Author: Bertsch, Thomas; Busbin, James
Wright, Newell Source:
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
Berry, Michael and Linoff,
Gordon. (2000). Mastering data mining.
New York: John Wiley and
ons, Inc.
Camp, L. Jean. (2000).
Trust and risk in Internet commerce. Cambridge, Massachusetts: MIT Press.
Collin, Simon. (1999).
Marketing on the Internet. London: B.T. Batsford.
Deise, Martin and others.
(2000). Executive's guide to e-business. New York: John Wiley and Sons, Inc.
Hartman, Amir and Sifonis,
John, with Kador, John. (2000). Net ready. New York: McGraw-Hill.
Horovitz, Jacques. (2000).
Seven secrets of service success. New York: Financial Times/Prentice-Hall.
Janal, Daniel. (2000). Dan
Janal's guide to marketing on the Internet. New York: John Wiley and Sons.
Kienan, Brenda. (2000).
Small business solutions: E-commerce. Redmond, Washington: Microsoft Press.
Kranz, Mark. (2000).
Dot-coms without plans die. USA Today, December 4, p. 2B.
Lepla, F. Joseph and
Parker, Lynn M. (1999). Integrated branding. Westport, Connecticut: Quorum
Books.
Neuborne, Ellen. (2000).
Why e-tailing will click. Business Week, July 24, p. 14.
Ramsey, Geoff. (2000). The
demographics and usage patterns report, New York: eMarketer.com, September.
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.
FirstSearch® Copyright © 1992-2004 OCLC as to electronic
presentation and platform.