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Internet Marketing


1.   Introduction

The technology advancement is changing the transaction paradigms and opens new challenges and opportunities for business marketers.  The Internet is one of such information technology, which is a vast and burgeoning global web of computer network, is now firmly established in many office daily routines and accessed in millions of households (Kotler et al, 1999; Dibb et al, 2001).  The Internet usage is increased at extraordinary rate so it becomes the most cost-effective and widespread global marketing medium including business-to-business (B2B) activities.  Current marketing practice is therefore undergoing unprecedented transformations by the Internet.  Business marketers that are insensitive to this challenge is likely to be lagged behind the pace and detriment to organizational survival.

ABC is a medium-sized company that manufactures various kinds of adhesives used in furniture making and building construction for B2B sector.  It adopts traditional marketing method - catalogue marketing.  In order to meet the dynamic and fast changing environments, the Internet would be an excellent marketing tool to reach a more widespread market than the company is currently able to reach with catalogue marketing.   

As the marketing manager of ABC, the writer attempts to convince the CEO for such an online marketing strategy.  The discussions involve the evaluation of the effectiveness of the current catalogue marketing method in the contemporary marketing environment; displaying the facts/statistics, benefits and limitations/challenges of Internet marketing, as well as its contingency plan for his perusal and evaluation.

2.   Catalogue Marketing

Catalogue marketing has been used in ABC as a marketing tool for long time.  It is selling through publication displaying a variety of merchandise available from the company to a selected list of customers, and hence it is a niche marketing method according to Stone (1994).  As the marketing department has controlled the catalogue circulation to a highly selective customer list, it is advantaged by its little waste and hidden of newly developed products from competitors.

Although the digitalization of photography improves the catalogue presentation, there is significant increase in costs.  Especially ABC is going to expand its business to a widespread market, the production and postage costs tend to be higher and expensive.  The other problem of catalogue marketing is that most customers are exhausted in receiving catalogues under the fierce competitive market.  Customers often receive hundreds of catalogues per month and some customers may consider catalogues as junk mail.  This greater competition also makes the catalogue marketing less differentiation when comparing with other companies.  The reason is that it is difficult to attract customers with simple catalogues, while complicated catalogues are costly.  Finally, more and more customers are concerned about the overuse of paper and especially some coated paper is difficult to recycle.  There are often requests from these customers to respond to environmental concerns.  Therefore, it is questionable whether catalogue marketing is effective in contemporary marketing environment.  

The Direct Marketing Association・s Statistical Fact Book of 1997 (Roberts et al, 1999) forecasted that the B2B catalogue sales in the United States is a compound growth of 6.8 percent by year 1997-2002 (Figure 1):

 

US$ Billions

Actual 1992

19.8

Actual 1996

28.2

Estimate 1997

30.3

Forecast 2002

42.2

Figure 1: US Catalog Sales in US$ Billions
(Source: Roberts et al, 1999, p.299)

This forecast is subject to verification soon but the fact that the catalogue marketing is shrinking and replaced by some inroads of the Internet marketing.  Maxwell Sroge (Web-And-Catalog-News, 2000) reported that the year 2000 was the first year in which the impact of e-commerce resulted in a major reduction in the number of paper catalogues.  It is because business marketers are finding that they can get new customers from their Internet Web sites for less than half the cost of catalogue marketing.  Silverstein (2001) argues that the Internet and traditional marketing are now at an intersection.  Over the next few years, the Internet trajectory continues upward, while traditional marketing begins to flatten out (Figure 2).  The Yankee Group (Silverstern, 2001) believes that B2B Internet marketing will account for over 40 percent of advertising budget by 2005.  Therefore, the opportunities that offered by the Internet marketing cannot be neglected.

3.   Internet Marketing

Kotler et al (1999) have identified four ways of conducting Internet marketing: by creating an electronic storefront; placing ads online; participating in Internet forums, news groups or .Web communities・; or using online email or Webcasting. 

One of electronic storefront is own marketing Web site.  According to Kotler et al (1999), marketing Web site is a site on the Web created by a company to interact with customers for the purpose of moving them closer to a purchase or other marketing outcome.  The Web site can be designed like a .brochureware・ (Wilson et al, 2002).  The Web site can present information about ABC and the products it sells.  It can also include ABC・s existing marketing literature, current news, forums, articles and information for customers on various topics of interest, as well as contact information.

Online ads are advertisements on the Internet in special sections offered by commercial online services, as banner ads or pop up while people surfing online (Kotler et al, 1999).  According to Jupiter Media Metrix analysts (Martin et al, 2002), online ads revenue experienced paltry growth, only 5.3 percent in 2001.  However, Netimperative (2002) reported that over half of UK companies believe the Internet is maturing as a marketing medium thus banner ads are of little or no importance in the near future. 

Participating in forums, newsgroups and Web communities appeal special interest groups for discussions online (Kotler et al, 1999).  These are attractive to marketers because they draw customers with common interests and well-defined demographics. 

Online email or Webcasting are push programming, which are processes whereby the marketer sends ads or information over the Internet directly to the desktops of target customers (Kotler et al, 1999).

Building own marketing Web site is more appropriate than online ads for ABC as it can tailor to the company・s needs and requirements.  Also it can build a better image for the company for its ownership.  Forums, newsgroups and Web communities require professional manpower online frequently.  It may not be effective when repeat information is used and own Web site can provide a more convenient way to distribute such information.  Online emails and Webcasting are perceived as harassment so it may harm the company・s image.  Hence, building own marketing Web site as Internet marketing is a good tool for ABC. 

3.1 Facts and Statistics

The development of Internet Web sites is in its significant increase.  According to Internet Domain Survey (Internet Software Consortium, 2002), the number of hosts advertised in the Domain Name System in 2002 is almost 4 times of 1998 (Figure 3).  By definition, a host is a domain name (dot com), which has an IP address that any computer system connected to the Internet (Internet Software Consortium, 2002).  This is really a surprising figure and proves that the number of Web sites is increased at its exponential rate.

Year

Survey Host Count

2002

147,344,723

2001

109,574,429

2000

72,398,092

1999

43,230,000

1998

29,670,000

Figure 3: Internet Domain Survey
(Source: Internet Software Consortium, 2002)

There is also sharp increase in B2B transactions over the Web sites.  Gartner (Demers, 2001) predicts an average transaction growth rate of about 83% year-after-year reaching US$8.5 trillion in 2005 for B2B Internet commerce (Figure 4).  Small or medium size companies are also chasing the Internet pace.  International Communications Research in late 1999 (Silverstein, 2001) found that one-third of businesses with less than 100 employees had a web presence in 1999, up from 19 percent from previous year.  90 percent of respondents felt that they would benefit from the Internet.  

ActivMeida Research (1999) found that 35.2 percent of B2B Web sites are currently operating at a profit.  A further 9.9 percent of B2B sites expect to be profitable within two years with an additional 3.1 percent expecting to be profitable within 5 years.  The report shows that the Internet has become an integral part of the marketing strategy of these sites.

3.2 Benefits of Internet marketing

There are many benefits from Internet marketing through own Web site.  It can improve the company image and competitive advantage, reduce costs and improve operational efficiency, build customer relationship, faster product management activities, and easier to find new customers.

Improve image and competitive advantage

Having own Web site can create the impression as a leading-edge company that cares about customers with innovation (Sterne, 1999).  This also informs the customers that ABC is financially strong because the company can appear to be large from the Web site.  More important, ABC can gain same marketing advantage on the Internet as corporate giants do (Silverstern, 2001).

ABC can also use its Web site for the management of information to improve its competitive advantage.  Avlonitis et al (2000) argue that it is a transitory period towards the information era so the source of long-sustained competitive advantage is the management of the overall set of relations between the company and its environment through the management of information. 

Dragonair (www.dragonair.com) is such a Web site using information as one of its competitive advantages.  Except its normal services (air ticket booking, holiday packages and flight schedule information), its Web site also provides information about the destination country.  It includes an introduction of the country, the weather, hotel information, car rental information, city guide, money and tipping, upcoming events, local attraction, etc.  This competitive advantage offers a feeling of convenient to the customers as they can obtain necessary information for their trips when they book the air tickets or holiday packages through the Web site, instead of browsing other Web sites for the information.

Reduce costs and improve operational efficiency

Internet marketing can dramatically reduce the costs of acquiring a new customer or serving an existing customer.  The Yankee Group (Silverstein, 2001) estimates that Internet marketing is 60 to 65 percent cheaper than traditional marketing.  The cost reduction does not only about building the Web site, it also includes reductions in cost of sales, customer service costs, time of routine service jobs, salespeople travel time, and number of salespeople employed, etc.

Typical catalogue publications require long time (like 30-45 days) for production.  As a promotional mix ingredient, the Internet provides a tool that can be quickly updated or modified to market conditions (Dibb et al, 2001).  It also enables the deployment of targeted promotion activities, for example, customers can download the paperless and costless product catalogues, brochures, product specifications, etc containing selective information of particular interest for each customer.  Thus, the interactive information exchanges enable salespeople to customize their product/pricing offerings and selling efforts on the basis of their affinity with the customer.

Internet marketing can also enhance operational efficiency, which eventually reduces costs.  FedEx (www.fedex.com) is a good example.  For current customers, they can use .Service Info・ for the whole operations of the shipment: ways to ship, convenient service options, packaging, document for shipping, get your shipment to Fedex, payment options, after you ship, terms and conditions.  These information shows the operation process flow and manpower can be free from routine works to more difficult problems.

Customer relationship building

Silverstein (2001) states that if marketing is about building relationships, then Internet marketing is about building lasting relationships by its value-added service. Customer relationship can be improved through the interaction of the Internet.  Internet marketing can provide timeless interactions, for example, customers can access to information, communication and basic customer service 24/7 (24 hours, 7 days).  In addition, customers can find reams of information about ABC, products and prices without leaving their office. 

One major advantage of Internet marketing is that the Web site has become the prospect tutor so that the salespeople can concentrate on making more sales (Sterne, 1999).  GE (www.ge.com) is a good example as an online tutor.  GE also sells adhesives in addition to its many other products to homeowners, residential contractors, commercial construction professionals, industrial applications and retailer.  Customers can learn how to use the adhesives online without leaving home/offices as GE・s Web site provides digital learning center with detailed application guide, and certification and training.  This is a very good value-added concept that ABC may adopt the same to build lasting relationship with its customers.     

The Internet also allows customers to seek unique solutions to their specific needs by multiple formats (Figure 5).  ABC can use technological advances to provide unique solutions for individual customers.  For example, the customers may request specific information through emails.  They may download the information through the Web site.  Furthermore, the customers may subscribe to the newsgroups or mailing lists to receive timely updated information from the company.  All the information are segmented to different users.  Sharma (2002) calls this customer-centric marketing as it emphasizes understanding and satisfying the needs, wants and resources of individual customers.  Dell (www.dell.com) is a pioneer of this marketing concept.  Dell is very aware that its business audiences・ needs are unique, so it is segmented into specialty stores online such as .Business・ (.Small・ and .Medium and Large・) and .Public・ (.State and Local Government・, .Federal Government・, .Education・ and .Healthcare・).  Individual customer can search the necessary information according to the segmentation.   

Communication

Tools

One-to-one

E-mails

One-to-many

Web sites or e-mails

Many-to-many

Web sites, newsgroups and mailing lists

 Figure 5: Multiple formats of the Internet
(Source: Avlonitis et al, 2000)

Product management activities

Customers can be involved to co-creation marketing by containing areas where customers can post comments to be read by all (Sharma, 2002; Sterne, 1999).  That is, ABC and the customers can interact in aspects of the design, production, and consumption of the product or service on the Internet.  This helps in faster product management activities such as faster discovery of customer needs, greater customization of products to the customer needs, faster new product testing, and shorter product life cycle.  Customers become part of the development team because they contribute their intelligent, experience and expert resources for each phase of product development, positioning, and promotion. 

Microsoft (www.microsoft.com) is such a learning organization from its customers.  It views customer support as part of the product and data for improvement.  Its Web site contains an area for feedback for product enhancement such as improvements on existing products, suggestions for additional features, ways to make its products easier to use, etc.  The information is then evolved as a part of the product cycle or new development.  This is successful and Microsoft has becomes the market leader in very short period for its product innovation.

Find new prospects

Internet marketing has simplified the operational issues of doing business in other countries.  Traditional marketing may require intermediaries to manage information, communication, transactions, physical movement of goods, and customer service.  Distribution, manufacturing, and sales force have traditionally been location-based.  The Internet has reduced the dependence of intermediaries for its boundless.  It can be the perfect tool for creating a global niche rather than a country specific audience, which enabling firms to reach a larger audience at a relatively low cost (Wilson et al, 2002).

3.3 Limitations and challenges

Using Internet as marketing tool does not guarantee the company to reap of all the above benefits.  There are some limitations and challenges that the CEO should consider carefully.

The major problem of the Internet is information overload.  The volume of information and Web sites on the Internet is growing exponentially.  It is difficult for the prospective customers to find out the correct URL of the Web site.  There are search engines on the Internet, but predominantly they rely on meaningful queries to find the sites they need (Wilson et al, 2002).  

Another problem is that the Internet is still in its infancy.  It can be difficult to locate and market directly to a target market or segment (Wilson et al, 2002).  It is possible that the company requires spending some time in building up its database with correct target customers through the Web site.  Hence, the CEO has to be well prepared that the Web site is a long lasting marketing practice instead of viewing it as a short-term tool. 

Although Internet marketing is a quick and easy method of communicating, human interaction and business relationships is also important and should not be downplayed (Wilson et al, 1999).  Salespeople are required to spend time with customers and business partners in order to develop trust.

When attracting foreign new customers, the CEO must understand that the Internet infrastructure of some countries is still being developed.  For example, a lot of overseas telecommunication infrastructure is old and slow or may not be available everywhere.  In addition, language may be one key problem for geographic development so it is necessary to consider whether the Web site should goes with several languages.  For example, Lancome (www.lancome.com) has built its Web site into different languages to meet its geographical customers needs such as French, English, Chinese, Japanese, Korean, Thai, etc.  If ABC is going to follow this way, it needs to recruit necessary manpower to cope with such expansion, not only the Web site purpose, but also possible communications with  the prospects over emails, phones, facsimiles or face-to-face.

Finally, traditional marketing performance is judged on the basis of sales.  B2B Internet marketing should also include other criteria such as improvement of customer relationships.  Using Internet marketing may also change the company infrastructure, process, structure and people significantly.  Therefore, it should be planned properly with necessary training and education before implementation.

3.4 Contingency plan

Internet marketing will eventually be the predominant form of marketing, but it will not replace the effectiveness of combining and integrating electronic and traditional media (Silverstein, 2001).  Sterne (1999) argues that Internet marketing is a pull medium, not a push medium as the Web offers information to people who might be willing to reach in and pull it out.  Hence, the CEO may consider not to abandon its traditional marketing method.  He may also consider involving salespeople to ensure the Internet marketing to be more effective (Figure 6).  When the Internet marketing performs well, the catalogues marketing can be phased out eventually. 

4.   Conclusion

Advanced technology is increasing the communication flows between organizations and their customers.  Technology such as the Internet is fundamentally changing business processes and its marketing practices.  The Internet offers attractive opportunities for growth.  If business marketers do not adapt their processes to include the Internet as a marketing tool, value will migrate from the rapid changing environments. 

Catalogue marketing is costly and difficult to gain differentiation among competitors.  Hence, there is trend to move the marketing budget to Internet marketing.  It is suggested that the CEO should consider building a marketing Web site for ABC to cope with the Internet pace and trend.  There are plenty of benefits of such an online marketing, however, the CEO should also pay attention to its limitations and challenges.  Instead of relying on Internet marketing solely, it is recommended that the CEO should not abandon catalogue marketing until the new method is effective.  Finally, by utilizing the Internet, ABC should be able to better serve the needs of its customers, and reach a more widespread market.


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