Hello, and welcome to the last subtopic of week seven, e-commerce, or more appropriately, the Internet as a selling platform. Let's take the example of Dell. A traditional classical two step distribution process would look something like the top figure. The PC manufacturer provides the product to the distributor/reseller. The distributor/reseller then pushes the product out to companies and customers. Companies and customers place orders on the distributor/reseller, and the distributor/reseller in turn provides the company with a forecast of how much they expect to sell. So the whole system then works in harmony. Now, I use the word, pushes, to the companies and customers, but the PC manufacturer can also direct advertising to the companies and customers to get them to pull the product through the channels. So both strategies are possible. In a direct model, Dell will now go directly to companies and customers. They will bypass the distributor/reseller. They will set up mechanisms, which we will take a look at in just a minute. And the companies and customers will now buy directly from them. Now this phenomenon, this concept, whereby Dell bypasses or circumvents the retailer or wholesaler is called disintermediation, which is basically reduction in the number of intermediaries between producers and customers. And while disintermediation is a term mainly used when companies replace traditional channels with direct to the customer strategies, disintermediation is also used to depict how the concepts of time and space have changed when companies use the Internet to go direct to customers. For example, stores close at a certain time. They open at a certain time. But on the Internet, a store is open all the time. Disintermediation of space, you no longer have to drive to a retail outlet. The retail outlet is, for all practical purposes, sitting on your laptop computer. Disintermediation of time and space is also sometimes referred to as clicks replacing bricks, and we will talk a little bit about that in a moment. But I would like you to start thinking of clicks and bricks, as opposed to clicks replacing bricks. A word of caution, just because disintermediation is taking place doesn't mean that when companies go direct that the tasks and activities will disappear. Those tasks and activities still have to be performed, so for example, in indirect model, the costs are borne by the retailer, the wholesaler, etc. But in the direct model, all those costs, which are variable, become fixed costs now because the company is bearing those costs. The costs don't go away, because the activities don't go away. The focus, in an indirect model, it's in efficiency. How efficiently, how can we minimize the cost of distribution and access to the customer? In a direct model, the focus shifts from efficiency to effectiveness, and so on. Coverage, for example, can be bought wide and targeted in both models, but customization, or the ability to tailor an offering to the needs of a target market, is extremely low when we are using intermediaries, but is very high when we are selling direct to the customer. Three direct strategies to go to the customer. One is company owned stores, you've seen several of them, like Apple, like Staples, like Office Depot, like Bose, etc. Company websites and third party websites, like retailers like Best Buy and Micro Center. Now, you may object to this stage, and you say, Gorle, why are we discussing company owned stores in a discussion on e-commerce and selling on the internet? And the reason is very simple. I go back to my earlier caution that the issue is not replacing bricks with clicks. It's getting the right mix of bricks and clicks so a company owned store is as much a part of the e-commerce system. And I'll show you in a moment with an example of Office Depot, where they have developed a seamless retailing network by tightly integrating its website with its physical stores. For them, the Internet is just another channel. And websites, the virtual world, for our practical purposes, can drive traffic to stores, which is the physical world. For example, on websites, we can perform information, or we can provide information on inventories, they can provide information on specials, on deals. In stores, which is the physical world, we can display our products in such a way that it actually drives traffic back to websites, to the virtual world, where people now engage in price shopping, deal shopping, comparison shopping, etc. So, in short, the two worlds, physical and virtual, can work in tandem. You can order online, you can pick up at the store, you can shop in the store, and you can buy online. All those permutations and combinations are possible. Now, what are the high tech marketing implications? First of all, we should stop thinking of websites as static entities. They are highly dynamic entities. They should be viewed as transactional and selling platforms, not just as sources of information. The role of the customer is changing. Have you noticed the number of companies that now want you to participate In the selling process? For example, something goes wrong, it's an activity, post purchase maintenance or service, well guess what, you're directed to an FAQ section, you're directed to communities, you're directed to experts. If all else fails, you can then definitely try and get hold of the company. But good luck doing that because the customer service may not be the brightest and the sharpest. But, again, please observe that the role of the customer is changing. More and more companies now expect the customer to be part of the selling process and to help themselves as much as the company is there to help them, with the result that the boundary between communication and persuasion is fast blurring. I mean, for all practical purposes, every time you communicate with a customer now, you are persuading them, and you are providing them with information and also trying to get them to say, yes, I will purchase your product. And place one of the four Ps, which is what we discussed in the previous session, which we are discussing in this session too, is giving way to choice and convenience. Basically, taking the product and service to where the customer is and not asking the customer to come where the company is. In summary, companies have a choice. They can distribute directly to customers if they choose. However, the activities are not gonna go away. The tasks are not gonna go away. The distribution tasks performed by traditional distribution channels, they don't disappear, they still have to be performed by someone. And in this case, it's usually the company, which means the fixed costs go up dramatically, which is why the companies then look for effectiveness. Too often, the issue of selling direct to customer through the Internet is posed as bricks versus clicks. I would implore you, urge you to think about it more appropriately as the right mix of bricks and clicks. Again, which activities should be performed in the virtual world, or by the virtual world, and which activities should be performed in the physical world, or by the physical world?
