The impact of the Internet on marketing and sales

Citation

Cox, A., Chicksand, L. and Ireland, P. (2002), "The impact of the Internet on marketing and sales", Qualitative Market Research, Vol. 5 No. 1. https://doi.org/10.1108/qmr.2002.21605aag.002

The impact of the Internet on marketing and sales

The use of the Internet in marketing has a checkered history with, in a very short space of time, great expectations, alliances, banner advertising, predictions of e-commerce dominance of retailing, crashing share prices, buyer ambivalence and a reversion to bricks with the addition of clicks dominance. This cycle has been commented on by numerous observers, chroniclers and gurus. Little of this has been based on rigorous research. Cox, Chicksand and Ireland write about the impact of the Internet on marketing and sales based on a survey of 1,000 organisations.

The impact of the Internet on marketing and sales

Introduction

The Internet is promoted as a tool that will enable organisations to trade more effectively and efficiently. However, some commentators believe that the Internet will have a more significant impact than others. Those who believe that the Internet will fundamentally transform business strategy argue that the Internet will redefine the relationship between customers and suppliers of goods and services, and provide competitive advantages for first movers. Opportunities afforded by the Internet include: a new and lower cost channel to market; clicks and mortar synergies; scope for hypermediation; better knowledge of consumer preferences; and scope for upstream backward integration. On the other hand, some commentators argue that the Internet will merely provide an incremental adjustment to existing ways of interacting with actual or potential customers. E-business applications, in this way of thinking, will become nothing more than an adjunct to existing bricks and mortar channels or marketing and sales management. In this view, everyone will use the technology to do the same things so there will be no possibility of these applications becoming strategic differentiators capable of closing markets to others. Furthermore, although the Internet can certainly provide a number of opportunities for organisations in the area of marketing and sales, by the same token there are a number of threats that organisations need to be aware of. These include: the erosion of buyer information asymmetry; the reduction of buyers' costs of search; the commoditisation of brands; the possibility of new entrants with a lower cost base; the disintermediation of current supply chain position; and the alienation of existing downstream channel partners.

However, it appears from the survey research conducted by the authors that many of the perceived benefits from the development of an e-marketing strategy are slow to materialise. Although industry reports suggest that the Internet is becoming the key mechanism by which suppliers can market and sell their products and services, only half of the organisations surveyed are using the Internet for B2B purposes, with only a quarter of the organisations surveyed using the Internet for B2C marketing and sales. Furthermore, fewer early adopters than one might expect are claiming significant performance improvements from the development of e-marketing strategies. This article will therefore present some of the major findings from the survey in respect to marketing and sales management. In particular, we will focus on the mismatch between practitioners' expectations of the benefits to be achieved from using the Internet and the experiences of early adopters.

Expectations vs reality

Practitioners' expectations with regard to the benefits which are achievable by using e-marketing applications appear to be high. With cost reductions contributing so significantly to profitability, it is perhaps unsurprising that many organisations believe that e-business will increase opportunities for cost reduction. Indeed, 73 per cent of the organisations surveyed agreed that e-business will provide opportunities to reduce the cost base. In terms of improving the management of information within and between organisations, 90 per cent of respondents believe that e-business will lead to the more effective management of information. While this is absolutely critical for organisations, it is as important for practitioners to recognise the specific information that needs to be collected. This will be different according to business functions. The vast majority of respondents (90 per cent) believe that e-business will enable information to be managed more effectively. In addition to the effective management of information, it is important for the organisation to establish an IT infrastructure that allows the necessary information flows to take place. This requires linking the information that needs to be collected with the practitioners that require the information to perform their work. The survey found that 86 per cent of respondents believe that e-business will enable more efficient communications within the organisation. Furthermore, 82 per cent of respondents believe that e-business will enable increased integration with suppliers and other supply chain participants.

In terms of the potential to increase revenue, just over half of the organisations surveyed (51 per cent) agree that e-business will enable total revenues to be increased significantly, with just under three-quarters of the organisations surveyed (74 per cent) agreeing that the proportion of total revenue attributable to business over the Internet will increase in the future as a result of e-business. However, a fairly large proportion (35 per cent) disagree that e-business will mean that revenues will be increased significantly. Although these figures indicate that organisations anticipate that their revenues will increasingly be dependent on sales over the Internet, there appears to be confusion as to whether business over the Internet will become organisations' major route to market in the future, with only 53 per cent of the organisations surveyed agreeing that the Internet will become the major channel for sales to consumers and/or businesses in the future. This contrasts with 38 per cent of organisations that were confident that the Internet would not become the major route to market for this business.

A major factor in maximising revenues is offering customers a product or service that is in some way differentiated from those offered by the competition. Obviously, this product or service must also be valued in some way by customers so that they will make a purchase (possibly at a premium price). With this in mind, the survey found that two-thirds of organisations agree that the Internet will increase the opportunities for differentiating their products or services from the competition. Offering a diverse range of products and services may also allow organisations to increase revenues. This obviously assumes that the diversification is delivering products and services that are in demand in the marketplace. There is, however, considerable uncertainty as to whether e-business will actually enable product diversification, with only half of the organisations agreeing that e-business will enable greater product differentiation in the pursuit of higher revenues. Another way of offering an improved value proposition is to provide a product or service that is more technologically advanced. Product or supply innovation will make this possible and just over three-quarters of organisations (78 per cent) agreed that the Internet will increase the opportunities for innovation.

In addition to the pursuit of increased revenues and higher levels of profitability, organisations develop strategies aimed at retaining customers. There appears to be a wide belief that e-business and the Internet will increase the ability of organisations to do this, with 70 per cent of respondents believing that e-business will assist organisations in retaining customers. Another way organisations can maximise customer retention is by having the ability to be responsive to the market in order to meet the changing demands of customers. It is strongly believed by respondents that e-business will enable their organisation to be more responsive to the market, with 88 per cent of respondents agreeing that e-business will enable the organisation to be more responsive to the market. In addition, the ability to offer a highly personalised and professional service will increase the likelihood of retaining customers. The majority of organisation (71 per cent) believe that e-business will enable their organisation to offer a personalised service. This ability to offer a personalised service may be facilitated by the use of information technology. The technology enables the collection of key customer data that can be analysed and used to present the customer with a tailored product or service offering. The technology to allow this will include the Internet systems that interface with the customer.

One of the best mechanisms to lock-in and retain customers is through the possession of a strong brand which they associate with quality and reliability. It is interesting to note that nearly two-thirds of employees (63 per cent) believe that e-business will increase opportunities to build a strong brand. An organisation's Internet site is potentially the first contact that a customer will have with it. It is important, therefore, for the right impression to be created and that the site looks professional, is easy to navigate and allows secure transactions. However, organisations appear to be divided as to whether the appearance of their Web site will be the major way they brand their organisation in the future. Although 46 per cent of organisations agree with this sentiment, an equal number of organisations stated that they would not be using their Internet sites to brand their organisation. Yet even though organisations appear to be divided as to how the Internet will affect their branding efforts, most agree that it will have a significant impact on advertising. The cost of developing an Internet site is relatively small when compared to the scale of IT investments across the organisation and the equivalent cost of providing marketing information on a global scale. It is this reason that probably explains why the majority of organisations (65 per cent) believe that Web sites will become the major medium for advertising in the future. Lastly, to retain existing customers it is imperative for organisations to respond quickly and efficiently to their requirements. This is made easier if the organisation is structured so that its business units are focused on the customer. The survey found that the majority of respondents (62 per cent) believe that e-business will lead to more customer-focused business units.

However, there appears to be a major gap between the very high expectations of practitioners from adopting e-marketing strategies and the currently available evidence about performance outcomes on the part of early adopters. The research has indicated that many of the perceived benefits from the development of an e-marketing strategy are slow to materialise. Fewer early adopters than one might expect are claiming significant performance improvements from the development of e-marketing strategies. On the contrary, we are currently at the early adopter stage of the development of such strategies and it is still too early to tell exactly what all of the benefits of this approach may be. Nevertheless, it appears from our initial survey that many of the gains may be slower in coming than many commentators have claimed.

E-marketing strategies do not appear to have a major impact in reducing the external or internal costs of transactions (Figure 1). Only 28 per cent of respondents report a decrease in their internal transaction costs, whilst only 18 per cent report a reduction in their external transaction costs. Furthermore, only 19 per cent of respondents find that e-marketing strategies enable them to decrease their external product/service costs. Interestingly, 5 per cent of respondents report an increase in the external costs of process ownership. Indeed, the major benefit reported in this area is an ability to use existing staff more effectively (40 per cent of respondents). While some of these increases in transaction costs may be a consequence of the initial implementation costs of new technologies, it is perhaps surprising that so few respondents are currently achieving any significant reductions in their costs of transactions. This is because many commentators claim that operational efficiency will be the major benefit from the Internet.

Figure 1 The impact of e-marketing strategies on cost

Similarly, the expected gains from increased supply chain efficiency are not yet fully materialising (Figure 2). Indeed, the major benefits for more efficient management of marketing and sales appear to arise from improved information flows (53 per cent of respondents), with only 28 per cent of respondents reporting increased speed of delivery and only 11 per cent reporting a reduction in inventory levels. Furthermore, 43 per cent of respondents were not, as yet, experiencing any significant supply chain efficiency benefits.

Figure 2 The impact of e-marketing strategies on supply chain efficiency

In terms of achieving significant quality improvements, only 37 per cent of respondents reported an increase in up-to-date market information, 25 per cent reported an increase in speed of delivery, 21 per cent reported an increase in product quality and only 20 per cent of cases reported increased access to product innovation. Furthermore, 11 per cent of respondents report a decrease in their ability to personalise services (Figure 3).

Figure 3 The impact of e-marketing strategies on quality

The figures for revenue and sales benefits are more optimistic, with 43 per cent of respondents reporting an increase in sales and 33 per cent seeing an increase in access to new markets (Figure 4). While this is encouraging for those early adopters who have clearly benefited from the development of this approach, it may not be a benefit that all adopters will experience. Close to half the respondents have not experienced an increase in sales and two-thirds have not achieved any new market entry. It may be that early adopters are achieving some quick wins but that these may be eradicated once the market becomes more contested and they are replicated by later emulators.

Figure 4 The impact of e-marketing strategies on revenue generation

Conclusions

The potential impact of the Internet on public and private sector organisations has been much hyped in the last few years. Whilst it is too early to tell whether all of the claims made for the use of the Internet as a marketing and sales channel will come to fruition or not, it is becoming apparent that many of the supposed benefits have not yet materialised for many organisations. Furthermore, evidence from the survey would appear to suggest that many practitioners have bought into the hype surrounding the development of e-marketing strategies. Most respondents appear to believe that they will be successful in increasing their reach in markets, without fully understanding the competitive environment in which they are operating. If all of their competitors, and many new entrants, are doing the same thing there is unlikely to be any significant basis for market differentiation from the adoption of an e-marketing strategy.

It is essential, therefore, that rather than adopting the Internet as a reaction to the hype, organisations have a way of thinking so that they can recognise and anticipate the key problems and potential opportunities that may present themselves. We have indicated elsewhere (Cox et al., 2001a; Cox et al., 2001b; Cox et al., 2001c; Cox et al., 2002) that this way of thinking will require the development of robust e-marketing strategies. However, the survey has indicated that, whilst the majority of organisations have e-marketing strategies in place, these are not delivering the expected benefits.

This does not mean, of course, that organisations can dispense with e-marketing strategies, because in the contemporary business world to not have one is to face possible extinction from the market. Rather it counsels caution in the expectations that are presented (or hoped for) and a realistic approach to understanding how an e-marketing strategy fits into augmenting and reinforcing existing bricks and mortar (traditional) marketing approaches.

Andrew Cox, Lorna Chicksand and Paul Ireland

About the authors

Andrew Cox is Professor and the Director of the Centre for Business Strategy and Procurement, the Birmingham Business School at the University of Birmingham in the UK. He is also Chairman of Robertson Cox Ltd (competence development and training consultancy). He can be contacted at ac@robcox.com.

Lorna Chicksand is Lecturer in E-Commerce at the Birmingham Business School, University of Birmingham. She holds a PhD examining the impact of regulation on the agri-food supply chain and is now actively researching the impact of the Internet on marketing and sales management, internal organisational management and supply chain management. She can be contacted at chicklm@bss1.bham.ac.uk.

Paul Ireland is Research Fellow at the Centre for Business Strategy and Procurement in the Birmingham Business School, University of Birmingham. He can be contacted at P.N.Ireland@bham.ac.uk.

References

Cox, A., Chicksand, L. and Ireland, P. (2001b), E-Supply Applications: The Inappropriateness of Certain Internet Solutions for SMEs, IPSERA Conference, Jonkoping, April.Cox, A., Chicksand, L. and Ireland, P. (2001c), The Impact of the Internet on Business Relationships: The Importance of Understanding the Power Perspective, BAM Conference.Cox, A., Chicksand, L., Ireland, P. and Day, M. (2001a), The E-Business Report 2001, Earlsgate Press, Boston, MA.Cox, A., Chicksand, L. and Ireland, P. (2002), "Purchasing IS/IT software: the impact of e-business on procurement and supply management", in Day, M. (Ed.), The Gower Handbook of Purchasing Management, Gower, London.

We trust the reader has found value in this first issue of Internet news for the 2002 volume. If you have items you feel may be of interest for inclusion in future issues please contact me.

Rehan ul-HaqEditor, Internet News, QMRIJ, The Birmingham Business School, The University of Birmingham E-mail: r.ul-haq@bham.ac.uk Tel: +44 (0)121-414-3456 Fax: +44(0)121-414-2263.