Gaining competitive advantage in e-tailing through marketing management and value-added uses of technology

Author: Bertsch, Thomas; Busbin, James Wright, Newell Source: Competitiveness Review 12, no. 2 (2002): p. 49-56 ISSN: 1059-5422 Number: 199309061 Copyright: Copyright American Society for Competitiveness 2002


EXECUTIVE SUMMARY

Experts cite the lack of a sound business plan and a diminished regard for basic marketing and management practices as major reasons for the failure rate of Web-- based retailers. The dot-com platform alone was often viewed as a sufficient basis for business success. This article provides a guide in applying marketing management principles to Internet-based retailers. The format for this guide uses marketing management plans, providers, access, distribution, markets, products, prices, and promotions. The practices and examples provided in this guide are useful for gaining competitive advantage in the retail, dot-com marketplace.

INTRODUCTION

The mid and late 1990s saw rapid growth in doing business over the Internet. Thousands of Internet-based businesses sprang up, with most growth in the number of business-to-consumer sites (e-tailers). In response, many bricks-and-mortar retailers added a web presence to their offerings. Then, in 1999 dot-coms began failing at alarming rates. This fallout is widely attributed to the rush-to-market mentality that created thousands of retail dot-com start-ups. For example, the highest dotcom failure rate is in the business-to-- consumer sector, and that is the focus of this article.

Business-to-business sites differ from business-to-consumer sites in that they generally use private networks restricted to specific business partners (externets) and a standard platform for the exchange of information between businesses. Payment is made by predetermined credit terms using electronic data interchange (EDI). In contrast, business-to-consumer stores have weaker customer relationships and require many more active accounts. Also, e-tailers are more likely to handle ordering, payment, and shipping as single-order events. In other words, business-to-- consumer sites have a less reliable customer base, lower efficiency, and higher competitive vulnerability.

A dot-com retail business platform can be of benefit, especially when unique benefits are integrated into the e-tailer's products and services. Key benefits to offer consumers are speed of access, transaction, and delivery while providing a sense of community through customer-to-- customer and customer-to-retailer interactive linkages (Neuborne, 2000).

This article contends that e-tailers should capitalize on consumer benefits of the dot-com platform and base the business on sound marketing management principles and practices. Many e-tailers failing in the marketplace may have done one or the other (or neither) but not both. What follows is a guide to applying marketing management principles and practices to e-- tail businesses. The content is broken down into eight marketing management subject areas: plans, providers, access, distribution, markets, products, prices and promotions. These marketing management observations for the retail dot-com environment should be useful for both startups and operating e-tailers.

PLANS

Strategic planning and product marketing plans are essential for e-tailing success. This is especially true given the youth of the dot-com market. A new business technology with little track record should warrant more careful evaluation and planning as opposed to the "rush to market" approach used by many in the dot-- com environment. For example, Market Guide applied a traditional business breakeven model to the 729 Internet firms it tracks and found that more than 118 of them needed 10 times their most recent 12 month revenue just to cover costs (Krantz, 2000). The Internet environment is highly competitive and rapidly changing, Therefore, the potential benefits of business planning are great for e-tailers.

As a starting point, marketing managers should consider corporate mission and objectives when deciding marketing objectives. The corporate mission statement identifies the basic reason for company existence, in terms of what it intends to do for specified target market segments. Corporate objectives indicate which types of marketing objectives are likely to take priority. For example, management of a new web site should want marketing to build shopper awareness and trial of the site. Management of an established retail web site will want marketing to build sales, to generate an acceptable level of profit and return on investments.

Marketing management should know and work with the vision of top management. For example, store management may envision a web presence, to market products online. Marketing management should determine if top management desires an on-line catalog or a more elaborate system for on-line purchasing. The two viewpoints differ greatly in marketing system requirements for transaction capacity, user security, and order processing. Local promotional media may be used to direct readers to the web site. However, search engines could also be used - to steer people from outside the local market area who have an interest in the products offered online. Corporate vision should provide direction for marketing vision, objectives, and strategy.

A situation analysis can help management identify market opportunities that are worthwhile and inadequately served. Once market niches that are unserved, underserved, or incorrectly served are identified, strategies to exploit those opportunities can be formed. For example, on-line search engines can be researched to determine which collectibles do not have a special interest club or newsletter. An affiliate program with the product producer may be practical. An online buy and sell service can help generate site traffic and attract advertisers.

E-tailers should establish specific, quantified objectives. For instance, an online car dealer can provide added value to shoppers by linking to a few companies that provide car-buying loans, extended warranty coverage, and car insurance. In contrast, an on-line shopping mall would want many more businesses represented on its site, to attract shoppers.

PROVIDERS

A cyberstore, as compared to a physical store, gives e-tailers great flexibility in designing its provider infrastructure. The dot-com platform can provide meaningful advantages for creative e-tailers.

In traditional retailing many business processes are linked to a physical retail facility - the store. For example, shipping and receiving, pick-ups, and customer sales and returns are all store-- bound functions. Having no physical store frees e-tailers to creatively rethink operational processes to their benefit. Start-up e-tailers can get web site development services from outside providers -- on a part-time, variable cost basis. They can also gain the outsourcing advantages of supplier skill, experience, business contacts, established reputation, and up-to-date technology.

E-tailers can also shift some distribution functions to other companies. For example, on-line stores may get small-- order, direct delivery from producers to e-- tail customers (Kienan, 2000). Also, independently owned fulfillment centers provide direct-to-consumer delivery of free samples, contest prizes, and bonus size packages. They also offer coupon and rebate redemption services.

As an e-tailer grows and develops know-how, more jobs can be shifted to inhouse, full-time personnel. For example, company personnel can provide the advantages of task priority, industry understanding, and commitment to the e-- tailer.

E-tailers can work together to provide joint web sites, complementary product lines, and mutual promotion campaigns. For instance, web sites can include hyperlinks to product and gift offers of other companies. The companies are likely to generate more shopper exposure, interest, and perceived product assortment value by working together than they would generate by working separately.

ACCESS

An e-tailer's web site architecture and functions can either enhance or inhibit access to the cyber store. Investing here is similar to a real estate decision for a conventional store location -- the better the access, the greater the perceived value.

How an e-tailer can provide ease of access for consumers depends on product and consumer variables. For example, online catalog sites require database-driven software. If on-line purchasing services were included, then buyer, transaction, and payment verification would be needed for shoppers. Music video listening and video game playing would require additional system capability, for streaming graphics and sound. Links to e-mail and live operator assistance would add complexity to the process, but would also provide for a custom12, no. 2 (2002): p. 49-56ized communication sequence and personalized content coverage (Hartman, Sifonls, and Kador, 2000).

E-tailers should recognize technology shifts to adapt system access and operating capability for shoppers. For example, the rapid growth of wireless Internet access suggests that e-tailers should provide for web site access by hand-held appliances as well as by computer and web TV (Ramsey, 2000). On-line delivery format should work with all browsers and customer software (Lepla and Parker, 1999).

DISTRIBUTION

E-tailers can provide value-added consumer benefits in the distribution of both products and information by harnessing the capability of their dot-com platform. Digital products, such as software, images, and music can be downloaded immediately.

Web sites can provide different types of personalized shopping routes. Shoppers can use on-line menus to reach standardized information, such as product categories and individual product choices. They can use e-mail links to get answers to nonstandard shopping questions. Buyers can also choose hyperlinks to live operators, to handle what otherwise may be lengthy or complex on-line inquiries (Deise and others, 2000).

On-line purchasing can cut some of the time, cost, and effort associated with direct mail ordering. On-line orders can also be directly communicated to a company's distribution center or supplier, for faster delivery and inventory updates.

E-tailers can tell on-line buyers how, when, and where to expect delivery -- to build customer understanding and confidence (Kienan, 2000). The company can also provide customers with a personal identification code and order code, to protect confidentiality and to facilitate online tracking of orders.

Companies can facilitate information exchange within a channel of distribution by providing on-line, real-time document sharing, interactive discussions, and chats. Digital pictures, itinerary updates, and training sessions can be quickly posted and updated. Extranets can provide controlled access to such confidential company information.

E-tailers can facilitate on-line store navigation by requiring few clicks to individual items. On-line companies can also provide an advanced research window on their home pages, allowing shoppers to find exact items quickly. Database-driven on-line stores can provide extra convenience to shoppers by allowing them to access products according to different categories. For example, a web site may provide an index system that enables product searches by brand, measurement size, price range, style, and color. Then, a shopper could pick a color coordinated clothing assortment within an acceptable price range. In contrast, a bridal registry service can indicate what a wedding couple wants others to buy for them and which items have already been purchased for the couple.

MARKETS

Target marketing is an essential marketing management practice, even to dot-com businesses where "benefit segmentation" is at work. That is, web sites are put on line, then the business waits for customers to find them as they search for certain products or customer benefits. Conversely, target marketing analyzes the market, selects the most advantageous consumer groups to target, and then uses the dot-com platform to make the connection. For example, customer purchase records and registrations can be used to target people by area, demographics, lifestyle, or past purchase behavior. Internal and external databases can be used to identify, track, and profile market segments (Camp, 2000). For example, a credit rating identifies an individual, but "seasonal, large spenders" profiles a market group without necessarily revealing the individuals in it.

Once target markets are chosen and customers are attracted, e-tailers should seek to build long-term relationships with publics (Janal, 2000). Customers are usually cheaper and easier to keep than to replace. Consequently, the long-term view of customer cost and value is considered more financially rewarding than the single-- transaction profit view.

PRODUCTS

E-tailers should integrate capabilities of the dot-com platform into core products and services, as opposed to providing peripheral benefits. For example, Amazon.com's "reader review" service uses the dot-com platform to add value to core products. Customers can read what others thought about a book before purchasing it. This service has been so successful that Amazon has extended it to the hard goods lines that it represents. For instance, when shopping for a new circular saw, a shopper can read reviews on various saws sent in by previous purchasers.

E-tailers can distinguish themselves from traditional competitors, and even other dot-coms, by providing added product depth or extra services to customers. Some e-tailers offer e-mail, a personal web page, on-line greeting cards, chat rooms, current news and weather reports, travel maps, and sports updates for free. Others provide hyper links to such web-based services of other companies, for mutual benefit.

Suppliers and distributors can be provided limited on-line access to internal company information through a private external network. For example, distribution channel members could check delivery dates, product availability, payment status, price changes, and new product offerings. Such personalized, useful service can improve relationships among companies, speed communications, and help coordinate distribution efforts.

PRICES

E-tail comparison shoppers are the most mobile shoppers on earth. When e-- tailers cut price in response to price competition they encourage a downward spiral in contribution margin. E-tailers should build unique, internet-based value to gain competitive advantage and to offset consumer price shopping mobility.

Price discounts can build attention, interest, trial, and patronage in the short run. However, discounting can be an ineffective and even destructive way of seeking long-term competitive advantage. Small discounts are considered "business as usual" by on-line shoppers, and they do not change brand, order size, or order frequency. Large discounts cut into potential sales revenue from loyal customers and attract price-based shoppers only until a better offer comes along on another web site. Large, successful discounts are readily noticed on line, so competitors can quickly retaliate with price cuts of their own. The result may be longterm reduction of retail prices and company revenue on those items. Some ways of getting around the discount dilemma are to offer only special purpose discounts, such as for a web site "grand opening," end-of-- season closeout, or preferred customer club membership.

E-tailers offer many free products and services, in their efforts to outdo each other in customer attraction and appeal. Some widely available, free offerings are: internet access, personal web page, electronic bulletin boards for messages, online yellow pages, travel maps, electronic greeting cards, video games, current news reports, special interest chat rooms, on-line magazines, screen savers, coupons, and contests. Some on-line stores create free offerings and other stores outsource that type of web site development. Some companies are even happy to share their free on-line offerings through affiliate programs, to increase exposure and visits to their sites.

Shoppers may consider time, effort, product price, and satisfaction risk as part of total transaction costs. Therefore, significant, believable savings to shoppers on any of these costs may be a basis for company distinction and competitive advantage. For example, integrated, on-line purchasing and delivery systems can provide convenience, speed, ease, and reassurance for customers.

PROMOTIONS

Promotion in traditional retailing is expensive and inefficient. E-tailers should harness the Internet's ability to deliver low cost, effective, creative, one-to-one targeted consumer promotion.

The best companies identify what needs motivate customers to take action and how to create the belief that the companies will satisfy those needs (Horovitz, 2000). How this is achieved in e-tailing is unique. Positive perceptions can be generated online even before a sale. Web pages should use customer testimonials, realistic promises, service guarantees, worthwhile graphics, easy to understand information, and simple order forms. After-sale customer perceptions can be enhanced by providing loyalty incentives, prompt delivery, fast response to inquiries, and effective service.

Trade associations, search engines, complementary product companies, and even direct competitors, can provide helpful web links -- to build on-line visits for mutual benefit. If a company has "bricks and mortar" stores, those locations can direct in-store customers to the company's web site. Even news media can help build attention, interest, and trial for a web site -- through publicity and advertising.

Customer clubs provide a powerful opportunity for companies to appeal to customers on a long-term basis. On-line newsletters can help communicate club meetings, parties, and trips. Members can receive public recognition -- for job, community, and club achievements. Free service and preferred service tie-ins with other companies can be announced.

Targeted, opt-in e-mail is an inexpensive and efficient way to reach specific, targeted shoppers with a customized message. Those who express interest by responding then become sales leads, worth more expensive follow-up contacts -- such as free credits for on-line purchases (Berry and Linoff, 2000).

Positive public relations is very important for getting and keeping on-line shoppers. Therefore, e-tailers should get permission from site visitors before adding them to e-mail lists or downloading free gifts to their terminal. Shoppers may consider unauthorized follow-ups as manipulative, intrusive, or improper diversion of their computer capacity.

A distinct, easy-to-remember, meaningful site address (URL) can help people find an on-line company and return to it. "Signature" web site addresses that are memorable may include a company or brand name, product feature, use benefit, or segment of a slogan. To protect against "copy cat" addresses, many companies register similar spellings and symbol sequences. Otherwise, companies actively using a similar name may divert customers or demand a large payment to give up rights to the URL.

Web-based events help keep a web site fresh, interesting, and attractive. Special events include celebrity interviews, games, contests, discounts, recipes, testimonials, new product introductions, and product closeouts. However, many web visitors do not have graphic and sound capability, so text should be understandable without reference to the pictures and audio.

Internet search engines provide a registration service for organizations -- so that people searching by company name, brand name, area, product category, or "what's hot" can find them without knowing the on-line address (Collin, 1999). However, there may be thousands of companies in a category, so careful, extensive indexing of key words and phrases is needed. If a company is not listed near the start of the displayed list, then interested shoppers are not likely to see it. E-tailers should register with many high-traffic search engines, because different people use different portals to online stores. E-tailers can use search engine positioning techniques to greatly improve the odds of achieving a top ten list position in a search category (Wilson, 1999).

CONCLUSION

The aspirations and expectations for e-commerce grew at a rapid rate throughout the 1990s. As 2000 rolled around the aspirations of many had failed to materialize, and the expectations were being reshaped by a widespread shake-out in the dot-com industry. Business-to-- consumer Internet firms were hit especially hard. Of course, questions of "what went wrong here" are abundant. The answers provided in this article are that e-tailing success requires two basic ingredients that many dot-corns overlooked: (a) e-tailers should use marketing management practices in planning and product development, and (b) e-tailers should integrate the dot-com platform as a value-- added component of products and services, rather than viewing the internet as simply an add-on, alternative technology.

REFERENCES

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Wilson, Ralph F. (1999). Gateway pages and how to make them, http://www. wilsonweb.com/articles/gateway.ht m.

Thomas Bertsch is Professor of Marketing at James Madison University.

James Busbin is Professor of Marketing at Western Carolina University.

Newell Wright is Wampler Longacre Professor of Marketing at James Madison University.

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