® Tony Gauvin, UMFK, 2007 ELC 310 Day 17 A New Start.

ELC 310 Day 17

A New Start

Agenda• Quiz 3 Corrected

• 2 A’s & 2 B’s

• Today - Change texts to Digital Marketing Strategy

• Pick rotation for Case Study Presentations– Each student does 2 Cases

• S1-S4

– First Student Case is on Nov 16

• Grades left – 1 quiz @ 8%– 2 Case Study presentations @ 13% (6.5% each) – 1 Written Case Study and presentation @ 16%

• Today we will discuss introduction to the new text and explore the MotherNature.com case

Rest of Schedule

• Nov 9– Introduction – MotherNature.com

• Nov 13– How to present Case study– Guidance for written case study– Understand Customer Needs and

Behaviors • Nov 16

– Dell Online (S1)– Formulate a strategy to fill needs

• Nov 20– Insite Marketing Technologies (S2)– Segmentation and Positioning

• Nov 27– Terra Lycos (S3)– New Products

• Nov 30– MarketSoft Corporation (S4)– Communication and Selling

• Dec 4– OSRAM Sylvania (S1)– Pricing and Distribution

• Dec 7– Logistics.com A & B (S2)– Build a Trusting Relationship with

Customers (I)• Dec 11

– Travelocity (S3)– The Future of Digital Marketing

• Dec 14– Citibank Online (S4)

• Dec 20 @ 3PM– Quiz #4– Written Case Study &

Presentations Due

Introduction

• Some broad assumptions– While the Internet and computer has change

how marketing is done, the underlying principles of marketing remain the same.

– The digital age brought• Efficiency and effectiveness • Change in consumer behaviors and increased

consumer power• Threats to existing practices• New opportunities

– CRM– Trust based marketing

marketing

• “Recognizing customer needs and fulfilling them”

• “Satisfy Customer needs without overspending company resources”

• “Great matchmaker between the company and it customer, matching needs with products and services”

Digital Marketing

• Digital marketing includes– CRM & ERP– Sales force automation– Wireless technologies– Marketing automation software– Decision support systems

• Drives– Fast computers– Databases– Networks

Why is digital marketing important

1. Introduces an entirely new channel to sell and market products

2. Allows new pricing options and individual promotions to customer

3. Enable hot media communications

4. Offers opportunities to find new product needs and launch new products

5. Supports improved distribution and service

6. Changed the balance of power

Lessons from the bubble

• 1st generation digital marketing – High hopes– Land grabs– Infatuation with the Internet technologies– Disruptive technologies fueled stock prices– GO Fast & BE first– Bottomless wells of equity

• 2nd generation– Real benefits and real returns to existing

companies– A transformation of existing marketing practices– Strategic

What works What doesn’t

• Large Volume branded sites– Amazon

• Transaction fee models– EBay

• Clicks and Mortar– Barnes & noble

• Infrastructure– Dell, Cisco, Intel

• Pure-Play B@C– CAC too high

• Advertising models– Revenue too low

• Exchanges– Insufficient value

proposition– Chicken and egg

problem

Lessons learned

1. Deliver Fundamental value1. Value = benefits - costs

2. Create operational excellence1. Customer orientation

3. Build financial sustainability 1. Revenues must exceed costs and

deliver acceptable returns to investors

Objectives

Understanding customer needs and behavior

Formulate a strategy to fill needs

Implement effectively and efficiently

Build trusting relationship with customers

Structure of Text book

• Concept Case illustrating concept– Chap 1 (intro) MotherNature.com

• How customers make decision– Chap 3 Dell

• Formulating a strategy– Chap 5 Insite Marketing technology

• Target and positioning– Chap 7 TerraLycos

Structure of Text book

• New product development– Chap 9 Market Soft

• Communications– Chap 11 OSRAM SYLVANIA

• Pricing and distribution– Chap 13 Logistics.com

• CRM– Chap 15 Travelocity

• The future of digital marketing– Chap 17 Citibank

Case Study

Overview

• Introduction• Company Overview• History• The opportunity• Strategy• Marketing issues• Prior efforts• End results• Questions

Introduction

• 1999 Christmas retail ecommerce experienced exponential sales growth

• New CMO (since Feb. 1999) sets 3 goals for MotherNature.com one of the first online ventures for health market– Attract and retain customers– Develop high ROMI (return on marketing

investment)– Quantify CLTC (customer life time value

calculation)

Company Overview

• Leading retail and information site for VSM (vitamins, supplements and minerals)

• Head quartered in Concord, MA with distribution center in Springfield, MA

History

• Founded Dec 1995 as Mother Nature’s General Store as online

• 1998 focus on growth and desire to be market leader– Raised $6.5 millions in VC funds– Hires CEO Michael Brach (HBS and HLS)– Changes name to MotherNature.com

• 1999 raised $42 million from other VC’s – Hires CMO Steinberg

• End of 1999 goes public – Raises $53 million at IPO

• Poised for large growth

Key Issues

• Core benefit proposition– The core benefit proposition of

MotherNature.com is one source for health-related needs, convenience, privacy, information, advice and easy searchability. Compared to traditional retail outlets, MotherNature.com allowed customers to search their site for any product in the privacy of their own home. The site catered to environmentally conscious consumers who were interested in obtaining organic products

Key Issues

• Good– Market is growing at a rate of 13% per year;– Vitamin supplement market is growing at a rate of 52% per

year;– Expected number of people online by 2003 is 1.76 million;– Low shipping costs for health-related products;– Customers would be frequent, repeat purchasers;– Brand awareness matters to customers in this market.

• Bad – Need for advertising campaign to increase awareness and

trust in the MotherNature.com brand– Customer Acquisition costs are high

Strategy

• Advertising– Promote brand….national TV campaign

• Brand– Trusted authority in VSM

• Repeat Customers– Inherent

• Affiliates• Service• Global Growth

Marketing issues

• Attract, convert and retain on-line customers– On-line and off-line approaches

• Achieve high ROMI– Use CLTV

• Qualify CLTV– CLTV spread sheet

Prior marketing efforts

• Dec 1999– Traditional media campaign in targeted

cities – Online through SEO, permission

marketing, e-mails from incentive programs

– Public relations events– Data mining

Marketing results

• Building Brand cost big $$$– 13 million spent mostly on TV ADS

• Take on a condescending tone with the consumer. MotherNature is condescending to the people that she interacts with in the commercials – model with foot fungus, men with sexual disorders, people in an office with memory problems. These commercials, though funny, undermine one of MotherNature.com’s core benefits – no embarrassment. Because the protagonist in the commercials is making fun of various ailments, it makes customers feel less comfortable about going online to purchase products;

• Makes customers appear dumb. This is a variation of the problem mentioned above. For example, in the commercial with the model, it is obvious that MotherNature feels that the model is not very smart. No customer wants to associate him/herself with a dumb consumer;

• Doesn’t explicitly say what they’re selling. Though the commercials may be humorous, they are unclear about what product is being sold. After watching several commercials, it is likely that people would not know what MotherNature.com sells. Though very reminiscent of the flashy and attention-grabbing commercials of the dot.com era, these advertisements do not send clear messages.

Other (less $) to brand

• Banner ads on other sites;

• Direct Marketing – this is less expensive in Cost Per Customer Attracted;

• Promotions – coupons, free samples;

• Advertisements at sporting events

Financial analysis

• March 31, 2000 Balance Sheet: MotherNature.com has $34.7M in cash, but is burning through it quickly. In the quarter ending March 31, 2000, there was an operating loss of $16.5M;

• March 31, 2000 Quarterly Income Statement: MotherNature.com has increased its selling and marketing expense from $2.56M in 1999 to $13.64M in 2000. This is a huge increase;

• Gross Margin is 28%, (calculated as (Sales-COGS)/Sales), but this is before the $13.64M in marketing costs.

Other possibilities

• Slower Growth – If MotherNature.com did not make such aggressive growth targets, then they could decrease their marketing spend and plan for slower growth;

• Loyalty Programs – Loyalty programs could be created to attract and retain customers. Loyalty is a perpetual problem for online companies, where search costs are low and switching costs are low for consumers. If MotherNature.com were to find a way to attract their customers to return to their site, then they could improve their return on investment;

• Partners – Perhaps, partnering with another more well-known company could increase traffic to their site and increase their brand awareness, without the huge marketing investment;

• Catalogues – Currently, MotherNature.com products are only available through their online store. Perhaps, by introducing catalogues as a way to increase sales, they may capture additional customers;

• Determine target market numbers – MotherNature.com clearly was focused on capturing the “green” customer segment. Before entering this space, they should be aware of what the customer segment looks like, how many potential customers there are, what those customers’ needs are and how best to reach them;

Other possibilities

• Increase word-of-mouth exposure – By giving current customers incentives for referring friends to shop online, perhaps MotherNature.com could increase their customer base;

• Satisfaction guaranteed/Money Back Guarantee – Buying health products online does not appeal to some. Because these products will be used on your body or ingested, the products take on a large amount of significance. Trust is key. By offering a money back guarantee, you are signaling to the customer that you believe in your product. And it may give the customer that extra push that’s needed to make the sale.

• Increase conversion rate – People may browse the MotherNature.com site, but then not purchase anything. Why not? Perhaps, by including trust seals on the website, you will motivate more customers to try your products.

• Make recommendations – Try to increase the relationship between you and the online customer. If a customer is browsing the website, you could include a question box, where customers can input the type of problem they’re experiencing or the type of product that they’re looking for. Then by offering personal advice, you can build a relationship with the customer and increase conversion rates.

Big problems

• The main problems that MotherNature.com faces are:– It is selling a trust based product. Selling a trust

based product requires building a relationship which is difficult online. Selling such a product through traditional channels can inspire more confidence in a customer because the customer can interact with salespeople, ask questions etc. Selling vitamins and health products online is much more impersonal and could be perceived as risky by customers.

– MotherNature.com needs to build a strong brand. But building a brand requires lots of dollars.

End result

• MotherNature.com converted to B2B, but was unsuccessful. Value of the firm was less than the cash balance remaining of $20 million. In May 2000, MotherNature.com returned the residual cash balance to stockholders. As of 2003, Mother Nature operates as a separate site and is reputably profitable (with no advertising and only word of mouth and some direct mail promotion). The current company bought the software rights for a “very small price” after Mother Nature closed up shop and disposed of its assets.

Questions

In the battle of Green($) vs. Green (environmentally friendly), how can MotherNature.com strike a balance that will maintain its image as a trusted brand while actively seeking customers and strategic partners to help it grow? What must the company NOT do? In this context, what kinds of marketing programs would help MotherNature.com beat its competitors? What innovative strategies (promotions, alliances, web site modifications, segmentation, product expansion) could the company develop that would help it make a profit while not breaking the marketing budget?

Questions

Imagine that you are a member of MotherNature.com’s Board of Directors at the board meeting on April 7, 2000. You understand the challenges facing the company and must now evaluate the options. Your money and the fate of the company are on the line. What options will you support?