After studying this chapter, you should be able to:

1. Describe the impact of the Internet on business practices.
   
2. Describe the current Internet marketing environment.
   
3. Discuss on-line business strategies.
   
4. Discuss Internet marketing objectives and strategies.

By most accounts, etoys is one of the best-performing retailers on the Internet. Launched in October 1997, eToys was a dominant player during the 1999 holiday period in the on-line retail toy market; it ranked #1 in Web site traffic, revenue, gross margin, and average order size. Media Metrics, which tracks Internet traffic, estimated that the eToys Web site attracted nearly three times as many visitors as the Toys "R" Us Web site during that period.

What are the factors behind eToys' success? eToys has created a user-friendly Web site that allows customers to shop by age group, gender, or price range. eToys' strategy of suggestive selling, which recommends the most popular toys and games for each age group, produced a $60 average order size for the 1999 holiday period, compared with $36 for Amazon.com. Based on these features, Gomez.com, an on-line customer experience measurement company, ranked the eToys' Web site #1 in the on-line toy market for five consecutive periods.

eToys also created key marketing agreements to build its brand name and drive customers to its Web site. An agreement with America On-line, announced in August 1999, gave eToys "anchor tenant" status in the Toys, Educational Toys, Kid and Baby Gear, Collectibles, and Electronic Games categories of the Shop@AOL on-line shopping mall. A similar agreement was later reached with Yahoo! Marketing agreements with GapKids, babyGap, and McDonald's helped to create an off-line presence for eToys. With these marketing efforts, eToys was ranked as one of the top ten on-line retail sites during the 2000 holiday season.

Despite these successes, eToys has yet to make a profit and faces imminent financial ruin. Once trading at $86 per share, eToys' stock price recently dropped below 25 cents. The company hired Goldman Sachs to explore merger and acquisition opportunities. What is behind the growing number of dot.com failures? What role should the Internet play in a company's overall marketing strategy? How can the Internet reshape or complement a company's core business? What are the implications of not developing an Internet strategy? We will address these issues and more in this chapter.

Adapted from Patricia Sellers, "Inside the First E-Christmas," Fortune, Vol. 139, No. 2, February 1, 1999; Erin Kelly, "The Last e-Store on the Block," Fortune, Vol. 142 No. 6, September 18, 2000; and eToys' 1999 annual report.

Back to the TOC

The Impact of the Internet on Business Practices

Seemingly the only thing you cannot do is offer them a cup of coffee.

Excellent opportunities for customer relationship marketing are possible through the Internet. Web-based companies can build a personalized rapport with customers, much like a salesperson does with his or her clientele. By capturing information about the purchases of individual customers, a Web merchant can build profiles of their likes and dislikes. When the company stocks a new product that matches an individual's profile, the merchant can automatically e-mail the customer to let him or her know about the product's availability. When was the last time your local bookstore called to inform you that they have a new book you might be interested in buying? Barnes & Noble does.

Many customer service activities also can be conducted on the Internet. Dealings, such as inquiring about the status of an order, work just as well or better over the Web as they do in person. Other customer service activities require personal attention. Would you feel comfortable asking a computerized Web advisor about an allergic reaction to a prescription medication you are having? Probably not!

The Internet also revolutionizes primary research techniques. For organizations without a Web presence, e-mail can be used to conduct surveys. It is easier, faster, and less expensive for people to participate in an e-mail-based survey than in conventional mail surveys. Furthermore, the response rate is typically higher.

Web-based surveys are even better! A greater variety of questions can be posed on a Web page than are possible through e-mail. Graphics and multi-media may be used to expand or enhance the survey tool. Response data are immediately available once the respondent completes the survey.

It is even possible to run a focus group over the Internet with a free service called My.PlaceWare. This service enables an organization to conduct live graphical and interactive meetings with anyone on the Internet. A company can present materials on-line to a live audience and gather feedback information in real time. Information can be shown to participants in a variety of formats, including white board, text slides, polling slides, Web slides, SnapShot, and LiveDemo. Presenters can ask people in the audience to evaluate or vote on any number of issues, such as product features, colors, appearance, or price.

Organizations can collect information about their competitors by directly observing product, pricing, and promotion decisions executed by key competitors at their Web sites. Organizations also can use an intelligent agent, often called a "shopping bot," to explore a range of competitive Internet offerings. For example, mySimon conducts comparison shopping for products at more than 2,000 on-line stores.

Be practical when developing an Internet marketing plan. Marketing on the Internet may not afford the time or enable the precision necessary for a meticulous plan. A tradeoff must be made between overly simplistic and excessively detailed plans. The remainder of this chapter, along with the E-Marketing Planning Activities at the end of each part in your text, can serve as a guideline for developing an Internet marketing plan.

Because the Internet is a new frontier, it is attracting a new kind of explorer. These pioneers have inquisitive minds, an appetite for change, and a keen awareness of the Internet 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 Internet. Nevertheless, people well-informed about the Internet marketing environment 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.

As we enter the 21st century, we are witnessing the most dramatic and rapid changes in the history of mankind. This situation is largely due to the invention of the Internet and the creation of the World Wide Web. What makes these phenomena even more exciting (or scary) is that the Internet and the ways it will be used 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 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 (B2C) electronic commerce. For many individual 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. As a greater variety and amount of information becomes available through the Internet, consumers become more informed and have more alternatives to choose from. The Internet makes the actual purchase more convenient and easier. A customer can shop for many items 24 hours a day, 7 days a week, without leaving home-and have the items delivered there 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 (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. One basic difference between consumer and company purchases, however, is 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 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; Internet businesses and their products or services, and so on. There may be multiple sources for similar information, each deriving its results in a different way. It should be no surprise to find sizable differences in future projections for Internet markets.

More than half of American households have computers, most of which are connected to the Internet; of course, this also means that 50 percent do not have Internet access.⁶ Some of these "have-nots" may use computers at work or school to surf the Web, but there are still a large number that do not. Internet access is higher among better-educated, higher-income households, but this "digital divide" is narrowing. And the number of women on-line recently surpassed the number of men.⁷

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.⁸ Forrester identifies three factors that influence a consumer's on-line buying behavior:

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

For high velocity phenomena like the Internet, using historical data for making projections is questionable. Demographics for the toy industry showed Toys"R"Us executives that less than 10 percent of their target market, mainly young parents, currently shop on-line. What the historical data do not show is how many will shop on-line and when. Although the current target market for Toys"R"Us is predominantly early adopters, the company can expect a higher acceptance for on-line buying when the mainstream is fully on-line.

In fact, the potential consumer base for every company is a combination of all three categories of adopters. The most important thing for a company to determine is the proportion of their customer base that corresponds to each of the three categories. Once this is known, the company can devise a targeting strategy that reflects its customer base. However, the ways in which a customer base is identified and reached differs in several ways from normal target marketing.

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. More conventional media, such as television, radio, and print gain greater reach by pushing their message out to the general public. For the most part, potential customers on the Internet actively seek products by pulling information about those products. More and more, we see companies using targeted marketing through conventional media to make customers aware of a company's Web-based business channel. Well-placed magazine advertisements can be most effective for attracting people from a target audience. Broadcast media are less effective because they direct their message to a wider variety of people.

The Virtual Community
Most people have a desire to be part of groups that share common interests. Individuals living near one another in towns, cities, or communities derive social, cultural, and economic benefits from being in close proximity. Labor unions and professional organizations form because they have work-related interests. Members of these groups benefit by sharing information and other resources.⁹

In virtual communities, people don't physically come into contact with one another. Members of virtual communities have a common interest such as a hobby, sport, or other avocation, and they interact with each other through the Internet. Individuals contribute content to the communal Web site and over time build a deep reservoir of information. Members develop a sense of ownership through their involvement in the community and get into a habit of returning to the site. They also become loyal and develop trust in the community. People may be more comfortable making a purchase in their virtual community rather than someplace less well known.

Virtual communities can be established using bulletin boards, chat rooms, newsletters, or discussion lists. Yahoo! sponsors chat rooms for topics ranging from politics to movies and on-line clubs with interests ranging from business and finance to sex and romance. On-line newsletters are targeted electronic magazines, or e-zines. E-zines are in concept similar to paper newsletters; they are focused on a particular subject area or topic of interest; they provide a means to stay in touch with your clientele; and they can inform current and potential customers of your new products and services. E-zines also can be used to generate income by selling advertising space! Dozens of marketing and electronic commerce e-zines can be found at Wilson Marketing Periodicals and E-zines.

An increasing number of business-oriented communities and marketplaces are appearing on the Internet. These sites may cater to specialized segments of the business marketplace and bring together information-seekers, prospects, and buyers. Others target more general small business interests: Allbusiness.com, Microsoft's bCentral, SmartAge.com, Winstar's Office.com, and Works.com

The Global Village
One of the best opportunities for company expansion and growth is in the international arena. The six billion people on the earth live in about one billion households. More than half of those do not have a telephone, let alone a personal computer. Worldwide, the International Telecommunications Union in Geneva estimates that 150 million individuals can access the Internet -just about 2.5 percent of the world population.¹⁰

As business and commerce expands into the global arena, the Internet is helping to overcome the physical distance that separates peoples of the world. Numerous factors will contribute to greater diversity and sophistication in the marketing environment. Conflict between social, cultural, economic, political, demographic, resource, infrastructure, and legal factors may increase due to the accelerating rate at which these factors are coming into contact. The effect the Internet will have on this changing environment is unknown, but it is certain that the Internet acts as a catalyst in this change. In order to survive and prosper, organizations will need to develop a global vision that strikes a balance between internal and global factors.

Although technology makes communication between distant people possible, language differences complicate interaction. There is no such thing as a universal language translator. The most straightforward translations can break down if not carefully handled. This situation becomes more complicated when international, geographic, and regional variations are taken into consideration. For example, although many words may be similar, Castilian and American Spanish are not the same, and there are many different dialects throughout Mexico. The same situation is found with any language.

The United States has led the world in the number of people connected to the Internet, but the proportion of users in the U.S. compared to those in Europe has dropped every year. In 1999 the number of people using the Internet in Europe was expected to exceed those in the U.S.

Table 14.1 Comparison of U.S. and European Internet Use and Costs

Adapted from Marius Meland, "Europe: The Next Frontier." Forbes.com, March 29, 1999.

http://www.forbes.com/tool/html/99/mar/0329/feat.htm

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 Africa, Asia, and South America. The economies and infrastructures of countries in these regions lag behind the more developed 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-distance from markets, under-investment in basic infrastructure, and under-utilized capacity.¹¹

As the U.S. share of the Internet universe drops below 50 percent, it is increasingly important to recognize Internet use differences across countries. For example, although the number of Europeans using the Internet exceeds the number Americans, U.S. consumers spend far more money on on-line purchases. According to Forrester estimates, Europeans spent the equivalent of 8 billion U.S. dollars on-line in 2000, while U.S. consumers spent $45 billion.

Nearly 40 percent of all U.S. Internet users made on-line purchases in 2000. Meanwhile, 26 percent of European Internet users, 25 percent of Canadian Internet users, and only 12 percent of Australian Internet users transacted on-line. Among European countries, Italy, Spain, and France lag behind their northern neighbors. There are a variety of factors that might explain these differences.

The United States has what has been referred to as a catalogue culture, wherein consumers are accustomed to long-distance transactions-exchanging credit card information with strangers via the mail or telephone-in exchange for a promise to later send the requested products. Consumers in countries like Italy and Spain, on the other hand, are accustomed to transacting with community-based retailers whom they likely know personally.

Climate may be a contributing factor. Whereas consumers in colder climates may be inclined to stay home and shop the virtual marketplace when the weather is inclement, consumers in milder climates are more likely to enjoy a stroll through the local market on a beautiful, sunny day.

Level and type of education may also play a role. More industrialized nations tend to have higher education levels, and they tend to promote more practical and technical studies over a humanistic and theoretical education. The higher levels of technical education translate into consumers who are predisposed to using electronically-mediated channels.

Adapted from Niki Scevak,"What's so Different About Australia?" Australia.internet.com, November 14, 2000; Andrea Zanetti Polzi with William Reeve, "Europe's North-South Technology Divide", Forrester Research, August 10, 2000; Abigail Leland with Matthew M. Nordan, "Europe' Retailers Ring In The Holiday Season." Forrester Research, November 22, 2000; Evie Black Dykema with Lisa Allen, "Holiday 2000 Brought Cheer To On-line Retail," Forrester Research, December 27, 2000.

A bigger change is about to take place as products transition from atoms to bits.¹² We are accustomed to processing and delivering tangible goods and services. For a business to grow in a physical world, it must expand its production, storage, transportation, people, and other physical resources. But as we move into the information age, non-physical product features will increase in value. Video, sound, and computer data will be captured as digital bits. Furthermore, value can be added to the bits by combining, enhancing, and manipulating them. Development of these intangible products will still require physical resources and people, but even now the marketing, sales, and distribution of these items no longer rely on physical mechanisms. The Internet is ideally suited to perform these functions, and this will eliminate the need for their physical counterparts.

One inherent advantage of the Internet is the ability to have a conversation. With broadcast media, such as radio or television, a message originates from a source and is sent to one or more recipients, but the converse is not true. Using the Internet, messages can be sent back and forth between participants. The implications of this conversation on global marketing are speed and value. Not only does the Internet accelerate global marketing efforts on the level of time, it also can greatly extend the reach of these efforts as well as reduce the cost per contact.

Currently, the two-way communication of the Internet can be accomplished-and more fully achieved-on the telephone. When people talk on the phone they use non-verbal communication to help express themselves. Speed, loudness, tone, and inflection are several techniques people use to enhance a conversation. As the use of audio becomes more common on the Internet, it will be comparable to having a conversation on the telephone. And video will give Internet communications a richness that exceeds the capability of conventional phones. Multi-media techniques on the Internet will eclipse any other conventional media and challenge broadcast television.

Futurists foresee a day when today's diverse electronic technologies will converge and combine into a single high-speed communication and distribution channel. This channel will carry broadband content to telephones, televisions, and computers. By 2003, half of this broadband content likely will be directed to living room televisions. This content will be on-demand digital video with minimal interactivity. The remaining broadband content will be directed to PCs, and will feature highly-interactive content enhanced with visuals.¹³

You don't have to start big to make it big on the Internet. By leveraging Internet technology, a small business with a few very smart people can be every bit as competitive as companies with 100, 1,000 or 10,000 employees. Although it's becoming increasingly difficult for small business Web sites to compete with the heavily funded sites of large companies, it is nevertheless possible for small firms to do a very credible job. The market is so big and growing so fast that operating even a small piece of it can produce substantial income for a small business. The opportunities are limitless-many of the successful Web-based businesses of today didn't even exist ten years ago!

The environment and business climate on the Web are changing so rapidly that companies must be agile to stay in business, and prepared to grasp new opportunities. Small businesses hold a definite advantage over large companies in this regard. It can take months, if not years, for a large company to change a strategy that isn't working-it's like turning an aircraft carrier. Small businesses are similar to speedboats; they can turn quickly and dart toward a promising direction.

Building a business on the Internet is more than putting up a Web site and expecting the world to beat a path to your URL. Achieving success in this arena requires the same basic ingredients as starting any small business. Only about 20 percent of all small businesses survive beyond five years, and the life expectancy for Web businesses is proving comparable. What does it take for a company to survive and prosper on the Web? ·

• Offer products that fulfill customer needs, wants, or desires
  
• Sell your products at a fair price to customers
  
• Use promotions to make potential customers aware of your products
• Make your products available to customers when and where they want them

There are advantages to building a small business on the Internet. The financial investment for a Web-based business can be smaller than for a brick-and-mortar store. However, the time invested by owners can be considerably more for electronic businesses. Successful Web-based companies must be competent with the technologies they employ, but they also need sound business and marketing strategies.

Internet Goals

For example, if an organization sets a goal to improve customer service, it could target a small 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 on-line positioning. On-line positioning statements identify the most important target market(s), that market's most important on-line need, how the company's Internet presence meets that need, and how the on-line presence is better than the competition. To appeal to consumers, a Web site should be intuitive and easy to use. Well-designed programs can be deceptive in that people perceive they are easy to develop and run, when in fact, the opposite is usually true. Establishing an Internet presence can be a daunting task that is not as cheap as some people might first think.

Marketing on the Internet can employ a variety of techniques ranging from simple e-mail to a full-service electronic commerce Web site. E-mail is the least sophisticated and can be readily accomplished using a third party organization such as an Internet Service Provider (ISP).

The most basic type of Web site-sometimes referred to as a corporate Web site-provides consumers with information but provides little or no opportunity to communicate with the organization. The purpose of the Web site is to provide basic information about the company and its product line. Corporate Web sites can be run internally or by a third party organization. The amount of content and how often it changes will affect the size of the Internet program.

Web sites that permit two-way communication between an organization and its customers are sometimes referred to as interactive or transactional Web sites. Most implementations of electronic commerce require the use of interactive Web site technology. This type of Web site can be very powerful and sophisticated but very expensive to develop and operate. Even though an organization may have sufficient internal resources to develop and operate an electronic commerce Web site, many choose not to do so due to the difficulty in attracting and retaining qualified technical staff. People are needed to develop, manage, and update the content throughout the life of the program-which may be indefinitely!

Interactive Web sites allow complex interactions that go beyond one-way communication. They can be used to execute transactions, deliver electronic products and services, and collect detailed demographic and behavioristic information about customers. This complex set of interactions can lead to a variety of on-line business models, including direct selling models, Internet retailing models, and Internet marketplaces.

Direct Selling Model
The Internet direct selling model can be very tempting for manufacturers that wish to increase direct contact with their customers. Because this model can mean the elimination of complex distribution networks, many companies are hesitant to convert to Internet selling for fear of angering distributors and dealers. Nonetheless, manufacturers often must convert to direct selling or lose market share. This increased customer contact can help companies intensify their focus on service.

The obvious advantage of selling directly to customers is eliminating middlemen who mark up prices before the product reaches the buyer. However, this advantage can turn into a disadvantage if the manufacturer cannot successfully manage all of the activities that the middlemen in the channel typically perform. These activities include promotion, transaction and delivery services, and after-sale customer service.

Dell Computer is an example of a manufacturer that has successfully used the Internet to manage many of the channel activities. Dell Computer is committed to building excellent relationships with its customers, and this focus has translated into high revenues and profitability levels. Dell doesn't use any retail stores or distributors; all sales are made directly to its customers. Dell is responsible for taking and fulfilling orders, and it controls shipping and customer service.

Orders are taken over the telephone using an 800 number or through the Internet. The Web site simplifies order placement, and it also provides a wealth of helpful information. Because Dell computers are built to order, they must go through a series of steps before reaching the customer. Once an order is placed, the customer can view its status through Dell's Web site. After receiving their computer, customers can get assistance for its setup over the phone. Should the computer fail during its warranty period, customers can use Dell's Web site to diagnose and solve the problem. If this doesn't work they can get individualized help over the phone from a technician. And if the diagnosis reveals a defective component or part, Dell will have a replacement express shipped to the customer the next working day.

The Internet is best suited to direct selling and distribution of 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 directly selling and distributing music via the Internet. Other information and entertainment producers implement advertising models. For example, USA Today provides free on-line news directly to consumers, who in turn act as audiences for advertising messages. These advertising messages are typically provided and paid for by other on-line businesses.

Internet Retailing
One of the most talked about areas when it comes to the Internet is retailing on the Web, or e-tailing. Why is there so much interest in e-tailing? On-line purchasing didn't even exist several years ago and retail revenues from the Internet for the 2000 holiday period exceeded $10 billion, more than double the same-period sales for 1999.¹⁵ That's worth paying attention to!

From the buyer's perspective, there are three basic differences between Internet shopping and purchasing items in a real store.

1. For many people it is more convenient and less expensive to shop on-line 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, there are no lavish surroundings, salespeople, or piano players on e-tailing sites. Some people could see this as changing shopping from an entertainment experience to a functional task.
   

The relative lack of tactile and social interaction during an on-line 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 and detail that conventional stores may not be able to match. Products can be tailored on-line 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 a level of attention that drives salespeople crazy. Referred to as mass customization, these companies have learned how to satisfy customers by giving them exactly what they want even though no two customers are the same.

Some on-line 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 on-line financial service providers such as eTrade and on-line 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 on-line marketplaces, sometimes referred to as e-marketplaces. An e-marketplace acts as a channel intermediary bringing 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 C2C (that is, consumer-to-consumer) contexts as well. For example, Travelocity is a B2C e-marketplace that creates an on-line community of travel companies, including airlines, hotels, and car rental agencies, that offer 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. On-line malls bring together e-tailers at one location so that consumers can conduct one-stop shopping. To further support this one-stop shopping approach, on-line malls are frequently organized by portals like Yahoo! or AOL. These diversified portals create communities that act as entertainment and shopping destinations.

There are some marketing objectives that are particularly appropriate for the Internet. The key success factor for an Internet business is traffic, traffic, traffic. Objectives related to generating and building traffic should be included in any Internet marketing plan. Traffic can be quantified in a variety of ways, however. 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. Traffic coming to a site can be quantified as hits, page views, or as unique visitors. (These terms will be discussed in more detail below in the section titled "Evaluating the Outcome.") Upon arriving at the site, the clickstream can be followed to identify which pages are viewed, the sequence in which they were viewed, and the duration of the entire visit. 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 Cyberatlas.com, which reports Neilsen NetRatings for the top Internet sites each month. 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 on-line relationship. For example, there can be objectives associated with converting incoming traffic into new members through on-line registration, or identifying potential new prospects by allowing them to request follow-up information, or converting traffic into actual customers through on-line 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 in balance 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 through a convenient distribution channel at affordable prices.

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, perfume, suit, or house through the Web. One way to overcome this shortcoming is to provide personalized service and virtual product trials on-line. 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 personalized shoppers that recommend 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 on-line companies can use to reassure reluctant consumers and 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.

For traditional retailers, the channel of distribution 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, it orders 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 channels 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. In fact, poor order fulfillment is a leading complaint lodged against on-line companies. More than 40 percent of all complaints lodged against eToys at PlanetFeedback.com during 2000 were categorized as delivery problems; another 19 percent were categorized as related to item availability.

As products become more digital, direct on-line distribution will become more prevalent. Amazon.com distributes e-books on-line. Publishing companies like the Gannett Company (USA Today) distribute news and information on-line. Recording companies are experimenting with different ways to package and distribute music on-line. Computer software is widely available for download, and electronic distribution of video-on-demand promises to become big business.

On-line 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 on-line advertising was $4.3 billion in 1999 and will soar to $28 billion by 2005.¹⁸ According to the Internet Advertising Bureau, the top two reasons for implementing on-line advertising are to drive traffic to a Web site and to build brand awareness and recognition.¹⁹ To accomplish these objectives, on-line marketers use a mix of banner and button advertisements.²⁰

Banner advertisements have been the mainstay of Internet advertising since commercial usage began in 1994. 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 have been the mainstay of on-line advertising, button advertisements are becoming increasingly popular. Buttons are smaller than banners and come in medium, micro, short, and tall variations. The variety of sizes facilitates placement of 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 the user.

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 form of unsolicited bulk e-mails which are sent to "unqualified" e-mail addresses.²² Junk e-mail is often called spam and considered poor "netiquette". It's tempting to use this type of marketing 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, PostMasterDirect, and Targ *it.

Businesses will spend $13 billion on Web promotion in 2000, but on-line marketers rank free search engine registration as the most effective form of on-line 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 on-line search engines. And that will drive traffic to your site.

There has been much discussion about the extent to which on-line businesses will implement flexible pricing. 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, on-line flexible pricing strategies have been limited to industries that tend to implement flexible pricing off-line as well-for example, industries with perishable inventories like airlines and hotels. As with off-line pricing decisions, the on-line 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 off-line and on-line face another consideration when setting prices: whether on-line and off-line 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) there is a benefit to the company to encourage use of one channel rather than the other. For example, banks may charge lower prices for on-line services to encourage customers to bank on-line 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? By comparing the results achieved to the Internet goals and marketing objectives. Deviations from objectives act as signals that changes to marketing strategies may be necessary.

There are a variety of techniques 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

The most common statistic captured by Web servers is the number of hits for every Web page. 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 5 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 may be revamped or removed from the Web site. Web pages that exceed expected hit counts can be analyzed to determine why they are successful. 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:

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

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 an electronic piece of information 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: Is Big Brother Watching You?

The use of on-line tracking technology raises complex privacy issues. Companies like DoubleCick, which maintains an on-line advertising network, can track users from site to site as they travel the Web. By observing which Web sites a user visits, DoubleClick can infer preferences and better target its advertising messages.

This on-line behavioral information can be matched with personal demographic information to create detailed individual profiles. DoubleClick can receive personal information from a variety of sources, including registration information from network affiliates and personal information provided in response to an ad (for example, a survey or purchase form).

With the purchase of Abacus Direct, a direct mail company that possesses huge databases about off-line consumer activity, DoubleClick now has the ability to create detailed individual profiles that integrate personal demographic information with on-line and off-line behaviors. Are you concerned about on-line privacy?

Adapted from Roger Ebert, "Memo to Amazon: Hands Off!", Yahoo! Internet Life; Pamela Parker, "Privacy Advocates Target DoubleClick Network Members," InternetNews.com, February 2, 2000; the Amazon.com Privacy Notice, and the DoubleClick.com Privacy Policy.

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LOOKING BACK

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USE IT NOW!

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SUMMARY

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DISCUSSION AND WRITING QUESTIONS

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ON LINE

• http://www.toysrus.com
  
• http://www.kbkids.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, write out what you think its on-line business strategy is, and identify at least two marketing objectives.

• http://www.mountaindew.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

Environment - either under "Global Village" or "Basic Forms of Virtual Business"
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

"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

After "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

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 electronic piece of information 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.

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?

ENTREPRENEURSHIP CASE

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VIDEO CASE