone marketing. What are the pros and cons of this form of direct marketing medium? b. What do you think about the future of interactive TV? Why do you believe it has not taken off to the extent that visionaries were expecting? c. Much has been made about the use of podcasts as a direct marketing tool. How effective do you believe podcasts to be? What would you suggest as a method to increase its use and effectiveness?

Individual Assignments
1. Go onto to Dells Web site (www.dell.com) and that of major competitor HewlettPackard (www.hpshopping.com). Build your ideal laptop on each. Compare the competitors on product offerings, price, and Web site ease of navigation, appeal, and use. Who wins? Why? (Objective 4) Go to the governments Internet Crime Complaint Center (www.ic3.gov/default.aspx). Read and report on some of the many Internet crime schemes. (Objective 5)

2.

Think-Pair-Share
Consider the following questions, formulate an answer, pair with the student on your right, share your thoughts with one another, and respond to questions from the instructor. 1. How would you define direct marketing? (Objective 1) 2. What are the benefits of direct marketing to customers? To companies? (Objective 1) 3. How are companies using online marketing to deliver greater value to consumers? (Objective 1) 4. What are the major forms of direct marketing? (Objective 2) 5. Give three examples of Consumer-to-business (C-to-B) online marketing. (Objective 3) 6. What are some of the significant ethical issues raised by the use of direct marketing? (Objective 4)

Outside Examples
1. The University of Phoenixs online campus was established in 1989, well before the advent of and widespread use of the World Wide Web. Since then, the University of Phoenix has exploded, and more and more adults are earning their Bachelors, Masters and even Doctoral degrees online.

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Because this model has proven so successful, traditional universities have added online options to their degree programs. Sometimes courses are only Web enhanced, meaning that the students still gather in a traditional classroom, but some work takes place on the Internet. Many colleges and universities, however, are moving at least some of their courses completely online. This allows them to reach many non-traditional students, and students who simply cannot relocate to the city in which their campus is located. (Objective 4) a. How has the University of Phoenix affected the college experience? Be specific. b. What are the benefits of obtaining a degree online? What are the disadvantages, if any? c. Visit their Web site at www.phoenix.edu. Is it an effective Web site? Defend your answer. Possible Solution: a. The University of Phoenix ushered in a new era of content delivery in higher education. Before University of Phoenix, the college experience has remained the same for decades (or centuries). Students came to a central location, at a specific time, and were lectured to by a professor for a specified amount of time. Then, the process was repeated over and over. University of Phoenix changed all of that. Now, students can receive content anywhere, any time. They are no longer time nor place bound. b. The benefits of obtaining a degree online are mostly tied to convenience. Now students who are unable (or unwilling) to travel to a centralized campus and sit in class for years have been presented with a viable alternative. Although issues pertaining to the quality of the educational experience and information retention persist, online education is here to stay. c. The University of Phoenixs Web site is one of the better college or university sites around. It is engaging, easy to navigate, and provides the viewer/reader with a wealth of information in a condensed format. No doubt, their Web presence is another reason for their ongoing and growing success. Other universities could take a lesson. 2. Take a hard look at your Universitys Web presence. What kind of job are they doing in reaching and supplying the information needed by their various publics? How easy is it to accurately navigate? What suggestions would you give to the Web designers of your University to assist in making the Web presence more user friendly? (Objective 4) Possible Solution: Student responses to this question will vary widely. It is important that the instructor concentrate on the students providing positive useful feedback on their Universitys Web site. All Web presences can be improved and enhanced. Students are an excellent source of this information, as they are the major users on the site.
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Web Resources
1. http://247.prenhall.com This is the link to the Prentice Hall support link. 2. www.facebook.com The home page for the online social media giant. 3. www.geico.com/ Here is GEICOs site. They have built their entire approach to the marketplace around direct marketing. You can also view their commercials here. 4. www.smithandhawken.com/ Smith and Hawken have done a lot to marry the direct marketing concepts of catalog and Internet. Take a look at their site. 5. www.itvt.com/ Here is one Web site that is devoted to interactive TV (ITV) and its future. 6. www.ebay.com/ eBay is the leader in assisting consumer-to-consumer (C-to-C) online marketing.

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