Learning Objectives

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Opening Vignette - Peapod Strikes Deal to Survive

Electronic Marketing Channel
Upon their first exposure to the Internet, new Web surfers often relate being overwhelmed by the amount and variety of material they encounter. In addition to the information overload they face, it is often hard to find what they want in the maze of the Web. Banner and pop-up ads distract their attention as well. This experience leads the "newbie" to think the Web is just another way for advertisers to try to get their attention.

For marketers the Web is much more. It represents a new, electronic channel to conduct all sorts of marketing activities, including advertising, customer service, marketing research, transactions, and even distribution. Think of it as a new business franchise--one that is open 24 hours a day, 365 days a year. People who stop in a virtual store can do many of the things they would do in a brick-and-mortar store:

• Find out about the products and services for sale
  
• Get answers to commonly asked questions
  
• Leave messages for people in the firm
  
• Solve problems they may encounter
  
• Even make purchases

Many people find the online shopping experience similar to mail-order shopping, only better! You sit down at your computer, connect to the Internet, and find a company selling products you're interested in buying. Much like mail-order buying, when online you browse through a catalog, mark items to buy as you go, and finish by providing shipping and billing information. All that's left is to receive the merchandise in the mail.

Financial Implications of the Internet
When a new technology revolutionizes traditional marketing practices, it makes sense to discuss how it will affect the bottom line. A single seminal development can set off a chain of events that has a profound effect on individuals, companies, industries, and nations. The quintessential historical example is the invention of printing from movable type by Johannes Gutenberg in 1452. Prior to Gutenberg's invention, books were luxury items owned mainly by royalty and the very wealthy. Few things, if any, in the modern world are similar in status and exclusivity to the book prior to 1452.

Clearly the invention of the printing press created a completely new industry and established financial (and consumption) opportunities where there had been none. Not only were publishing and printing sectors added to the fifteenth-century economy, a new breed of manufacturers and component producers emerged to satisfy corporate demand for the new technology. This is not unlike the recent effect of developments in Internet technology.

Companies that embrace Internet technology can gain an advantage over their competitors who do not. In the mid 1990s, mammoth bookstores like Barnes & Noble and Borders crushed smaller competitors by offering greater in-store selection, lower prices, and an inviting ambience. America saw the small bookseller all but disappear. In 1998, Internet technology allowed Amazon.com to capture a significant share of the bookseller market by providing its customers with more convenience and even lower prices than its brick-and-mortar competition. Online stock trading also has seen success, and now companies like AmeriTrade and eTrade compete with the traditional brokerage firms like Merrill Lynch.

It is not only the large players that have benefited financially from Internet technology. Innumerable small businesses have started and blossomed from Internet technology. Creating an Internet storefront or launching Internet operations often does not require the same intensive financial investment needed to open a brick-and-mortar company. Expenses for facilities and equipment can be nonexistent. Reduced expenses and start-up costs can mean a quicker and more substantial return on investment for entrepreneurs. At the same time, these reduced start-up costs translate into low barriers to entry, which has created a crowded field of online competitors in many industries.

For established companies, the impact of the Internet on expenses also can be great.¹ Consider the online purchase of airline tickets. If electronic ticketing is used, the airline can save on the expenses of the ticketing agent, travel agent commission, data entry, ticket printing, and ticket delivery, as well as the office supplies, payroll, and time required for each step. Because all of these savings result in a reduction of the cost of goods sold, this can translate into increased profitability for the company.

Another financial implication of implementing Internet technology in some industries is reduced inventory and its associated holding costs. A good example is the printing industry. On-demand printing is currently available and will likely expand.² Increasingly, you'll be able to walk into a bookstore, look through an online catalog, and choose the book you want. Then, as you have a cup of coffee at the in-store café, your book will be printed and bound. Eakin Press, a small independent publisher near Austin, Texas, was the first to offer this service to its customers. Before on-demand printing, Eakin published most of its books only once and in small quantities. Inventory and its carrying costs were held until the stock sold out and in most cases books were not reprinted. With on-demand printing, Eakin prints the exact number of books needed, thus carrying zero inventory. Not to be outdone, Barnes & Noble struck an agreement with IBM to provide on-demand printing equipment for its distribution centers. Clearly this kind of on-demand production does not work in all industries, but where it does, reducing inventory holding costs amounts to another positive stroke for corporate financial health.

Although the financial implications of Internet technology on the overall economy seem to be great, it will take time to see how significant their impact will be. How many new industries will actually be created because of Internet technology and marketing? New jobs? New businesses? How tightly will companies be able to link increased consumer spending to increased savings generated through Internet pressure on prices? These questions have yet to be definitively answered.

Marketing Research through the Web
The Internet is having an electrifying effect on the ways we conduct research. Nearly every college graduate can recall spending many hours in the library searching out information for a project or term paper. The Internet puts a vast amount of information on a wide variety of topics at your fingertips. Numerous organizations now offer their publications online as well as in print, including BusinessWeek, Consumer Reports, Dow Jones, Fortune, The Internal Revenue Service, National Geographic, Popular Science, Readers Digest, The U.S. Government Printing Office, and The Washington Post.

Some organizations provide marketing research information over the Internet at no cost, such as American Demographics, CyberAtlas, Survey.Net, U.S. Census Bureau, and U.S. Department of Commerce. Other organizations sell their information, including ActiveMedia Research, allNetResearch, CommerceNet, Cyber Dialogue, Forrester Research, and Simba Information.

Accessing secondary data electronically offers many advantages over print media:

• Easier access to information from around the world
  
• Information content that is more current
  
• The ability to make complex searches
  
• Incorporation of multi-media
  
• Lower publication costs

Although most shopping bots currently limit their assessments to price offerings, evolving software will allow more complex assessments of the overall value of competitive offerings. Gomez.com currently uses an algorithmic and data-driven process to rate online stores by various standards, including overall cost, ease of use, customer confidence, and relationship services. Of course, these online services make competitive information easily available to consumers and competitors alike.

Integrating Conventional and Internet Marketing Strategies
Companies like Amazon.com, eTrade, and Travelocity began on the Internet, and their business continues to be almost entirely Web-based. These companies are the exception rather than the rule. For most companies, Internet marketing should be used to complement and augment existing marketing programs. This is particularly important in light of recent evidence suggesting that many online customers use the Internet to shop but ultimately make their purchases offline.³

Taking advantage of cross-channel synergies can lead to enhanced customer satisfaction and increased sales and profits. For example, major retailers that offer multiple channels (store, Internet, and catalog) can integrate these channels and cross-promote them to customers. The result? Customers who shop in the three channels offered by JCPenney spend four times the amount that single-channel shoppers spend; Eddie Bauer shoppers using all three channels spend more than four times as much as single-channel shoppers and are three times more profitable.⁴

One way to encourage cross-channel awareness and loyalty is through an integrated marketing communications strategy. An organization's Internet promotion efforts should project a consistent and coherent presence. Every venue where consumers encounter the company--whether broadcast, print, or Internet media--should reinforce past experiences. Consistency in slogans, appearance, and other cues serves to strengthen consumer familiarity with the company. When customers have to resolve differences between messages, it weakens their confidence in the company.

In implementing integrated, cross-channel strategies, the Internet should be used to enhance marketing programs that are already working--not to replace them. If a marketing program is not working, implementing a flashy new Internet promotion will succeed only in making the marketing program fail faster. It is better to find out what is wrong with a marketing program before taking corrective action.

Planning is important, both in one's personal and professional life, yet sometimes people undertake a task without sufficient forethought. As tasks become more complex or difficult, however, the odds for successfully completing them without proper planning diminish. Regardless of your vocation--art, business, engineering, or science--you will be involved in planning. Most plans have similar elements. At a minimum, an Internet marketing plan should include the following elements:

• An analysis of the Internet marketing environment
• A statement of the company's online business strategy
• Specific Internet marketing objectives and strategies

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The Internet Marketing Environment

The Internet and the ways it is used are changing at a blinding speed, and the Internet environment will continue to be turbulent for many years to come. Because of this, no single person can claim to be an expert about the entire Internet. Nevertheless, people who are well-informed about Internet marketing can often cope with its dynamics better than people who are less informed. Individuals who can combine diverse information together in innovative ways can discover and develop new business opportunities.

At the beginning of the 21st century, we are witnessing the most dramatic and rapid changes in the history of humanity. This situation is largely due to the development of the Internet and the creation of the World Wide Web. What makes these innovations even more exciting (or scary) is that the Internet and its uses are only in their infancy. Few people are willing to guess what will happen in the foreseeable future, let alone in the long term. What can we say about the Internet marketing environment, knowing that these statements may be outdated by the time you read them?

It should be safe to say that marketing will employ new technologies to improve the exchange process in order to satisfy individual and organizational goals. And we can make useful general observations about the current Internet marketing environment.

Basic Forms of Virtual Business
Internet marketing to consumers has received much attention in the media. This form of marketing is referred to as business-to-consumer ("B-to-C" or "B2C") electronic commerce. For many consumers the Internet alters the way they make purchase decisions. Once a person recognizes the need for a product or service, information about it can be readily obtained through the Internet. Manufacturers, suppliers, and retailers are anxious to provide information that can influence purchase decisions in their favor. Consumers are not only more informed but have more alternatives to choose from. In some instances, the Internet makes the actual purchase easier and more convenient. A customer can shop for many items 24 hours a day, 7 days a week, without leaving home--and have the items delivered as well. Even financing for expensive purchases such as automobiles and houses can be arranged for over the Internet.

The use of the Internet to facilitate activities between companies is called business-to-business ("B-to-B" or "B2B") electronic commerce. Currently, B2B commerce represents one-third of all Web revenues, and these revenues are expected to double each year through 2002; at that time, one-half of all B2B revenues will be generated via the Web.⁵ The products or services a company buys from another company may be the same as those bought by individual consumers. Recall from Chapter 5, one basic difference between consumer and company purchases, however, relates to the intended use of the products. Another difference between consumer-targeted and company-oriented business is the relationships established between the parties involved. For consumers, the Internet makes it easier to do comparative shopping and to switch between retailers. In a business situation, relationship marketing redefines the fundamental roles of buyers and sellers by establishing ongoing partnerships among participating companies. The Internet can be used to improve relationships between companies and help to build strategic alliances. As a result business markets are becoming more and more competitive.

Internet Demographics and Trends
A vast amount of information exists on and about the Internet: the number and growth rates of Web sites on the Internet; traffic rates of individual Web sites; the number of Internet users and their demographic characteristics; the scope of Internet businesses and their products or services, and so on. Similar information may be derived from multiple sources, each offering its results in a different way. It should be no surprise to find sizable differences in future projections for Internet markets.

Nearly half of American households do not have Internet access from home.⁶ Some of these "have-nots" may use computers at work or school to surf the Web, but there are still a large number of Americans that do not. Though Internet access is higher among better-educated, higher-income households, this "digital divide" is narrowing in the United States.⁷ The number of women online exceeds the number of men online in the United States, but men still dominate the Internet in other parts of the world.⁸

In her book Now or Never--How Companies Must Change Today to Win the Battle for Internet Consumers, Mary Modahl of Forrester Research discusses the fallacies of using historical data to make projections about future Internet markets.⁹ Forrester identifies three factors that influence a consumer's online buying behavior:

1. Attitude toward technology
   
2. Income
   
3. Motivation to use technology

But what can the Internet do for those areas in the world that have had limited access to communication technologies? Much larger long-term opportunities exist in Asia, Africa, and South America. The economies and infrastructures of many countries in these regions lag behind the more industrialized nations in North America and Europe. The Internet can broaden and enhance access in developing nations because it offers a relatively cheap, versatile, and technically efficient service. Furthermore, it can allow businesses from developing countries to "leapfrog" into the development mainstream because electronic commerce allows them to sell their products and services directly to customers around the world. The Internet can level the playing field by eliminating disadvantages in developing countries, such as distance from markets, under-investment in basic infrastructure, and under-utilized capacity.¹¹

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Global Perspectives: Internet Penetration and Growth of Online Households

Adapted from allNetDevices Staff "Wireless Commerce Revenue Coming Soon." Internet.com, March 29, 2001; Michael Pastore "Asian Internet Users Moving Beyond Web" CyberAtlas, June 5, 2001; Michael Pastore "429 Million Online Worldwide." CyberAtlas, June 11, 2001; Michael Pastore "Asian Internet Markets Show Strong Growth in 2001." CyberAtlas, August 1, 2001; Michael Pastore "Asian Internet Market to Surpass United States." CyberAtlas, August 7, 2001; Nielsen Netratings, July 2001; Rockbridge Associates "Technology Readiness."

The Digital World
As the 20th century came to a close, there was much clamor about electronic commerce. Television, radio, newspapers, magazines, and even billboards saturated us with news, articles and advertisements about e-tailers such as Amazon.com, American Greetings, Barnes & Noble, eBay, eToys, and Toys"R"Us. But there were other winners and losers that went unnoticed. Middlemen were eliminated from the distribution chain as manufacturers and suppliers shipped products directly to customers. The inconspicuous winners included Federal Express, United Parcel Service, and the United States Postal Service. These organizations provided just-in-time product delivery to millions of anxious customers.

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The ON-LINE BUSINESS STRATEGIES

For example, if an organization sets a goal to improve customer service, it could target a low number of customer complaints as a measurable objective. Viable Internet strategies can be devised to achieve this goal. Because of the Internets' ability for two-way communications, it provides an excellent means for interaction between a company and its customers. Consumers can contact the company to complain about faulty products, ask product support questions, or suggest new products. The company can respond to these complaints and concerns and announce the availability of new products. The key is to clearly identify the role of the Internet in attaining the goal.

The Internet Presence
Well-executed Web sites can be persuasive marketing tools. To achieve that, it is a good idea to formally state the desired online positioning. Online positioning statements identify the most important target market or markets, each market's most vital online need, how the company's Internet presence can meet that need, and how the online presence can be better than the competition. To appeal to consumers, a Web site should be intuitive and easy to use. Well-designed programs can be deceptively difficult to develop and run. Establishing an Internet presence can be a daunting task that takes more time and money than some people might think.

Besides incurring many of the same costs as conventional marketing programs, Internet marketing also can entail significant technological costs. Because costs can easily spiral out of control, it is essential to delineate major cost elements and approximate those costs. A short few paragraphs can provide enough information to estimate the significant costs associated with establishing an Internet presence. Each of the following factors must be considered:

• Prior experience in developing and running an Internet marketing program
• Degree of program sophistication
• Magnitude of the program
• Dynamics of the program

1. For many people it is more convenient and less expensive to shop online than in a store.
2. Unlike buying in a store, you can't actually feel or touch products you purchase over the Internet.
3. Finally, neither lavish surroundings, strolling crowds, nor salespeople exist on e-tailing sites. For some people, store-hopping is an entertaining and social experience. Others may welcome the pure functionality of shopping on the Internet.

The convenience of purchasing through the Web will likely translate into increased levels of online retail purchases. Buyers don't need to drive to the store during normal business hours because they can shop 24 hours a day, 365 days a year from home. It is easy to window shop by moving from one retailer to another on the Web. Consumers can more easily compare prices over the Internet than in brick-and-mortar stores. Purchased items can be delivered directly to customers' homes at a time convenient to them.

The relative lack of tactile and social interaction during an online purchase is a major challenge facing e-tailers. Many people like the experience of going to the mall to shop, even if they don't buy anything. There's a social experience and personal attention that you can't quite get sitting in front of your computer. What does the fabric of a suit feel like? Can a computer compliment you on how the color of your eyes is enhanced by the color of the jacket you chose? By building an individual rapport with their customers, merchants add value that increases customer satisfaction. Relationship marketing seeks to create long-term partnerships between companies and their customers. In return the company can gain repeat sales and referrals from its customers.

On the other hand, Internet retailing can provide a level of attention to detail that conventional stores may not be able to match. Products can be tailored online to suit the preferences of individual customers. E-tailers like Eddie Bauer, FTD Flowers, Macy's, Mark Shale, and Lands' End already provide customers with an impressive level of attention through "mass customization," the use of programs and features to tailor the site for any individual. These companies have learned how to satisfy customers by giving them exactly what they want even though no two customers are the same.

Some online businesses are agents and brokers that exhibit many characteristics similar to e-tailers. The key distinction is that while they provide transaction services, they do not take possession of the product. Examples include online financial service providers such as eTrade and online employment agencies like Monster.com. Some e-retailers have attempted to structure operations in a similar manner by simply taking orders from customers and relying on manufacturers or wholesalers for product fulfillment. This way, the e-retailer doesn't incur inventory and warehousing costs. However, when something goes wrong, customer service often cannot handle the problem, and customer satisfaction suffers. Many e-tailers have created their own brick-and-mortar warehouses to resolve these fulfillment challenges.

Internet Marketplaces
The Internet has fostered the creation of online marketplaces, sometimes referred to as e-marketplaces. An e-marketplace acts as a channel intermediary that brings together buyers and sellers to form a virtual exchange community. At the minimum, the creator of the e-marketplace works as an agent or broker that charges a fee for each transaction and provides efficiencies associated with search and procurement costs. The e-market producer also may provide value-added services ranging from logistics and delivery guarantees to complete supply chain management services that streamline and consolidate ordering, bidding, delivery, and inventory management.

Although the term e-marketplace usually denotes a B2B marketplace, there are several variations of e-marketplaces in B2C and consumer-to-consumer ("C-to-C" or "C2C") contexts as well. For example, Travelocity is a B2C e-marketplace. The online community of travel companies, including airlines, hotels, and car rental agencies, offers travel information and services to consumers who share an interest in travel. eBay is a largely C2C e-marketplace that brings together individual sellers and buyers in an auction format that parallels an old-fashioned flea market.

Other variations of B2C e-marketplaces also exist. Online malls bring together e-tailers at one location so that consumers can conduct one-stop shopping. To further support this one-stop shopping approach, online malls are frequently organized by portals like Yahoo or AOL. These diversified portals create communities that act as entertainment and shopping destinations.

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INTERNET MARKETING OBJECTIVES AND STRATEGIES

A company's Internet marketing program will depend in large part on its Internet business strategy; that is, the type of Web site it has created (corporate or transactional) and the type of Internet business model it is implementing.¹⁶ Internet marketing plans will include some objectives that are similar to standard marketing plans. Objectives related to online market share, sales level, repeat purchase, and fulfillment are appropriate for transactional Web sites. Objectives related to market positioning, image, and brand awareness or recognition might be appropriate for all Web sites. In each case, it is important to identify quantifiable objectives that later can be compared to measured performance levels.

Some marketing objectives are particularly appropriate for the Internet. A key success factor for most Internet businesses is traffic, traffic, traffic. Objectives related to generating and building traffic should be included in any Internet marketing plan. Traffic can be quantified, however, in a variety of ways. There is traffic that you drive to your Web site, and then there is traffic that you keep and drive deeper into the Web site. Longer visits, deeper exploration of the site, and return visits to the site are signals of stronger relational ties. The overall goals for the Web site should determine which types of traffic objectives are most important. For a better idea of how these objectives might be articulated, visit Neilsen NetRatings for a listing of the highest-traffic Internet sites. These ratings are based on the number of unique visitors to a site and the average amount of time each visitor spends at the site.

Most Internet marketing plans also should include objectives targeting specific responses from visitors to the Web site. Corporate Web sites can include objectives related to e-mail or telephone contacts generated by the Web site. Interactive Web sites can include objectives related to converting incoming traffic into active Web site participants. These conversion objectives can address a variety of activities that serve to deepen the online relationship. For example, objectives can be associated with converting incoming traffic into new members through online registration, or identifying potential new prospects by allowing them to request follow-up information, or converting traffic into actual customers through online transactions. Again, these objectives may vary depending on the Internet business model, but Internet marketing plans should include objectives that identify desired customer response behaviors.

Internet marketing strategies should be designed to directly support the Internet marketing objectives. In developing these strategies, all four elements of the marketing mix--product, place, promotion, and price--must be carefully considered and balanced with one another for an Internet marketing program to succeed. Amazon.com, Dell Computer, L.L. Bean, and Land's End have mastered blending all four elements in the marketing mix on the Internet. They are able to promote and offer products consumers want at affordable prices through a convenient distribution channel.

Product Strategies on the Web
One of the biggest differences between the Internet and conventional retail channels is in the physical contact consumers have with actual products. Some items are well suited for marketing and sales on the Internet. Many people feel comfortable purchasing books, golf balls, vitamins, airline tickets, or video movies over the Web. These items are near-commodity, physically small, and relatively inexpensive, so consumers are generally indifferent about the channel they use to purchase them. They could just as easily buy these items in a store, through the mail, or on the Internet. For many customers, the Internet may offer greater convenience.

Certain products require direct sensory experience to fully appreciate them. This kind of contact with the product cannot be achieved in the virtual space of the Internet. For example, many people may be reluctant to buy a car, diamond ring, new perfume, or suit through the Web. One way to overcome this shortcoming is to provide personalized service and virtual product trials online. In some cases, this can be accomplished by increasing the audio and visual sensory experience that customers encounter at the Web site. For example, Land's End provides a "personalized shopper" program that recommends outfits for customers who can then "try on" the outfits using virtual models with similar physical characteristics. Amazon.com allows customers to read excerpts from books and listen to audio clips from audiobooks and CDs.

Branding is another powerful tool that online companies can use to reassure reluctant consumers and to distinguish their products from those of their competitors. The brand identity customers associate with a company's products is often more important than the utility gained from using the products themselves. Because the Internet involves two-way communications, each consumer actively participates in a dialogue that may build a strong relationship with the company. Therefore, well-conceived Internet strategies can reinforce and enhance brand identity.

On-line Distribution Options
Internet-based businesses often use different distribution channels than conventional businesses. For the seller, one important difference relates to the physical facilities required to sell over the Internet versus those in a real store; selling over the Internet doesn't tie up money in a building, furnishings, supplies, and personnel. Another big difference for the seller is the channel of distribution. Many variations of the supply chain are possible, and they can be very complex and require a substantial amount of time for products to reach the retail stores. As the complexity of a channel increases, so does its costs, which are passed along to the consumer in the purchase price of the product.

For traditional retailers, the distribution channel has several steps. Products for sale in retail stores are purchased in large quantities from suppliers and delivered to a central warehouse. The products are then divided into smaller quantities that are sent to geographically dispersed warehouses. These distributed warehouses are close to retail stores. When product stock in a store runs low, store managers order more of the product from the closest distributor. Only after the product arrives in a retail store can the consumer purchase it.

When a consumer buys a product over the Internet, many steps in the traditional retail channel can be modified or eliminated. Most Internet retailers arrange for customer orders to be filled from a central warehouse and shipped directly to the customer. Some middlemen may be eliminated from the distribution chain while direct shippers like Federal Express, United Parcel Service, and the United States Postal Service are added.

In many cases, fulfilling customer orders becomes more complex as the number of low-price shipments increases. Making timely, low-price, low-volume deliveries is one of the greatest challenges facing online grocers, for example. As a result, many industry observers maintain that a critical success factor for online groceries is to limit distribution to high-density, urban areas.

As products become more digital, direct online distribution will become more prevalent. Internet direct selling and distribution is best suited for digital products. For example, some software companies use the Internet to sell and distribute their digital products directly to consumers. The Wall Street Journal produces, sells, and distributes its information via the Web using a subscription model. Cable television providers have successfully implemented a subscription model, and recording companies are experimenting with similar models for direct selling and distribution of music via the Internet. Other information and entertainment producers implement advertising models. For example, USA Today provides free online news directly to consumers, who in turn act as audiences for advertising messages. These advertising messages are typically provided and paid for by other online businesses.

On-line Promotion
One might think that by simply putting up a Web site, an organization will attract potential customers--"If you build it they will come." Nothing could be further from the truth. Conventional media, such as television, radio, and print, gain greater reach by pushing their message out to the general public. For the most part, the Internet relies on potential customers actively seeking out and pulling information about products or services. More and more, we see companies implementing integrated marketing communications strategies that use conventional media to make customers aware of the company's online business channel.

Promotion on the Internet differs from conventional channels in the basic way consumers encounter promotions and in the substance of those promotions. Whereas broadcast and print media can be used for reaching diverse or highly targeted audiences, the Internet is well suited for providing information-rich content and enabling two-way interactions between a company and its customers. Because the Internet enables a two-way exchange, customers actually play an active role in the promotion.

Online advertising on the Internet began in October 1994 when Hotwired sold the first banner ads. Since then, advertising on the Internet has grown faster than in any other media in history.¹⁷ Total spending on online advertising was $4.3 billion in 1999 and is expected to soar to $28 billion by 2005.₁₈ According to the Internet Advertising Bureau, the top two reasons for implementing online advertising are to drive traffic to a Web site and to build brand awareness and recognition.¹⁹ To accomplish these objectives, online marketers use a mix of banner and button advertisements.²⁰

Banner advertisements have been the mainstay of Internet advertising since their inception. A full banner ad is rectangular and runs the entire width of the Web page, typically positioned at the top or bottom of the page. A popular variation is the half-banner ad. The ad is usually "clickable" to drive visitors to a Web location designated by the advertiser.

Although banner ads remain the industry standard for online advertising, button advertisements are becoming increasingly popular. Buttons are smaller than banners and come in medium, micro, short, and tall variations. The different sizes make it easy to place button ads in a variety of locations, including the bottom of a Web page or on the left or right margin.

Interstitial advertisements appear in separate browser windows while you wait for the main Web page to appear. These small windows, known as "pop-up" ads, may use sophisticated graphics or other special media effects to attract your attention. Users are more inclined to click on interstitials than on banner ads, but they also can be irritating to users.

According to Jupiter Communications, spending on e-mail promotions will grow from $164 million in 1999 to $7.3 billion in 2005.²¹ The key reasons for this growth are the high response rates and the cost effectiveness associated with e-mail campaigns. E-mail marketing falls into two categories-untargeted e-mail marketing and targeted e-mail marketing.

Untargeted e-mail marketing on the Internet usually takes the form of unsolicited bulk e-mails sent to unqualified addresses (that is, to people who have not asked for such information).²² This "online junk mail" is often called spam and is considered poor netiquette. It is tempting to use this type of promotion because it has little or no cost. Although the thought of sending an ad to thousands of recipients for free is appealing, mass e-mailing is usually as ineffective as conventional junk mail. Furthermore unsuspecting recipients may complain to the Internet provider from which the e-mail was sent, and reputable providers will discontinue the account of an offender.

On the opposite end of the spectrum from massive junk e-mailing is targeted e-mail marketing . Recipients of targeted e-mails have been "qualified"; they have indicated their willingness to receive the e-mail before it is actually sent. Just like using mailing lists to target conventional mail, you can rent e-mail lists of people who are interested in specific topics. These are referred to as "opt-in" e-mail lists.²³ Besides qualifying themselves on topics of interest, these people have pre-approved e-mail on those topics. Companies that provide these lists typically charge 15 to 30 cents per address and will even send the e-mails for you. Targeted e-mail marketing services are available from BulletMail, HTMail, and PostMasterDirect.

Businesses spent an estimated $13 billion on Web promotion in 2000, but online marketers rank search engine registration--which is usually free--as the most effective form of online promotion.²⁴ Reviewing search engine registration and submission tips provided at sites like Search Engine Watch can improve the likelihood that your site will be found when conducting key word searches through the top online search engines. And that will drive traffic to your site.

Pricing on the Internet
The Internet has meant increased pressure on prices of a wide variety of products and services. It is easier to engage in price comparison shopping on the Web than offline; that goes for customers and competitors. With the help of shopping bots, price comparisons of multiple sellers can be conducted simultaneously. It is also easier to change prices on the Internet. Online airline reservation systems such as Sabre make thousands of ticket price changes daily to optimize flight loads and airfares. Online auction sites like eBay create the option for sellers to be price-takers rather than price-setters.

The extent to which online businesses will implement flexible pricing is a hot topic among Internet observers. Some analysts have predicted that the technical ability to implement flexible pricing on the Internet would lead to the widespread use of this pricing strategy. To date, however, online flexible pricing strategies have been limited to industries with perishable inventories (like airlines and hotels) that tend to implement flexible pricing offline as well. As with offline pricing decisions, the online pricing strategy must support the company's overall business strategy and objectives. In many cases, flexible pricing may not be the best pricing strategy.

Companies that conduct business both offline and online face another consideration when setting prices: whether online and offline prices should be the same or different. Generally speaking, charging different prices for different channels can be effective if (1) channel use behavior is an effective means to segment the market, and/or (2) the company benefits by encouraging the use of one channel rather than the other. For example, banks may charge lower prices for online services to encourage customers to bank online rather than using bank branches, which are more expensive to build and staff.

Evaluating the Outcome
Once the Internet marketing program is underway, how do you know if you are accomplishing what you originally set out to do? You compare the results achieved to your Internet goals and marketing objectives. Deviations from objectives signal that changes to marketing strategies may be necessary.

A variety of techniques are available for obtaining detailed information that allows you to compare results to objectives. Regardless of the technology deployed for an Internet marketing program, the Web server used to run the site can tabulate a wealth of data. Unfortunately, the quality of the information can vary widely.²⁵

Traffic coming to a site can be quantified as hits, as page views, or as unique visitors. A hit is a record that a file was requested from a Web site. But since one page can be composed of multiple files, tracking hits can be somewhat misleading. For example, a single page with four pictures embedded will yield five hits since each picture is a separate file.

A better statistic to capture is a page view, which is a single page requested from a Web site. Page-view statistics allow you to identify more and less successful pages. Infrequently visited pages can be reevaluated and revamped or removed from the Web site. Web pages that exceed expected hit counts can be analyzed to determine why they are successful.

When a visitor arrives upon a site, his or her clickstream can be followed to identify which pages are viewed, the sequence in which they were viewed, and the duration of the entire visit. Combining page-view statistics with clickstream sequencing information helps to identify possible design and flow problems in the Web site. That knowledge can be applied to improve Web site design and the overall performance of the Internet marketing program.

A tally of hits or page views shows the activity level of a Web site. It is simply a count or quantitative measure. But counts are only part of the story; they don't address other important questions like:

• Is the site reaching the target audience?
• Who is actually visiting the Web site?
• Can visitors easily move around the Web site?
• Are the visitors getting what they want from the Web site?

Answering these questions requires more detailed information about each unique visitor. One way to accomplish this is by encouraging site registration. Demographic data captured during the initial site registration can be analyzed to determine general characteristics of people visiting the site. These characteristics reveal whether or not the target audience is responding to the Internet marketing program.

The demographic information also can be matched with clickstream data to generate profiles for each unique visitor. These profiles can be developed over multiple visits to the site through the use of cookie technology. A cookie is a digital tag written to the user's local hard drive that is keyed to a specific server (for example, a Web page) and is passed back to the server when the user's browser again accesses the server. This electronic ID is used to track clickstream or purchase behavior over multiple visits. For example, Amazon.com combines collaborative software with cookie technology to recommend books to frequent buyers once they have established a purchase preference pattern.

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Ethics in Marketing: The Opt-in or Opt-out Debate

Amidst rising consumer privacy concerns, the amount of personal data collected will increase thirty-fold between 2001 and 2004, Gartner research predicts. It is widely accepted that consumers should have some say in the collection and use of their personal data. There is widespread debate, however, as to how consumers' rights to privacy should be protected. To a large extent, this debate revolves around opt-in and opt-out options.

When a consumer chooses to opt-in at a site, he or she explicitly agrees to supply information to a company with the understanding that the company can use that information for research and marketing. In offline retailing, opt-in agreements are widespread in the supermarket sector, where consumers apply for and use company "discount cards." These discount cards, which use names like VIP cards, MVP cards, VIC cards, allow the customer to receive advertised discounts on a variety of products. In exchange, the retailer receives personal information regarding individual consumers' purchase behavior, which can be coupled with demographic data submitted during the application process. In short, the retailer has rich personal data on each of its opt-in, discount card users, which it can use for targeted promotions or which it can sell to other companies for promotional purposes. But the retailer does not have the same level of detailed personal information about customers who choose not to apply for or use the discount cards.

In general, this type of opt-in approach to privacy protection is used by online companies operating in Europe. According to the European Union Data Directive, which was implemented October 25, 1998, personal data can be collected only if the "subject has given his consent unambiguously." This directive requires that online companies explicitly notify consumers of their intent to collect information and how they intend to use the information. Further, companies must offer both opt-in and opt-out options. In other words, when asked, consumers retain the right to instruct companies not to collect any personal information.

The United States currently does not have a federally mandated privacy policy that applies for most online exchange relationships, and privacy policies can vary from company to company. The majority of online sites that collect information, however, do so without unambiguous consent; as a result, it is a climate of "browser beware." Online sites place cookies on visitors' hard drives without user consent, and personal information is routinely collected and shared by companies for a variety of purposes. To safeguard their privacy, site visitors can implement a technical solution (for example, set their browser software preferences to deny all cookies) or submit an opt-out request, which companies are not required to process or accept. Thus, online companies operating in the United States are not required to solicit explicit opt-in consent, but many do provide an opt-out opportunity that diligent and aware consumers can use.

Growing technical threats to privacy underscore the importance of the opt-in/opt-out debate. Although the threat to privacy posed by cookie technology is widely acknowledged, the privacy threat posed by more sophisticated Web bugs that track users' whereabouts in cyberspace is less recognized. As mobile commerce becomes more prevalent, privacy concerns associated with location tracking will grow. Internet marketers must eventually address this central issue of whether consumers have a right to be notified prior to data collection and to unambiguously opt in or opt out of data collection activities.

Adapted from the Electronic Privacy Information Center; Safe Harbor Web site; Stefanie Olsen "Nearly undetectable tracking device raises concern," Cnet.com July 12, 2000; Eric Picard "Wireless: Location Tracking Will Change Everything," Internet.com July 25,2001.

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LOOKING BACK

There are no secrets to building a successful online business. It requires that you offer products that fulfill customer needs, wants, or desires, use promotion to make potential customers aware of your products, make products available to customers when and where they want them, and sell products at a fair price to customers. Peapod has been more successful than other online grocers at providing prompt delivery and fairly priced products to busy, time-starved consumers. Why did competitors like Webvan that provided similar services to consumers ultimately go out of business?

Two related factors spelled the difference between Peapod and Webvan. First, while Webvan was spending millions of dollars building warehouses to support its own independent distribution system, Peapod developed relationships with local grocery retailers that supplemented Peapod's far smaller network of warehouses. These relationships kept Peapod's overhead costs lower and demonstrated the synergies to be gained by marrying offline and online grocery operations. Royal Ahold recognized these synergies and acquired Peapod to exploit them. Second, Webvan, unlike Peapod, lost sight of its customers. Webvan bought HomeGrocer, a smaller but successful online grocer in San Diego, and immediately began integrating operations, changing HomeGrocer sites to Webvan sites. After each conversion, orders dropped 10-30 percent and demand never approached the warehouse capacity Webvan spent so much time, energy, and money building.²⁶

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USE IT NOW!

Just like starting a new business, starting a successful new career requires careful and creative planning. You can start by analyzing the job environment, establishing specific goals and objectives, and creating strategies to achieve those objectives. And you can integrate the Internet with offline channels to accomplish each step. Start by going to Salary.com to compare salaries for different professions across different geographic regions. This can help you identify which types of professions you want to pursue and in which locations. Then head off to some online employment agencies like Monster.com to see what types of jobs are currently available in your desired profession and location. This process ultimately should lead you to setting your career goals.

Next, determine how you will use the Internet to help you achieve your career goals. Will it be just for research or also for promotion? What type of online presence will you have? The online employment agencies allow you to create an online résumé, but many universities allow students to create their own custom Web sites. You can then enhance your Web presence by providing pictures along with an audio statement of career goals and corresponding skills and qualifications--a virtual sales presentation!

If you have an online presence, you will want to establish objectives with respect to site traffic and contacts. How many employers will visit your Web site and subsequently contact you via e-mail or phone? What marketing strategies will you use to drive traffic to your site and encourage employers to contact you directly? Untargeted e-mail is probably not a good idea. But targeted e-mails responding to online employment advertisements is a valid promotional tactic. Hyperlinking to campus organizations that you belong to also represents a promotional opportunity.

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SUMMARY

1. Describe the impact of the Internet on business practices.
   The Internet represents a new electronic channel to conduct a wide variety of marketing activities. Companies that embrace Internet technology can gain advantages associated with lower infrastructure, inventory, and transaction costs. The Internet also provides excellent opportunities for conducting marketing research. Tremendous amounts of secondary data are readily available, and the Internet allows for relatively easy collection of primary data in the form of e-mail surveys, Web-based surveys with graphics and multimedia, and online focus groups. Additional information related to the purchases of individual customers can be used to build profiles of customer preferences, and competitor information can be collected from direct observation or through shopping bots.

   By using the Internet, consumers can access a greater variety of information before a purchase decision is made. For businesses, the Internet provides a tool for building better relationships with suppliers and customers. Every company must address the issue of whether or not it should have an Internet presence. For most companies, Internet marketing can be used to augment existing marketing programs. Planning the Internet marketing program involves analyzing the Internet marketing environment, articulating the company's online business strategy, and setting specific Internet marketing objectives and strategies.

2. Describe the current Internet marketing environment.
   Most Internet business activity can be distinguished as either business-to-consumer (B2C) electronic commerce or business-to-business (B2B) electronic commerce. In either case, knowing the online habits of the target market is essential. Online buyers can be characterized as early adopters, the mainstream, and laggards.

   One way to identify and target specific markets is through virtual communities, which include members who have a common interest, such as a hobby, sport, or other avocation. These virtual communities use bulletin boards, chat rooms, newsletters, or discussion lists to build social relationships and exchange information. By overcoming the physical distance that separates markets around the world, the Internet also facilitates targeting international markets. To be successful, organizations need to develop a global vision that recognizes social, cultural, economic, political, demographic, resource, infrastructural, and legal differences.

   As communications and products become more digitized, diverse electronic technologies will converge and combine into a single high-speed communication and distribution channel that will carry broadband content to telephones, televisions, and computers. These technological advances will create new marketing opportunities.

3. Discuss on-line business strategies.
   To be successful, Web-based companies must develop sound business and marketing strategies. The Internet business strategy should start with a high-level goal and consider ways the Internet can be used to achieve that goal. This goal will determine the sophistication of the Internet presence and the desired level of interactivity, which can range from a purely informational corporate Web site to a fully interactive or transactional Web site.

   Transactional Web sites are capable of implementing complex online business models. Three basic business models include direct selling models, Internet retailing models, and Internet marketplaces. Direct sellers can be product manufacturers such as Dell that use the Internet to sell directly to consumers. Producers of digital products including software, music, and information can use the Internet to both sell and distribute products directly to consumers.

   Internet retailers and e-marketplaces provide the added convenience of a wide variety of products with easy access to price-comparison information. Despite these conveniences, however, drawbacks include lack of direct contact with the merchandise, reduced social interaction, and some difficulties resolving customer service complaints.

4. Discuss Internet marketing objectives and strategies.
   A company's Internet marketing program should include marketing objectives that are directly relevant to the Web site. These include objectives for generating and building traffic to the Web site and objectives targeting specific responses from visitors to the Web site. Firms should track page views and clickstream data to monitor users' online behavior. Corporate Web sites can encourage users to respond with e-mail or telephone calls, and interactive Web sites can encourage online registration or actual transactions.

   Online companies can offer personalized service and virtual product trials to build relationships with their customers and partially overcome the sensory and tactile limitations of the electronic channel. Although the Internet facilitates flexible pricing tactics, online companies need to evaluate whether a strategy of charging different prices for different customers or for different channels (online versus offline) is consistent with the overall business strategy.

   Online promotion takes various forms. Sending targeted e-mails to recipients who have indicated a willingness to receive marketing messages is more effective than sending untargeted e-mails. Newsletters and discussion lists provide other options for targeted Internet marketing. Advertising on the Internet takes the form of banner ads, button ads, and interstitial advertisements (pop-up ads). Search engine registration provides the equivalent of free publicity.

   Direct online distribution of digital products and services promises to be an exciting direction for electronic commerce. For tangible goods, online businesses typically rely on direct shippers to deliver products to their customers. Fulfillment of online orders has proven more problematic than initially envisioned by many online entrepreneurs.

   Using demographic information, clickstream data, and cookie technology, online businesses can offer better service to their customers. However, these data collection methods raise concerns about online privacy. Ultimately, consumers, public policy officials, and online businesses must determine whether the benefits outweigh the privacy concerns.

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DISCUSSION AND WRITING QUESTIONS

1. The Internet provides new opportunities for companies to operate their businesses. Some products and services are well suited for on-line marketing while others are currently less appropriate for the Internet.

   a) Suggest a product or service that is ideally suited for marketing over the Internet. Describe why on-line marketing of this product or service is superior to more traditional marketing approaches.

   b) Suggest a product or service that is now inappropriate for marketing over the Internet. Describe why more traditional marketing approaches of this product or service are better than on-line marketing.

2. Use the Internet to locate and compare product information for High Definition Televisions (HDTV) from Hitachi and Toshiba. Describe your experience in finding the information and determining how useful it is. Were you able to make an informed purchase decision based on the information you collected?

   Visit a retail store that sells Hitachi or Toshiba HDTVs and obtain information for the products you researched through the Internet. Was it easier to get information using the Internet or by going to the retail store? How does the information you collected from the Internet compare to what you obtained in the store? In the future where will you look for product information and why?

3. Online privacy is a primary concern for some consumers, but many people do not fully understand online tracking technology. To better understand how online companies track your movements across the Internet, let's look at how DoubleClick does it.

   a) Look at your own cookie file. If you are running Windows, choose the 'Start' 'Search' 'File or Folders...' option from the menu bar. Look in the computer's hard drive (usually C:) for a file named 'cookies'. Double-click on the cookies text file that is located in your Internet browser folder. Then do a search for 'doubleclick'. You will probably find an entry that looks like: .doubleclick.net TRUE / FALSE 1920499140 id 99999996452b115. (On a Mac, under the File menu choose Find, search the hard drive for 'cookies' and doubleclick on the configuration manager file. Scroll through the Cookie Settings to 'doubleclick.net' and hit View.)

   b) Now that you know what a cookie file looks like, go to the DoubleClick web site and click over to the Privacy policy statement. What happens if you choose the adserving cookie opt-out option? How will your cookie file change? How will that change the online advertisements you see in the future? Did you opt-out? Why?

4. Companies such as Amazon.com, Dell Computer, disney.com, Federal Express, and Travelocity are good examples of companies that have captured market share by using relationship marketing through the Internet. Use the Internet to learn about one of these companies and describe how they have used mass customization in their Web site to achieve success.

5. The Internet is revolutionizing how primary marketing research is being conducted. Describe how you could utilize the Internet to conduct a marketing research project. What are some advantages and disadvantages of conducting marketing research over the Internet?

6. McDonalds has successfully employed brand recognition to build relationships with its customers for many decades without using the Internet. Visit the McDonalds Web site and comment on how well it integrates and reinforces the brand identity they have built into their conventional marketing channels.

7. The Internet can have a significant impact on product distribution. Many steps in the product "supply chain" can be eliminated, thus reducing both delivery time and price for the consumer. What types of organizations and industries could be adversely affected by the Internet? What are some of the potential negative impacts on individual companies and industries that have been eliminated from the supply chain?

8. Online shopping bots represent one manifestation of an e-marketplace. Intelligent shopping bots allow buyers to conduct online searches using a variety of criteria, including specific product availability, price, or even overall value. To test these services, start by going to BotSpot, a site that groups a multitude of bots under various categories such as Commerce Bots, Search Bots, Stock Bots, and the like.

   a) Observe the different product categories that are represented. Are all product categories represented? Can you categorize the products as mostly convenience, shopping, or specialty products?

   b) Choose a category and scan through the list to choose two or three different bots to test drive. Choose a specific product and use these bots to compare availability and prices. Which bot is better and why?

   c) How valuable do you think these shopping bots are to buyers and sellers?

9. Explain why it is important for a company to convey a consistent message and appearance in all the media forms they use in their marketing endeavors. Identify a specific company that employs broadcast, print, and Internet media in their marketing efforts. Discuss their effectiveness in projecting a consistent message and appearance in all these media forms.

10. A significant decision that must be made for any Web site is what the uniform resource locator (i.e., URL) should be. Go to the VeriSign home page and enter a domain name for a business that you might like to start. Is it available? If not, is there another acceptable option that is available? Who currently owns the domain name (select the "WHOIS" option)? How much does it cost to register a domain name?

11. Portals like Yahoo! and AOL generate much of their revenue from advertising. It would be logical for these companies to have marketing objectives to increase (1) the length of time each visitor spends at the site and (2) the frequency of return visits.

    a) What types of services do these sites provide that encourage customers to increase the length of each visit?

    b) What types of services do these sites provide that create a dynamic marketplace that encourages consumers to keep coming back?

12. BizRate.com and Gomez.com are two companies that provide ratings of on-line merchants. Visit these two sites and compare their rankings for an on-line industry (for example, bookstores or electronics). How similar or dissimilar are these rankings? What explains the dissimilarities? Which methodology appears to be more comprehensive or reliable?

13. Choose a product that you might like to buy. Then do price/quality comparisons across a variety of sites, including a buyer aggregator (e.g., Volumebuy), an online mall (e.g., Yahoo!Shopping), an e-tailer (e.g., LandsEnd), and an online broker/auction (e.g., eBay). Then go to an online shopping bot (e.g., MySimon) and search for the same product. What are the differences in prices, product assortment, and quality across sites? Are the differences similar to price/assortment/quality variations you find in traditional stores?

14. Many online shoppers prefer to make some purchases offline. Review the Ecommerce Facts that document differences in online shopping and online purchasing behavior for men and women across a variety of product categories. Then, focusing on either men or women, explain why online shopping and purchasing behavior are different for a specific product category. What are the marketing implications (with respect to product, distribution, promotion, and price) for companies that sell these products?

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ON LINE

With Opening Vignette
Visit the Peapod site to see how its Internet marketing programs are working. Using an Internet search engine, try to find other companies that operate a Web-only grocery. Besides Peopod, are there any left? Explain what you find.
• http://www.peapod.com
  

"Marketing Research Through the Web"
Can companies cull marketing research data through from the Web without compromising consumer privacy? Visit the sites of MapInfo and Plurimus and then read an article from the Information Week archives titled "A Little ZIP Goes A Long Way in Targeted Marketing."

• http://www.mapinfo.com
  
• http://www.plurimus.com
  
• http://www.informationweek.com

"Integrating Conventional and Internet Marketing Strategies"
What elements of Mountain Dew's Web site have you seen echoed in its recent conventional marketing programs? Rate its message consistency, describe its on-line business strategy, and identify at least two marketing objectives.

• http://www.mountaindew.com

"Global Village"
Since the Internet allows companies to open their doors to world markets, companies will need to figure out how foreign customers can pay for their items on-line with different currencies. What kind of solutions does E4X propose? Look over the detailed descriptions of its partners. What could a new partner offer the network that is not already offered by an existing member?

• http://www.e4x.com

"On-line Business Strategies"
What's the difference between a successful Internet marketing program and an unsuccessful one? Use the Internet to find out. Scan the DotCom Flop Tracker at DotComDoom.com to find a dot bomb you like. Compare your dot bomb to a successful dot com. Make a list of at least 5 differences and any similarities. Compare your dot bomb against the four bullet points under "On-line Business Strategies." On which point(s) did your company fail? You may want to use Info-Trac as well as your favorite search engine to help you research your companies.

• http://www.dotcomdoom.com
  
• http://www.infotrac-college.com

"Internet Marketplaces"
What are the benefits of B2B e-marketplaces? Using the Looksmart category "B2B Electronic Marketplaces", compare some marketplaces for different industries. Can you think of a marketplace for an industry not currently represented in the list? What services and benefits would it offer its members?

• http://www.looksmart.com/eus1/eus317829/eus317861/eus65317/eus65710/eus930104/r?l&

"Product Strategies on the Web"
Is Major League Baseball a product suited to the Internet? Why or why not? What aspects of the baseball product are Internet-appropriate and how much you would be willing to pay for them? Visit the MLB Web site and compare your ideas with what you find. Describe the direct selling model MLB is using.

• http://www.mlb.com

"On-line Distribution Options"
Review the Turbo Tax Web site and list all of the strategies the company is using in its Internet marketing program: product, pricing, promotion, and distribution. How is Turbo Tax ensuring that customers return to the site during the year and not just around April 15?

• http://www.turbotax.com

"Pricing Strategies on the Internet"
How could companies use the technology of Internet auctions to their benefit? Make a list of three ideas, then search the Information Week archives for stories on Bristol-Myers Squibb. Then visit the Bristol-Myers Squibb Web site. Can you find out how this company is using the Internet as an auction tool? Explain what you find.

• http://www.informationweek.com
  
• http://www.bristolmyers.com

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KEY TERMS

banner advertisement
business-to-business (B2B) electronic commerce
business-to-consumer (B2C) electronic commerce
button advertisement
clickstream
cookie
corporate Web site
e-marketplace
e-tailing
e-zine
hit
interactive/transactional Web site
interstitial advertisement
page view
targeted e-mail marketing
untargeted e-mail marketing
virtual community

banner advertisement
A paid advertisement that runs the entire width of the Web page, usually placed near the top or bottom of the page.

business-to-business (B2B) electronic commerce
Using the Internet to conduct business between two or more organizations.

business-to-consumer (B2C) electronic commerce
Using the Internet to conduct business between an organization and individual consumers.

button advertisement
A paid advertisement that is smaller than a banner ad, appearing in medium, micro, short, and tall size variations.

clickstream
The sequence in which a person visited Web pages in a Web site.

cookie
An digital tag written to the user's local hard drive that is keyed to a specific server (for example, a Web page) and is passed back to the server when the user's browser again accesses the server.

corporate Web site
A Web site that provides consumers with information but provides little or no opportunity to communicate with the organization.

e-marketplace
A channel intermediary bringing together buyers and sellers to form a virtual exchange community.

e-tailing
Using the Internet to sell retail products and services.

e-zine
Abbreviation for electronic magazine-an on-line publication similar in concept to a printed magazine.

hit
A record that a file was requested from a Web site.

interactive/transactional Web site
A Web site that permits two-way communication between an organization and its customers.

interstitial advertisement
An advertisement that appears in a separate browser window-also referred to as a "pop-up" ad.

page view
A single page requested from a Web site

targeted e-mail marketing
E-mail sent to qualified recipients, those who have expressed interest in receiving e-mail on a specific topic.

untargeted e-mail marketing
A mass e-mailing sent to unqualified e-mail addresses.

virtual community
People with a common interest who interact on and contribute content to a communal Web site.

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APPLICATION FOR ENTREPRENEURS

John Gephardt owns a medium-sized precision machine shop, Precision Metal Products, whose customer list is composed entirely of original equipment manufacturers. Precision Metal Products has registered a domain name but has yet to develop any kind of Internet marketing strategy. This is partly because of the perceived financial and time resources involved. In addition, the company's annual sales of around $8 million are generated by a small network of highly experienced contracted sales representatives that is able to get new business from existing customers as well as find new customers. With a well-established customer base, Internet marketing is seen as a low-level priority by Precision Metal. With nearly all of the company's sales dollars going into the products and payroll, Gephardt thinks creating an Internet marketing strategy will only produce a minimal return on time and financial investments.
1. What Internet marketing forms would you recommend for Precision Metal Products immediately? In the future?
   
2. How could Internet marketing change the relationship John has with his sales representatives?
   
3. How could Precision Metal Products use the Internet to enhance customer service?

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ENTREPRENEURSHIP CASE

In 1996, like so many other pioneering Net entrepreneurs, Royal Farros saw the opportunity to use the Internet as a tool to cut vast amounts of waste built into the structure of a mature and highly fragmented industry. He incorporated iPrint.com that year and championed the birth of electronic printing services. The development potentially affected the estimated 32,000 commercial printers that handle custom printing jobs for individuals and businesses. For golf balls, tee shirts, sticky notes, stationery, business cards, and more intensive jobs such as custom-ordered corporate books and literature, iPrint can handle the printing job--whether the order is for a lot size of 50 or 50,000. The target market is small- and medium-size businesses, but if an individual consumer needs forty tee shirts printed up for an uncle's birthday party, iPrint can handle that too. And they can do it at a cost savings of 25 to 50 percent over a traditional print shop.

The opportunity that iPrint identified is that the custom printing segment has remained fragmented and is characterized by higher per-piece costs and prices because most print orders within that segment are for small lot sizes. By bundling orders from independent proprietors and small- to medium-size businesses, and then submitting them in bulk to commercial printers that usually handle large orders, iPrint can get the jobs done for a much lower per-piece cost. iPrint can then charge the end-user less, and take the rest of the difference as profit.

By combining an Internet interface with a network of strategic partnerships to receive and process custom print orders, iPrint can offer several advantages over a brick-and-mortar presence employing sales representatives. Using a Web-based interface as the primary order-taking tool gives iPrint sales efficiencies by eliminating the need to fund a large sales and support staff. Its fully electronic system puts the customer or end-user in complete control of the ordering and submission process, thereby eliminating a lot of the waste found in the present system due to errors and miscommunication between customers and sales representatives. The system also significantly reduces the cost and wait time inherent in relying on graphic artists for design. Furthermore, the numerous partnerships iPrint has with large, brick-and-mortar print shops allow it to achieve operational efficiencies as well, since it avoids the need to invest capital in physical shop locations and supplies.

As is the case with most, if not all, sectors of the Internet economy, the competition in the online printing business has proven to be fierce. Because barriers to entry on the Internet are relatively low, a market valued at upwards of $60 billion has emerged and attracted more than 100 serious players. What is less surprising is that a few star players have emerged as market leaders due to superior fund raising, product performance, and marketing strategy. Companies such as ImageX.com, Impresse.com, Printcafe.com, and Noosh.com all threaten to impose on iPrint's plan, but iPrint has answered the challenges by applying solid marketing fundamentals to doing business on the Web.

First, it has focused on a very specific target market--individually owned, small- and medium-sized businesses in need of small- and medium-sized print runs. Their target customers most likely have PC's and Internet connections, are familiar with using technology, and aren't likely to enter large contracts with major corporate suppliers such as Kinko's or IKON Office Solutions. Second, and unlike its chief competitor, ImageX--which has grown into a sprawling e-printing services portal for everything from paper auctions to selling specialty software to graphic designers--iPrint has strategically positioned itself as a utility (the online tool end-users interact with at the site) to design and order custom print jobs. Third, the software product that powers the utility that handles the site's small, custom orders is recognized as superior to that of its rivals. Finally, iPrint has leveraged its superior product to create distribution deals, licensing deals, and special, custom accounts, all of which provide alternate revenue streams and give it a competitive advantage, especially during times when the market slows.

The key to Web distribution is being exactly where your target customers are, and being there exactly when they need you. iPrint has accomplished this through high profile distribution deals with major portals such as Yahoo and Microsoft's MSN.com. The deals give millions of Web users easy access to iPrint's services and are sure to increase use of its electronic ordering system. Licensing is another way to achieve pervasive distribution, and iPrint has secured strategic agreements with brick-and-mortar printing service providers such as IKON Office Solutions, Kinko's, and Office Max. iPrint supplies the technology that runs their electronic print centers, giving it the advantage of being, in effect, a clicks-and-bricks retailer. Those moves not only enhance iPrint's bottom line, but make it possible for iPrint to reposition itself as a leading software supplier to brick-and-mortar companies offering e-printing services if the markets turn against pure online plays. iPrint has even successfully signed a licensing deal with competitor ImageX. They may have to split the revenue from transactions initiated at ImageX, but iPrint succeeds in placing its core service in front of more customers, while it leaves the cost of attracting those customers completely to ImageX.

Though iPrint's revenues and margins grew 1000 percent from 1999 to 2000, the upstart's success is far from guaranteed. After a successful IPO in March 2000 in which iPrint's stock price rose rapidly to $24.00, excitement dwindled as operating losses continued and the share price sank to under $1.00 by mid-2001. iPrint still has a long way to go in order to be a bona fide success story. Like so many other dot-coms, iPrint must find a way to survive the cost-intensive startup phase.

As brick-and-mortar companies move their services onto the Web, iPrint must race to convert traditional customers before the Web presence of the brick-and-mortar companies makes an impact. To do so it must address the challenge of attracting and converting customers of traditional print shops who are not yet fully comfortable with technology-based tools. And, as with any Web business, it will need to find ways to convert its site's browsers into buyers--and convert first-time buyers into loyal, retained customers. iPrint should also focus on satisfying its distribution and licensing partners. If it can do so, the company can remain flexible and open to the possibility that its future may lie not in servicing end-users of printed materials, but in becoming the leading supplier of ordering and fulfillment software to all of the other e-printers with which it once competed. The critical question for iPrint is whether it will last long enough for the market to reflect its brilliant idea and product.

Questions

1. What are the four distinct advantages iPrint has over its traditional brick-and-mortar rivals in the commercial printing services market?
   
2. What are the traditional areas of marketing iPrint has addressed well? How has iPrint managed to use that success to gain an advantage over its Internet based competitors in the e-printing services market?
   
3. Briefly describe iPrint's distribution strategy and explain how iPrint has used strategic distribution to gain a competitive advantage. Why should this strategy prove successful for iPrint?
   
4. As it enters the growth stage of its life cycle, what should iPrint do in order to ensure its success and capitalize on the work it has done so far? Based on your own personal knowledge of the Internet, what, specifically, do you think iPrint should do?
   

Sources

Davey, Tom. "Iprint.com previews $50 million IPO," Red Herring, December 8, 1999, http://www.redherring.com/insider/1999/1208/inv-iprint.html

Degen, Dorothy. "Iprint to Provide Photo Svc to MSN Network," Dow Jones Newswire, November 27, 2000 (found at WSJ interactive).

Draenos, Stan. "E-Printing Fails to Stop the Presses," Business 2.0, December 12, 2000, http://www.business2.com/content/magazine/ebusiness/2000/12/04/22709

Roberti, Mark. "Copycats Battle for Small-Biz Market," The Standard, July 10, 2000, http://www.thestandard.com/article/display/0,1151,16711,00.html.

"Yahoo offers Printing Service," Wall Street Journal, April 20, 2000, p. B18.

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VIDEO CASE

Elderly Instruments: Marketing Music On-line

Elderly Instruments is a music store and mail-order service that stocks a wide variety of new and used instruments, from guitars to harmonicas, mandolins to violins, and dulcimers to accordions. To complement its stock of instruments, Elderly also has musical equipment, an extensive selection of instructional books and videos, and thousands of hard-to-find CDs and cassettes. Until the advent of the Internet, Elderly sold its wide variety of musical products through more traditional channels, like its showroom in Lansing, Michigan, its full-color general mail-order catalog, and its four specialized catalogs. New technology, however, helped the company realize that electronic commerce can create new opportunities without cannibalizing existing business.

What the Internet offers small companies like Elderly is the potential to participate in the global market and to deliver truly unique goods and services. Via the World Wide Web, Elderly can reach not only current Internet users but also the 52,000 people who access the Internet for the first time each day. This ever-increasing group of potential customers is distributed across the more than 150 countries that have direct Internet access, and Elderly can market its products to all of them. Because Elderly records the number of hits on each page, the company can assess the level of interest these new cyber customers have in each individual page of its Web site. This kind of information is invaluable to a company trying continually to improve its relationship with customers who shop over the Internet.

In order to promote its Web site, Elderly Instruments puts its Web address on its print advertisements and stationery. The site itself attracts shoppers with its design, content, and unique features. The home page provides general information about the company and its offerings, and navigation icons lead shoppers to specific locations within the site: vintage and used instruments, new instruments, gear, books, videos, CDs, bargains, and check-out. The organization of the site helps consumers locate name-brand or off-brand merchandise easily and reduces the cost to comparison shop to nothing since customers can find the lowest prices internationally in just minutes.

Elderly realizes that if its Web site is not convenient, easy to use, and effective, consumers will not shop there, so the company updates its site frequently to keep the information fresh. Clear instructions on each Web page help customers find what they need quickly, and many areas of the site are refreshed regularly. The Cheapo Depot page lists the hottest items on sale, and this page is revised often. The Compact Disc & Cassette page tells customers to click on What's New for recording updates or on the Artist Index to find a favorite recording artist. Another benefit of the on-line store is its hours. The nature of electronic commerce means that customers can receive information and order merchandise twenty-four hours a day, seven days a week. In marketing terminology, this means its products have "time free, location free" availability to the potential market.

Despite the convenience of the Elderly Web site, one challenge Elderly still faces in reaching global markets is the language barrier: its Web site is written entirely in English with prices listed only in U.S. currency. Though 64 percent of on-line shoppers use English, predictions are that non-English speakers will soon outnumber English speakers, and while credit card payment simplifies conversion from dollars to other currencies, buyers prefer prices listed in their own currency. One way to meet the needs of foreign customers would be to allow shoppers to select different languages and to offer a currency conversion page.

One important way that Elderly Instruments capitalizes upon the technology of the Internet is by mass-customizing products. Over the Web, products can be cost-effectively customized to meet each shopper's needs. For example, if a customer wants a Martin guitar, Elderly can put together an individual package that includes strings, a case, and other related accessories. Likewise, if a band needs recording equipment or electronic accessories, Elderly can offer the customer the ability to order a package tailored to fit its needs. The one-size-fits-all mentality has no place in Elderly's marketing strategy. Mass customization is quite effective because it allows the company to better serve its customers' needs at any given time. Personalizing the customer relationship can be inexpensive to do on the Web, but efforts like remembering customers' preferences can translate into increased customer loyalty and more on-line business. Furthermore, mass customization helps Elderly differentiate its products and unique services from those offered by its competitors.

Developing a personal relationship with its cyber customers requires the company to collect information about them. When an on-line visitor provides information by filling in a form or providing an e-mail address, two-way interaction begins. Customers who participate in this interaction provide Elderly with a wealth of information that the company can use to promote products through targeted and personalized interactive ads. In addition to the more conventional methods of collecting information about Internet customers, Elderly uses the Internet to "talk" to its customers. On the We Buy and Trade on the Vintage and Used Instruments page, shoppers are invited to start an e-mail dialogue about selling, trading, or consigning their instruments on-line and to use the preliminary used-instrument evaluation form for "honest reliable estimates." Building on-line customer dialogue and feedback fosters greater customer satisfaction and provides the company with insight for better products and service. The e-mail function of the site provides a way for Elderly to listen to the ever-increasing number of Internet consumers and build a solid business relationship with its cyber customers that competitors find hard to beat. For Elderly, electronic commerce is nothing less than a dynamic new business opportunity.

Bibliography

Elderly Instruments Web site: http://www.elderly.com/

"Computer Titans See Internet Commerce Opening New Paths," Odessa American, February 2, 1999, p. 3C.

Questions

1. What are the advantages of on-line commerce for Elderly Instruments?
   
2. Why is on-line mass customization a useful tool for Elderly Instruments?
   
3. How does Elderly's electronic commerce channel help it conduct marketing research?
   
4. What challenges does Elderly face in reaching global markets?



Back to the TOC

ENDNOTES

1. Although the airline example is hypothetical, consult Jacqueline Doherty, "Bye-Bye Middleman: For Manufacturers, E-Commerce Savings Could Be Huge," in Wall Street Journal Interactive Edition, January 24, 2000.

2. Bill Marvel, "Technology Bringing Press to the People." The Dallas Morning News, Section J, Page 8, Sunday, January 2, 2000.

3. Michael Pastore, "Web Influences Offline Purchases, Especially Among Teens." CyberAtlas, July 18, 2001.http://cyberatlas.internet.com/markets/retailing/article/0,,6061_804141,00.html

4. Linda Hyde, "Critical Issues: Multi-Channel Integration: The New Retail Battleground," Price Waterhouse Coopers Report, March 2001.

5. Michael Pastore, "One-Third of Web Revenue Headed to B-to-B Firms," CyberAtlas, October 30, 2000. http://cyberatlas.internet.com/markets/b2b/article/0,,10091_498621,00.html

6. CyberAtlas staff "U.S. Internet Audience Up 16 Percent in Past Year," CyberAtlas, August 13, 2001. http://cyberatlas.internet.com/big_picture/geographics/article/0,,5911_864541,00.html

7. Falling through the Net: Toward Digital Inclusion, U.S. Department of Commerce, October 2000. http://www.ntia.doc.gov/ntiahome/fttn00/Front00.htm

8. Michael Pastore "Internet Remains a Man's Domain." CyberAtlas, July 26, 2001. http://cyberatlas.internet.com/big_picture/demographics/article/0,,5901_809341,00.html

9. Mary Modahl, Now or Never--How Companies Must Change Today to Win the Battle for Internet Consumers. HarperCollins Publishers, New York, NY, 2000.

10. Michael Pastore "429 Million Online Worldwide." CyberAtlas, June 11, 2001. http://cyberatlas.internet.com/big_picture/geographics/article/0,,5911_782281,00.html

11. Anonymous, Ready? Net. Go! McConnell International, May 2001. http://mcconnellinternational.com/ereadiness/report.cfm

12. Nicholas Negroponte, Being Digital. Vintage Books, New York, NY, 1996.

13. Michael Pastore, "Broadband Content Leaving PCs for TV and Stereos," CyberAtlas, October 30, 2000. http://cyberatlas.internet.com/markets/broadband/article/0,,10099_498571,00.html

14. Small business virtual communities often provide services for building, hosting, and maintaining a small business Web site at affordable rates:
    AllBusiness.com http://www.allbusiness.com/
    Microsoft's bCentral http://www.bcentral.com/
    Winstar's Office.com http://www.office.com/
    Works.com http://www.works.com/

15. Michael Pastore, "Holiday Spending Numbers Come in Below Projections," CyberAtlas, January 18, 2001. http://cyberatlas.internet.com/markets/retailing/article/0,,6061_563741,00.html

16. Richard Gascoyne and Koray Ozcubukcu, Corporate Internet Planning Guide: Aligning Internet Strategy with Business Goals. John Wiley & Sons, New York, NY, 1997.

17. Tom Hyland, "Why Internet Advertising?" IAB Advertising ABC's, No Date, http://www.iab.net/advertise/content/adcontent.html

18. Michael Pastore, "Reports Predict Web Ads Have a Future," CyberAtlas, June 21, 2000. http://cyberatlas.internet.com/markets/advertising/article/0,1323,5941_399321",00.html

19. Michael Pastore, "Branding Gets More Support from Online Advertisers," CyberAtlas, December 20, 2000. http://cyberatlas.internet.com/markets/advertising/article/0,,5941_541351,00.html

20. Michael Pastore, "Standard Size Banners Losing Ground," CyberAtlas, November 6, 2000. http://cyberatlas.internet.com/markets/advertising/article/0,,5941_504221,00.html

21. Michael Pastore, "E-Mail Marketing Delivering the Message," CyberAtlas May 9, 2000. http://cyberatlas.internet.com/markets/advertising/article/0,,5941_356791,00.html

22. Jim Daniels, "E-mail Marketing Methods." bizmove.com, No Date. http://www.bizmove.com/internet/email.htm

23. Jim Daniels, "Bulk E-mail vs. Opt-In." bizmove.com, No Date. http://www.bizWeb2000.com/bulkopt.htm

24. Michael Pastore, "$13 Billion Spent on Web Promotion," CyberAtlas, August 3, 2000. http://cyberatlas.internet.com/markets/advertising/article/0,,5941_426701,00.html

25. Bill Winett, "Tracking Tutorial," Webmonkey, No Date. http://hotwired.lycos.com/webmonkey/e-business/tracking/index.html

26. Miguel Helft "What a Long, Strange Trip It's Been for Webvan." The Industry Standard Magazine, July 23, 2001. http://www.thestandard.com/article/0,1902,27911,00.html?body_page=1

IMBEDDED LINKS

The following Web site links are imbedded throughout the text in Chapter 15. Because the actual URLs for these sites are not visible within the body of the text, they are explicitly shown here for anyone reading this document on paper media.


ActivMedia Research http://www.activmediaresearch.com/
AllBusiness.com http://www.allbusiness.com/
allNetResearch http://www.allnetresearch.com/
Amazon.com http://www.Amazon.com/
American Demographics http://www.demographics.com/
American Greetings http://www.americangreetings.com/
AmeriTrade http://www.ameritrade.com/
AOL http://www.aol.com/
Barnes & Noble http://www.bn.com/
bizmove.com http://www.bizmove.com/
Borders http://www.borders.com/
BulletMail http://www.bulletmail.com/
BusinessWeek http://businessweek.com/
CDNow http://www.cdnow.com/
CIO Web Business Magazine http://www2.cio.com
ClickZ Network http://www.clickz.com
CommerceNet http://www.commerce.net/
Consumer Reports http://www.consumerreports.org/
CyberAtlas http://cyberatlas.internet.com/
Cyber Dialogue http://www.cyberdialogue.com/
Dell Computer http://www.dell.com/
Disney http://www.disney.com/
Dow Jones http://dowjones.com/
eBay http://www.ebay.com/
Eddie Bauer http://www.eddiebauer.com/
Elderly Instruments http://www.elderly.com/
eToys http://www.etoys.com/
eTrade http://www.etrade.com/
Federal Express http://www.fedex.com/
Forbes.com http://www.forbes.com/
Forrester Research http://www.forrester.com/
Fortune http://www.pathfinder.com/fortune/
FTD Flowers http://www.ftd.com/
Hitachi http://www.hitachi.com/
HTMail http://www.htmail.com/
The Internal Revenue Service http://www.irs.gov/
International Telecommunication Union http://www.itu.int/
Internet Advertising Bureau http://www.iab.net/
L.L. Bean http://www.llbean.com/
Lands' End http://www.landsend.com/
Macy's http://www.macys.com/
Mark Shale http://www.markshale.com/
McDonald's http://www.mcdonalds.com/
Microsoft's bCentral http://www.bcentral.com/
Microsoft bCentral Daily Digest http://digest.bcentral.com/
My.PlaceWare http://my.placeware.com/
National Geographic http://www.nationalgeographic.com/
Peapod.com http://new.peapod.com/
Popular Science http://www.popularscience.com/
PostMasterDirect http://www.postmasterdirect.com/
Priceline http://www.priceline.com/
Readers Digest http://www.readersdigest.com/
Sabre http://www.sabre.com/
Simba Information http://www.simbanet.com/
Survey.Net http://www.survey.net/
Toshiba http://www.toshiba.com/
Travelocity http://travelocity.com/
Toys"R"Us http://www.toysrus.com/
United Parcel Service http://www.ups.com/
U.S. Census Bureau http://www.census.gov/
U.S. Department of Commerce http://www.commerce.gov/
U.S. Government Printing Office http://www.gpo.gov/
U.S. Postal Service http://www.usps.com/
Wall Street Journal http://www.wsj.com/
The Washington Post http://washingtonpost.com/
WilsonWeb http://www.wilsonWeb.com/
Wine.com http://www.wine.com/
Winstar's Office.com http://www.office.com/
Works.com http://www.works.com/
Yahoo! http://www.yahoo.com/

The following are also live links in the text, or suggested live links:

Botspot http://www.botspot.com
Ecommerce Facts http://www.g3plus.net/content/ecommerce_facts.html
Gomez http://www.gomez.com
IKON Office Solutions http://www.ikon.com
ImageX http://www.imagex.com
Impress http://www.impresse.com
Iprint http://www.iprint.com
Jupiter Communications http://www.jup.com
Kinko's http://www.kinkos.com
Monster http://www.monster.com
MySimon http://www.mysimon.com
Nielsen Netratings http://www.nielsen-netratings.com
Noosh http://www.noosh.com
Print Café http://www.printcafe.com
Salary.com http://www.salary.com
Search Engine Watch http://www.searchenginewatch.com
USA Today http://www.usatoday.com
Verisign http://www.netsol.com
Volumebuy http://volumebuy.com
Yahoo! Shopping http://shopping.yahoo.com Copyright © 2003 South-Western. All Rights Reserved.