The Evolution of a Revolution:

An Impact Analysis of Internet Marketing and

How it is Transforming the Competitive Business

Environment

by

Thomas Gerard Tibbs

1998 URI Full-Time MBA Program : Kingston Campus

Independent Study Project

Dr. Carol Suprenant, Faculty Advisor

Presented to the Faculty of the College of Business Administration at the

University of Rhode Island

in

Partial Fulfillment of the Requirements for the

Degree of Master of Business Administration

May 7, 1998

Revised: September 1, 1998

The University of Rhode Island

MBA Programs Office

College of Business Administration

7 Lippitt Road

Ballentine Hall, Room 210

Kingston, Rhode Island 02881

Copyright 1998

Thomas Gerard Tibbs

2

Table of Contents

I. Dedication…………………………………………………………….3

II. Acknowledgements…………………………………………………..4

III. Introduction…………………………………………………………..5

IV. Background…………………………………………………………..9

V. The Benefits of Including the Internet in the Marketing Mix………13

VI. Corporate Internet Marketing Strategies...……………………….…16

VII. Issues and Controversies……………………………………………26

VIII. Successful Web Marketing Tactics…………………………………29

IX. Future Outlook………………………………………………………31

X. Bibliography…………………………………………………………35

Table of Charts and Figures

Chart 1: Internet Sales Figures……………………………………………..9

Chart 2: Internet User Growth in US………………………………………10

Figure 1: “Triangle of Success”……………………………………………18

Figure 2: Advantages/Disadvantages of Four Main Web Approaches….…22

Figure 3: Internet Marketing Decisions……………………………………23

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Dedication

The author dedicates this research study to the loving memory of:

Mrs. Therese M. Morris

and

Mr. Stephen J. Dolan

“Your love and support will forever endure inside my heart, and will never be forgotten.”

Thank you for watching over me at all times throughout the course of my journey.

I hope that you will always continue to do so, as I seek always

to transform each of my dreams and visions into reality.

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Acknowledgements

First and foremost, the author wishes to acknowledge his mother Sharleen Tibbs, his

father Thomas E. Tibbs, and his beloved sister, Megan Tibbs. While they may not have

always understood what exactly I was setting out to accomplish by travelling down this

particular road, they always stood by and supported me in my decision, nonetheless. For

this alone, I thank you all! I love you always.

Specifically, the author would like to sincerely thank Mr. Raymond G. Dolan for

being more of a brother to me over the years, than an uncle. Your unparalleled belief in

myself, and my dreams, carried me through some very dark and trying moments in my

life. If it wasn’t for you, I may have very well talked myself out of this educational

pursuit quite some time ago. You were right, dreams really can come true…I am living

proof.

Furthermore, the author would like to thank Frances M. Tibbs, John J. Tibbs,

Joseph E. and Marie Dolan, Thomas Dolan, and Gary Dolan, for their constant words

of support during some very difficult times, and for teaching me how to always look to

the bright side of life. Your gracious gift helped me to overcome major obstacles and

believe not only in myself, but also in the world in which I live. Your love has shaped

me both as a person, and an individual.

Finally, the author would like to gratefully thank the Lord Jesus Christ, for teaching

me the fine art of perseverance, and for ensuring that all the wrong paths that I have

traversed thus far in my short existence, have somehow consistently led to the right ones.

I am forever grateful for my experiences, both good and bad, and overwhelmingly

appreciative of all of the gifts of love that you have bestowed upon me.

Submitted to Dr. Carol Suprenant and the faculty of the 1997-98 KMBA Program

at the University of Rhode Island for approval on May 7, 1998.

5

Introduction

We are in the midst of a revolution. A technological revolution that has the minds of

marketing managers everywhere filled with thoughts of hope, excitement and, most of

all…questions. After all, for decades the fine art of advertising has consisted of nothing

other than the roughly calculated attempts of placing “signs” in such pre-determined

spots where a so-called “majority” of potential customers might see them. It began with

the advent of radio, where advertisers started to dabble with catchy jingles, since sound

was the sole impetus that these advertisers had to exploit. Jingles and phrases allowed

potential customers to better retain the message that the advertiser was paying to convey.

Additionally, billboards and postings enabled the visual stimulus that radio lacked, to be

tied to an advertiser’s message, albeit with no auditory capabilities. However, as

technology progressed, the development of the television brought about the bridging of

auditory sound and visual pictures into one continuous message. No longer did

advertisers find themselves solely relying on “sing-a-longs”. They now had the

capability of using visual images to further enhance their audio message at the same time,

and boost the likelihood that their intended audience would see and retain the message.

As television broadened in its appeal and eventually found itself into nearly every

home in the U.S., it became the medium of choice for many advertising programs. As its

proliferation increased, television offered a larger reach than those audiences of radio

listeners and magazine subscribers, and through the use of demographic measures and

grouping, also provided the ability to “target” potential customers of certain products by

the programming that their respective group(s) tended to watch. For example, household

products were ideally suited for afternoon programming, when mostly homemakers made

up the larger portion of the audience. Automobile and consumer goods products were

well suited for evening advertising slots, when more males tended to dominate the

television viewership. These theories and projections gave rise to rating services, which

developed and analyzed demographic data to enable potential television advertisers to

better target likely customers of their products with their intended message. However,

while television offered the advertising industry the capability of reaching its customers

with both images and sound simultaneously, it was still a one-way road in terms of

6

communication. Sure, there was data to help decide what days and times were best to

release a message, but it was still a “hit or miss” type of a situation. In turn, advertisers

could make estimations as to how much of their target audience was being reached, but

they really had no way of knowing exactly how many were being hit with the message,

and more importantly, how many were being missed completely. For example, how

many customers changed the channels during commercials, or turned to someone else in

the room to carry on a conversation, thereby missing the entire message completely? In

addition, how many “real” customers did not fall within the approximated demographic

ranges set forth by the advertiser, and were therefore essentially being ignored by the

message? Once again, it became a numbers game, filled with approximations and

“guess-timates.” More specifically, this percent would “roughly” get up and leave the

room, that percent would “approximately” ignore the message totally, and roughly this

number of the audience would miss viewing our message completely since they fall

outside of the pre-determined demographic range. However, with the way that

technology has rapidly progressed to date, and with advertising rates continuing to

skyrocket (a series of 30-second spots for the Super Bowl XXXIV this past January 1998

sold for $1.3 million), companies demand and deserve less in the way of estimations and

more in the way of exact results.

Enter the Internet…a booming electronic visual message transfer medium with a

hugely growing infrastructure that enables one thing that marketers and advertisers have

wished for so very many times in the past; a vehicle for two-way communications. Now,

companies can communicate directly with their customers, gathering feedback regarding

services and/or products that they offer, while making available special sale offers to

those consumers who tend to make repeat purchases. And while feedback mechanisms in

the past required customers to dial toll-free hotlines that were only open during normal

(sometimes extended) business hours, the Internet feedback/response mechanism knows

no opening or closing bell. Instead, the Internet allows companies to gather all kinds of

information from customers 24 hours a day, seven days a week, allowing it to be

convenient for the customer, as opposed to the company. In addition, it helps ensure that

there are less late-night phone calls from “information-hungry” telemarketers interrupting

7

dinner, looking to gather customer opinions regarding particular issues. No more

surveys, enclosed with the new appliance that you just bought, to remember to fill out,

affix a stamp to, and mail.

The Internet is growing faster than all other technologies that have preceded it, and

with it is ushering in an era of sweeping change that promises to leave no industry

untouched. For example, radio existed for 38 years before it had 50 million listeners, and

television took 13 years to reach that mark. The Internet crossed the line in just four

years. (Bergen Record Web site: www.bergenrecord.com 4.16.98) According to the

Commerce Department, traffic on the Internet has doubled every 100 days and Internet

commerce will likely surpass $350 billion by the year 2002. (Bergen Record Web site:

www.bergenrecord.com 4.16.98) Furthermore, nearly one-third of online households

made a Net purchase in the last six months, a 50% increase from 1997. Those who didn’t

buy online used the Net to help make a purchase decision. (Hof, 126) Consequently, this

new medium has already led to an influx of advertisers attempting to sport their new

wares on the Internet, without so much as a proper plan or strategy in place as to what it

is they are attempting to actually accomplish by doing so. Therefore, it is significant to

discern that although the Internet promises an interesting new way for companies to

communicate and target both existing and potential customers, the Internet is not a

dollar-for-dollar substitute for other advertising mediums, such as television or

magazine advertising. Furthermore, while the proliferation of computers into homes and

businesses throughout the U.S. (and the world for that matter) has helped to increase the

credibility of employing the Internet as a sales and advertising tool, the Internet should

not be a substitute for other forms of advertising (at least at this point in time). After all,

the technology is still in its infancy, and there are still many kinks and glitches that need

to worked out of the system, especially in regard to security issues. Additionally, there

are still millions of existing and potential consumers “out there” who are not “wired”, or

whose buying habits and perceptions have not been swayed a great deal by this spurred

technological growth. These consumers still demand and require attention, and should

not be overlooked in a company’s marketing mix strategy, by methods deemed more

“traditional” by proponents of electronic commerce.

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Accordingly, this study will discuss in great detail, the many ways that businesses

both large and small, in all types of industries from manufacturing to service-oriented,

can benefit by incorporating Internet-based advertising into their primary marketing mix.

As I mentioned earlier, my argument focuses around the theory that the Internet should

be utilized in conjunction with, not in substitute of, other forms of advertising and sales

communications. In doing so, with a properly executed plan and strategy in place that

builds upon the “value-added” features and brand image of a product or service that a

company offers, both increased sales and customer satisfaction levels are sure to be the

final result.

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Background

According to a recent article found in Home Magazine, U.S. consumers spent a total

of $1.2 billion shopping on the World Wide Web (WWW) in 1996. That number is

expected to double to $2.4 billion in 1998, as more and more customers engage in

transactions online. In sharp contrast, these figures compare to no significant spending

by consumers on the WWW at all only four years ago, in 1994. In addition, it is further

estimated that by the year 2000, consumers will spend approximately $7.3 billion

shopping online. (please see chart 1 below)

Chart 1: Internet Sales Data (in billions of dollars)

So, what do all these numbers mean? Well, you do the math. If these expectations

are accurate, then it is anticipated that web commerce will increase over 600% by the

year 2000, from actual 1996 levels. Furthermore, currently in the U.S. alone, 23% of

households (or 21 million people) have Internet access; more than twice the amount who

were online only two (2) years ago. Worldwide, roughly 60 million users have

continuous access to the Internet. It is mentioned in a number of sources that the current

rate of growth for Internet users is 15% per month! Additionally, this number is

Internet Sales Figures

$0

$1.4

$2.8

$7.3

$0

$2

$4

$6

$8

$10

1994 1996 1998 2000

(projected)

Year

Do

llar

Sale

s (

billio

ns

)

Source: Marketing News

10

projected to grow to 40 million online users in the U.S. alone, and over 120 million users

globally, by the end of 1998. (please see chart 2 below)

Chart 2: Internet User Growth in U.S. (millions of users)

Why such rapid growth? There are essentially three (3) primary reasons:

1.) The Internet gives potential consumers the ability to sift through mountains of

information easily and quickly. Customers are given the capability of facilitating

searches that allow for fast information analysis, as well as product comparisons

within, or even amongst competitors. On the flip side, businesses are wringing time

out of product design, speeding up the ordering and delivery of component parts,

tracking sales on a hourly basis, and gaining instant feedback from customers – while

keeping inventories at a bare minimum. (Hof, 124) Essentially, the Internet is an

information source, a communication channel, a transaction vehicle, and a

distribution tool (Gronstedt, 9).

2.) The Internet offers unparalleled levels of convenience. The ubiquitous nature of

the Web enables integration of communication around individual customers and

stakeholders. As Gronstedt describes further, the Internet, “is the phone, the

newspaper, the TV, the shopping mall, the library and the coffee shop,” all rolled into

one…it is an integrated marketing communications “on steroids”. After all, the

Internet does not close at 6pm EST or for national holidays. It is open for business

Internet Usage Growth in U.S.

2140

120

0

50

100

150

1997 1998 2000

Year

Millio

ns

of

Us

ers

Source: Marketing News

11

24 hours a day, seven days a week. The Net tears down the hurdles of geography,

enabling companies to tap new markets, which ultimately leads to the creation of

“new wealth”. Users have the ability to log on at their convenience, and access the

information that they are requesting at exactly the time that they want it, from

anywhere in the world…just by clicking a mouse. Simple. Easy. Fast.

3.) The Internet now puts the control in the hands of the user. No longer are

customers at the mercy of the company, waiting sometimes weeks to obtain specific

product information or resolve customer relations issues. No longer will there be a

need to place customers on hold because of understaffing, only to have the customer

get “lost” in an endless maze of voice-mail options, set forth by recorded

messages…many times to have only a simple question answered. Instead, many of

these answers can be provided online for immediate retrieval in the form of FAQ’s

(ie. Frequently Asked Questions). Those questions that are more custom-tailored to

an individual can be sent to the company via email, and responded to promptly in the

same fashion (most companies on the Internet have the capacity to respond to

customer email information requests within 48 hours, at most).

Without question, the Internet is deconstructing the fundamental nature of business

transactions. Worldwide accessibility and endless links of information makes the Internet

currently the most global medium available. This fact alone poses interesting scenarios

for companies looking to develop new markets, or expand current ones. Furthermore, it

is no longer being considered unusual to shop on the Internet. After all, approximately

10-15% of all Web surfers use the World Wide Web (WWW) for shopping or

commercial-related activities. In addition, 32% of Web surfers used the Internet to make

purchases in 1996. (Assadi, 1998) This number is expected to grow exponentially over

the next 2-3 year, as the safety and assurance concerns of wary shoppers (who in the past

may have avoided transacting business online) are alleviated, with improved payment and

security measures (which will be discussed later). However, due to these current

concerns, most goods purchased to this point via the Internet have been low-involvement

purchases such as books, compact discs, and software. This is also expected to change in

the near future as well, once again as consumers become more comfortable with giving

12

secure information through the Web. In the meantime, companies are already taking

measures to make journeys online by potential consumers an enjoyable (and profitable)

one by luring them to their site with special offers. Furthermore, preliminary research

has found that many “surfers” feel safer shopping with nationally advertised retailers (ie.

Sears, Macys, etc.), thereby spurring the surging growth of “on-line malls”.

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The Benefits of Including the Internet in the Marketing Mix

Currently, marketing on the World Wide Web is “one big grand experiment” in the

sense that no dominant business model has emerged, and most commercial Web sites

have yet to report a profit. Because of this, the essential understanding of the Internet

required by both current and potential business marketers alike, is that although this new

technology sounds very attractive and promising, marketers cannot readily abandon the

proven Main Street traditional marketing model just yet. In other words, marketers find

that there is not a dollar-for-dollar tradeoff between electronic commerce (“e-commerce”)

and that of traditional communications media spending. With the proliferation of this

new technology, it seems many marketers are simply abandoning more traditional

initiatives that have been successful in the past, just to make their presence felt on the

Net…without a real, solid understanding as to why they are there in the first place.

This can prove to be a huge mistake in the short to medium-term for both potential and

current customers alike. However, while the Web may not be a dollar-for-dollar

substitute for other forms of communications media, it does enable a one-to-one

furthering of the relationships initially created by traditional mass communication

contacts.

In the short-term, Web-based advertising information is saving many companies

millions in collateral, printing, and inquiry fulfillment costs, as well as eliminating those

annoying charges for paper and postage. Taking a long-term focus, the Internet and the

form of electronic system that intends to succeed it, promise “increased degrees of

customer interactivity and communications intimacy that we cannot even begin to

fathom.” (Donath, 22) But before you can sell prospects anything, they have to be able to

find you. The outstanding strength of conventional advertising is its ability to collect an

“information-hungry targeted audience.” (Donath, 22) Therefore, it is important to

recognize that if businesses cut back on the ads that tell those potential audiences that

these businesses exist, why audiences should care, and where these audiences should go

for information, then corporate America risks drastically reducing the number of new,

qualified prospects that visit their respective sites. It is due to this fact alone, that Internet

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marketing should be viewed as something that works in conjunction with more

conventional advertising methods… not in substitute of those methods.

Mistakes that marketers tend to make when utilizing the Internet as an ingredient in

the marketing plan is overlooking the value of consistency. Inconsistent interactive

communications can work to destroy a brand’s existing image at “Internet speed”

(Levine, 8). This can potentially occur because the Internet blurs the boundaries between

promotion and product. While print and TV advertising delivers information and

entertainment while adding little in the way of value, the Internet allows “value-added”

elements of a message to both existing and potential customers. Therefore, a good Web

strategy begins with consistency in overall brand positioning. Doing this entails a

sound understanding of the market, the brand’s positioning, as well as its perceived

image in the marketplace. By evaluating these factors, a Web page can be developed that

takes on the “personality” of the product and that of its primary customers. Therefore, it

is important for marketers to recognize that customers do not interact with the Web as an

isolated environment. In turn, Web-based marketing should not isolate itself from other

mediums that the company is utilizing in order to convey its message. Subsequently, if

marketers can somehow present Web messages and information in such a manner that is

consistent with the information messages used in their other more traditional advertising

mediums, these marketers can better take advantage of opportunities that will enable

them to leverage their efforts.

Furthermore, once the required external research judging a sites consistency with

other advertising mediums is performed, it is then necessary to evaluate the consistency

that exists internally within the Web site itself. Color themes, graphics, and navigation

tools should all remain similar so as to ensure that the customer does not become

confused or distracted from the intended message that the site wishes to convey.

Finally, it is important for Web marketers to recognize that the Internet offers

worldwide accessibility and information links. Therefore, it recognizes no corporate or

geographic boundaries. Because of this, consistency must take place within the

15

corporation as well, between all company divisions and locations. Many companies still

have several Web sites that are individually maintained and developed. This can be very

damaging in the effort to build corporate brand image and awareness, as it lowers the

likelihood of customer recognition of the overall corporate or brand message. As Minna

Levine states, “The days of experimenting on-line are over.” Marketers using the

Internet to convey a message must take advantage of the opportunity that interactivity

presents in order to build both entire product lines, and individual brands. Furthermore,

to do so successfully, these on-line efforts must work in conjunction with an overall

communications media plan that not only works to interact with existing and potential

customers, but also leverages the firm’s other communications vehicles to the greatest

extent.

According to Len Keeler, author of Cybermarketing (AMA-COM, 1995), some

additional advantages to the benefits of being on the Internet, and how this medium can

potentially improve the marketing function for many organizations are as follows:

Stretching the marketing budget. Costs are reduced since catalogs,

brochures, and directories do not have to be printed and distributed.

Saving Time. Information is available immediately and customers can get

answers quickly.

Offering Customers another way to buy. Gives customers more control.

Satisfying information-hungry consumers. Ideal forum to assist with

decision making.

Encouraging international reach. Internet helps cut across cultures.

Lowering barriers to entry. “Levels the playing field” between smaller and

larger companies and puts them all on equal footing. Displaces the “bigger is

better” paradigm.

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Corporate Internet Marketing Strategies

It is noted in the “Guerilla Marketing Handbook,” by Jay Levinson and Seth Godin

that “the more you know about your customers, the better you can serve them.” The

customer, and the research known about them for that matter, is one of the most

competitive weapons available to a marketer. Therefore, taking the necessary steps in

order to gather information in regards to customer attitudes, desires, and motives can

ultimately give you an advantage over other competitors in the industry. The Internet

allows you to do just that…gather essential information about a customer and make the

customer feel like an important piece of the overall puzzle through the formation and

developing of an interactive, two-way relationship. However, companies like Dell,

Amazon, and others have learned that their overall corporate business models must be as

dynamic as the Web itself.(Green, 158)

According to Mr. Jim McCann, president of 1-800-FLOWERS, a company that has

successfully branched out into the Internet medium, “the true promise of interactive

marketing via the Internet is that it enables one-to-one communication.” However, he is

quick to point out that although interactivity may be how it is done today, “the key to its

success is reciprocity: the back-and-forth, give-and-take of communications that benefits

both the marketer and the customer.” McCann feels that a company is wasting valuable

resources if they are not using their on-line capabilities to collect customer intelligence.

Furthermore, he goes one step further by asking the question that if a company is,

“collecting data and analyzing it, but not using it to enhance (their) relationship

marketing, why bother?” Scott Eckert, Director of Dell Online adds, “Only 20% of a

successful Web site is technology – the rest is knowing your customers”. But

convenience alone is not enough. Selection is another important feature that can be

exploited using the medium. Because Web-merchants aren’t limited by shelf space and

many don’t keep inventory, they can make more styles and varieties of products available

than any physical store could possibly hold.

In addition, according to J.D. Mosely-Matchett in her 12.8.97 Marketing News

column on Internet Marketing, using the Web as a strategic marketing tool requires less

17

emphasis on the “4 P’s” (Product, Price, Place, and Promotion), and more on what she

defines as the “5 W’s”. These “5 W’s” help to “clarify the role of the company’s Web

site in its marketing mix”. This is absolutely essential if success with the site is to be

achieved. Yet, there are still too many companies out there who do not truly understand

why they are on the Net, other than that they “should be” because everyone else seems to

be. The “5 W’s” help to clarify corporate presence.

According to Mosely-Matchett, the “5 W’s” are as follows:

1. Who: Identify who it is that you want to reach with this information.

Examine the demographics of your target market closely to see if your target

market segment is likely to have Internet access. Despite all the hype, only

20% of Americans are regular users of the Internet. If you go through the

effort of getting on the Web, you want to be seen by potential customers.

2. What: Use only interesting and compelling information that is consistent

with your other marketing efforts. You do not want to be confused with

another company. Develop “meaningful content” while staying true to your

marketing objectives.

3. When: On the Internet, timing is critical. The information provided must be

timely, with content frequently updated so as to encourage repeat visits to the

site.

4. Where: Be easily found. Don’t be passive. Get listed with a variety of

search engines, keep the address as simple as possible, and include it on all of

your other marketing mediums, including letterheads and business cards.

5. Why: Give people a reason to look at your site. Answer difficult questions.

Encourage existing and potential customers to ask questions. Better yet,

answer questions personally to foster a one-to-one relationship.

The relationship building described by McCann and given direction by the “5 W’s” is

designed to foster a sense of community among consumers with the same interests or

tastes. The emphasis on the Internet is upon developing a relationship with the

individual, not “shotgun” mass selling. The days of simply attempting to persuade an

audience-at-large are over. According to John Clug, chairman of the Customer

Communications Group in Denver, Colorado, marketing on the Internet will only be

18

successful if the practitioners are able to “inform, communicate and entertain their

audiences.”

These three pillars are known as the “Triangle of Success.” (Romano, 23) (please see

Figure 1 below)

Figure 1: The Internet Marketing “Triangle of Success”

Entertain

Communicate Inform

Inform: While this is the closest ideal to the traditional marketing paradigm,

it goes beyond just repackaging pre-existing product information. The new

paradigm incorporates “value added services” as a minimum requirement.

This means focusing on the needs and wants of the end-user, offering both

convenience and attention to the individual.

Communicate: The intent of this medium is to be interactive…to encourage

participation and facilitate conversations between audience members. In

doing so, communities of people with similar interests develop and knowledge

sharing between the company and individuals takes place. And while some

may think that this free exchange on communication may encourage negative

public relations, I personally ascribe to the belief that it is better to get

problems “out there” where they can be addressed, rather than attempting to

pretend that they don’t exist. Unless of course, you are looking for a sure

way to lose customers.

Entertain: In order to keep potential and existing customers coming back

time and time again, Web pages should be visually pleasing to the eye and the

content on it updated constantly. The Web allows for an easier (ie. cheaper)

medium to keep information “fresh” than say, publishing a magazine, since

there is little in the way of production and distribution costs. William B.

Clausen Jr., an advertising manager at AT&T states that, “you have to blur the

lines between advertising, information and entertainment,” creating what he

calls ‘entermercials’ and ‘edutainment’ that talk to consumer interests.

(Romano, 24)

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Another intricate strategy practiced by marketers to let people know that their site is

out there is called “Seeding and Herding”. (Romano, 24) Seeding is the strategic

placement of a company’s banner or icon to attract net surfers to the company site.

Herding is the strategic purchase of a banner to attract a target audience. The wish in

either strategy is to establish and create links between your content and other providers

who may have some additional traffic that you would like to draw to your site. This

strategy does not necessarily have to be a high-tech one. Many high-tech companies such

as Fidelity Investments, Hewlett-Packard, and Sony have practiced ‘seeding and herding’

techniques successfully by simply including their URL (Uniform Resource Locator or

Web address) on all its advertising and printed literature encouraging current and

potential customers to “take a peek”.

It seems that at this point in time, there are two approaches to marketing on the

Internet. The first approach is known as the Supplemental Approach, and is for

companies to use the Web as a supplement to traditional marketing methods by delivering

additional personalized benefits to customers, and building intimate relationships as well.

This is common for companies as part of general branding and communication strategies.

It uses the Web as another tool in the marketing “arsenal” of the company, along with

traditional advertising methods, personal selling, and sales promotion (a good advertising

diversification strategy). It is currently the most common use of the Web for marketing

purposes today. This method offers some advantages as a promotional tool in the sense

that it provides large quantities of information to customers quickly and more

importantly, with a negligible variable cost per customer. In addition, it gives a business

an instant global presence with little “wasted coverage” since people must actually

choose to go to your Web site. Customer arrival demonstrates proof that they are at least

somewhat interested in what they believe the site offers in terms of content and

information. Finally, the Web offers the opportunity to open new channels of

communication with customers, allowing a company to better establish and/or firmly

cement relationships with people.

20

Furthermore, the Web offers the capability of cutting costs dramatically. For

example, in a 1996 Journal of Marketing article, Thomas Novak and Don Hoffman report

that Sun Microsystems saved approximately $4 million in answering common customer

inquiries since offering customer service responses via the Web. Similarly, FedEx

receives over 200,000 shipment tracking requests through its Web site daily. Internal

research indicates that more than 50% of those requests would have been made through a

toll-free hotline number had the Web site not existed as an alternative option (Clark, 14).

Even the networking giant Cisco Systems has realized cost savings using the Web. Each

day, Cisco books $11 million in orders per day from resellers, or approximately $4

billion per year through its Internet site. The company estimates that due to the medium,

it saved $363 million in tech support, distribution, and marketing costs last year.

(Reinhardt, 138)

A final benefit to using the Supplemental Approach on the Web, is that it can be used

to establish a customer database. A company can gather demographic and other

important data, by having visitors register themselves on the site at no additional cost.

Furthermore, while unsolicited e-mail is primarily frowned upon on the Internet, it is also

true that these targeted lists can be highly responsive. For example, one software

company reports a 12% response rate to a customer list e-mail message within 24 hours

(Clark, 15). Companies can further offer periodic surveys for visitors to complete, in

order to both collect additional information, as well as customize the site for the

individual visitor upon future returns to the site. This ability to customize can potentially

highlight particular areas of interest that the individual customer indicated would be

distinctly appealing.

The second approach, called the Virtual Business Approach, calls for businesses to

use the World Wide Web to establish “virtual” storefronts — profitable, stand-alone

ventures that exist only on the Internet – Amazon.com, a successful and lucrative on-line

bookseller on the Internet, is a perfect example of this virtual strategy. It is in this

specific area where the true “visionaries” of Internet commerce expect that this medium

will fundamentally transform the way business is conducted altogether in the future.

21

One method for virtual businesses to succeed, is by creating a retail presence larger

than any physical store could feasibly be—once again, we look at Amazon.com which

offers over one million titles, compared to a physical Barnes & Noble superstore location

which typically can only hold approximately 150,000 titles. Since one Web “store”

reaches the world, markets that are too small to venture into on a local basis can now

become extremely viable on a global scale. Customers can easily search the Amazon.com

database by subject, author, or title and read both staff recommendations and author

reviews. Customers can even post their own reviews for others to read, essentially

creating a community of readers and reviewers. An additional strategy is to create a

virtual business that provides some sort of additional information that competitors have

difficulty in attempting to imitate. This information can possibly be provided in the form

of an industry-specific expertise that goes above and beyond the reach of other retailers,

and in the process separates a company from the rest of its competition as well. The Web

also allows a company to provide convenience and service to customers that cannot be

easily matched by competitors. It provides for a sense of “community” that competitors

cannot match, through “bulletin boards” and “chat rooms”. These are electronic forums

so to speak, where individuals can post messages regarding a variety of topics that may

be of potential interest to other customers of the organization. By doing this, the

intention is that customers are likely to become more loyal to the core product or service

that they are using, and in addition, more likely to become regular visitors to the site.

Experts tend to agree that this “virtual community” strategy is the application that

represents the greatest potential for revolutionizing business via the Web. In

accomplishing any one of these strategies, there are four (4) core methods with which a

company can develop an Internet presence.

These approaches, along with their respective advantages and disadvantages are listed

in Figure 2 on Page 22:

22

Figure 2: Advantages/Disadvantages of the Four (4) Main Web Approaches

Type Advantages Disadvantages

Billboard - Low cost strategy - Easy to be overlooked

- “Getting feet wet” by potential customers

- Suitable for those businesses

traditionally outside Internet

Yellow Pages - Higher business profile - Higher investment of

- Good for products/services time and money

that are “Internet Ready” - Requires some previous

Internet experience

Brochure Approach - Similar to Yellow Pages - Small amount of

- Emphasis on information promotional material

- More detailed than others - Higher costs

Virtual Storefront - Full information service - Heavy investment of time

- Includes marketing of and effort

products and services - Not for everyone

- Allows on-line purchasing - Should be approached

and/or customer support cautiously

- Fastest growing of all four

For a better illustration of some of the choices that companies venturing onto the Web

face, the various approaches to Internet Marketing can be graphically represented by

Figure 3, which is shown on the following page:

23

Figure 3: Strategic Internet Marketing Decisions

As I have discussed some of the Supplemental Approaches to Internet Marketing, I

would now like to take a closer look at the second primary approach, or more

specifically, the Virtual Business Approach. The primary difference in using this

Internet Marketing

Supplemental

Approach

Virtual Business Approach

Billboard

Approach

Brochure Approach

Yellow Pages

Approach

Virtual

Storefront

Cable TV

Model

Subscriber

Model

Arcade

Model

Custom

Model

Retail

Model

Mall

Model

Broker

Model

Broadcast

Model

24

approach as opposed to a supplemental-type strategy is that the Virtual Business

Approach is a model that is designed to generate revenue. And while many tend to think

of tackling the Virtual Business Approach after successfully implementing more

traditional sales approaches (such as catalogs, etc.), the Web has the capability to allow a

business user to build an audience first and then revert to more traditional approaches.

This concept is truly visionary, and is enabling and empowering organizations by

allowing for flexibility in attempting to satisfy a wide variety of customers. In essence,

there are eight (8) methods with which a company can utilize a Virtual Business

Approach, and they are briefly listed below:

1. Retail Model: Establish an electronic storefront on the Internet and offer

customers the capability of buying products directly online. At its simplest,

the model entails solely making a catalog available to be viewed and ordered

from online. Further, some sites have much more elaborate retail storefronts.

The Retail Model has been the fastest growing of the Virtual Business

models.

2. Mall Model: Generate revenue by charging Web retailers fees. Consolidates

all Web sites into one attractive site, allowing customers the benefit of visiting

only one site for all their shopping needs.

3. Broker Model: Uses the Web to bring together buyers and sellers, and

charges a fee for each transaction. These fees however, are much cheaper

than those charged for placing the same transaction by phone because of the

low variable overhead costs inherent in a Web site. Becoming increasingly

popular with brokerage houses and financial institutions.

4. Broadcast Model: The practice of charging advertisers a fee for displaying

their message on your site. Questionable in practice, since many advertising-

supported sites have, and continue to actually lose money.

5. Subscriber Model: Simply, this is the custom of charging customers to view

content. There are drawbacks to this strategy as the Internet continues to grow

rapidly. This is best described by Rich Masterson, an interactive marketing

consultant who states that, “the Internet audience will reject retail

subscriptions because they are presented with too many [free] options from

which to choose from.” (Clark, 18)

6. Cable TV Model: Provide a selection of free content while charging

customers who would like to view premium content (ie. ESPN SportsZone).

25

7. Arcade Model: Charge customers a small amount of money per use of

particular materials. Likely users of this model will be information and

entertainment properties, and it has the potential to generate substantial

revenues.

8. Customization Model: Charge customers for content that is customized to

meet their specific preferences. This model exploits the Web’s low marginal

cost of information transmission. However, it is still unclear how large a

paying market exists for this information, since other companies provide an

advertiser-supported version of this service at no charge to the customer.

Ultimately, marketing on the Internet marries the needs of consumers with the

constantly evolving “cybertechnology”. This will hopefully result in companies that go

electronic to communicate with their customers, create an awareness of their product, and

even possibly make a profit in the process. (Romano, 20)

26

Issues and Controversies

It should be noted that until some changes are made to the current Internet model,

there are some important issues involving Web marketing that need to be addressed.

They are listed as follows:

1. The Web is in its infancy as a marketing medium and due to this is largely

untested, unregulated, and unrefined.

2. The Web is currently a medium that is difficult to target, control and measure.

3. With its exponential growth rate, the issue of increasing degrees of

promotional clutter is becoming more of a major problem.

While many (including myself) believe that it is inevitable for the Web to grow as a

commercial medium, there are some obstacles in an attempt to become profitable using it.

In turn, companies should be aware of these potential obstacles before investing in the

Web:

1. Cost of Site Development: While a simple Web site can cost very little to

produce, building sites with extensive amounts of searchable content can be

very costly. Development costs vary widely. In a survey of large corporate

Web sites done by Forrester Research in late 1995, sites used simply to

promote a brand averaged $98,000 to produce. (Clark, 19) Sites featuring

more detailed information cost $419,000 on average, and transactional sites

(virtual storefronts) were the most expensive, averaging $593,000 to build. In

addition, expect development costs to rise as companies utilize sophisticated

site design to compete for visitor attention in an increasingly crowded and

challenging on-line market. (Clark, 19) However, by the close of 1997, the

number of profitable sites jumped to 46%, ending three years of stagnation at

30%. (Hof, 126) This fact alone reveals that not only might the medium as a

sales tool be gaining acceptance, but the high upfront costs incurred in

building a site have an ever better chance of being recouped.

2. Cost of Operations and Maintenance: Once built, the costs do not end

there. The cost of operating and maintaining a popular Web site can be

astonishingly large. Once again, Forrester Research states average one-year

operating costs of $206,000 for large promotional sites, $893,000 for content

sites, and approximately $2.8 million for transactional sites. (Clark, 20) Some

of these costs are incurred by:

27

a.) Promoting the site: Advertising on other Web sites in order to attract

visitors…a cost that will surely continue to rise as the Web becomes

more congested and drawing visitors becomes more difficult.

b.) Updating the content of the site: Updating the content is another cost,

since some sites have to be frequently updated. However,

organizations should plan on devoting a staff of people to ongoing

improvements in overall design and content.

c.) Managing the interaction with visitors: According to Mr. Bruce H.

Clark, Professor of Marketing at the University of California-Los

Angeles Anderson Graduate School of Management, “if interaction is

the thing that the Web does better than many other marketing tools,

then companies must do a good job of fulfilling this function.” Since

visitors expect a quick response when they contact an organization via

its Web site, it is imperative that firms take all necessary measures to

act responsively. This is especially important since the old “word-of-

mouth” paradigm is another one shattered by the Web. No longer is it

true that one unhappy customer will tell 12 others. The ease of

sending email to many multiple recipients has changed this. A recent

example is an email message that I received from a friend. It told a

story of a woman who was shopping at a Neiman-Marcus store with

her daughter. The store had a café and they bought lunch. With lunch

they purchased some “exclusive” cookies that absolutely blew them

both away. The woman went to the counter and asked if she could

have the recipe. She was told, “No, but you can purchase it. It’s only

two-fifty…a good deal.” So she decided to add the recipe to the lunch

bill and paid for it all with her credit card. To her surprise, when the

bill was received by her next month, the entry from the Neiman-

Marcus lunch was for $284.34. Outraged, she called customer service

and demanded an explanation. It turned out that the recipe cost two-

fifty all right…TWO HUNDRED AND FIFTY DOLLARS! After

explaining the entire situation to the representative at Neiman-Marcus,

they refused to refund her money since they said that she has now

already seen this “top-secret” recipe. After many calls and many

refusals, this unhappy customer decided to get her money’s worth…by

emailing it to everyone she knew and requesting that it continuously

be forwarded. Her goal is to ensure that no one else gets “ripped off”

by Neiman-Marcus by giving the recipe out over the Internet. The

main point of this story is to demonstrate just how dangerous an

unhappy customer can be with a medium such as the Internet.

Therefore, it is wise that a company that decides to use the Internet,

dedicate a staff to manage and service its customers through the Web

site to prevent unhappy customers like in the case of Neiman-Marcus.

28

3. Transaction Security: Many experts believe that this has really been the

major issue in regard to the slow development of the Internet as a business

medium. The major fear being that credit card numbers and other purchase

information may be stolen by unscrupulous third parties.

Two payment solutions have been proposed to handle this problem:

1.) Secure Electronic Transactions (SET) Standard: A global

encrypted-payment infrastructure developed by Visa and

Mastercard, and currently supported and used by the latest

Netscape and Microsoft Internet browsers.

2.) Digital Cash: A customer sets up an account with one of

several providers (ie. CyberCash, DigiCash, etc.) and merchants

automatically debit the customer’s account with each use. Since

only the cash amount is transmitted over the Web, there is no

danger of credit card numbers.

The problem here is that there is presently no industry standard, so only time will tell

before we see which of the players in this industry are successful and which eventually

fall out of sight.

While it seems that technically security problems are well on their way to being

solved, the more difficult task is changing customer perceptions. (Clark, 21) Still some

consumers remain wary about using the Internet for purchases. However, this may be

declining. A recent report from the U.S. Commerce Department taken from the CNN

Financial News Web site (www.cnnfn.com) listed on 2.28.98, states that consumers must

be getting more comfortable with making on-line credit card purchases. The report states

that, “By the end of 1997, ten million people had purchased something over the World

Wide Web, an increase from only 4.7 million people just six months earlier”.

29

Successful Web Marketing Tactics

While the most important factor in Web marketing success in a total organizational

commitment to the continuous support and development of the site, it seems common

from much of my research that many companies still make the costly mistake of ascribing

to the “if we build it, they will come” philosophy. Because of this, many of these very

same companies and spending large sums of money and scratching their heads while they

wait patiently for the Internet to reap huge profits. What they don’t know is that making

the move to such a medium as the Internet requires, and essentially demands patience.

That is why having an organization that believes in the technology and provides ongoing,

unparalleled support is essential for gaining any kind of reward from utilizing the Internet

medium.

Other factors that can help lead an organization into a successful direction on the

Internet include the following: (Romano, 24)

1. Get comfortable with the on-line culture. Become an avid on-line user

before deciding to invest in it. This will give you a better idea as to what the

“others” are doing.

2. Have a strategy. It is essential for organizations to understand what their

goals are for being on the Internet, and just what it is going to take to achieve

those goals. Questions like, “Will it fit well with the rest of the organization?”

and “How will the success of the site be judged” should be asked here. When

finally naming the site, avoid using common words (ie. cyber, tech, Web or

Net are some examples).

3. Craft the message carefully. Keep it consistent with the organization’s

corporate culture and avoid exaggeration and hype. Additionally, use flashy

animation and graphics carefully, as some potential customers may grow

frustrated as they waste valuable time for the site to download. Furthermore,

keep the opening page enticing but simple. You will only have approximately

five seconds to grab the attention of the visitor…make ‘em count.

4. Collect customer feedback. Make available the option for customers to send

e-mail directly to the Web site. Track how many customers visit the site and

where they like to go. Many high-quality tracking services charge as little as

$50/year. On-line surveys should also be considered here in order to build a

customer database.

30

5. Respond to customers. Once again, it is essential to respond to customer

inquiries in a timely manner. Use customer feedback to better enhance the

site. In addition, create personalized newsletters for those customers who

volunteer their e-mail addresses.

6. Integrate Web marketing into all marketing. Coordinate all marketing

efforts with the Web approach. For example, use the site to support

advertising messages and promotional activities and provide sales leads to

other parts of the firm.

7. Make a unique offer. To encourage a shift in customer perceptions and

make it easier for them to shop on-line, give them a reason to change their

shopping habits. Offer on-line customers specials (ie. discounts, bonus offers,

etc.) that can only be obtained on-line.

Some additional tactics that can be used for Web site success are: (Hall-Smith, 108-109)

8. Remind visitors to bookmark your site. According to recent research, as

many as 44% of Web users don’t surf using bookmarks. Encourage them to

do so.

9. Add a thank-you page. Make the customer feel good about visiting.

10. Post a “something-of-the-day”. Gives visitors a good reason to keep in

touch with the site. It is wise to slant the topic toward a particular expertise,

so it will be easier to create a new daily posting.

31

Future Outlook…

Many of us have experienced economic and financial rewards since 1992-93. An

unprecedented bull market in the U.S. stock market, which has undergone an annual 25-

35% appreciation over the last four years (and is also up another 15% through April of

1998 as well) has destroyed time-tested theories and brought rise to questions among

many of the top market analysts. While this growth can be attributed mainly to low

interest rates and progressively declining unemployment domestically with little inflation,

primarily technology issues have driven much of this market success. Dan Rather

recently stated on a 3.9.98 broadcast of the CBS Evening News that, “it has been

estimated that the unemployment index in the U.S. would be a full percentage point

higher than its current level, were it not for the Internet, and the massive technological

job market that it has created.”

Recently, top executives from some of the 400 largest firms in American business

(Coca-Cola, Levi Strauss, and AT&T to name a few) gathered at Proctor & Gamble

headquarters for a two-day summit to discuss how they can better market their products

and promote brand loyalty on the Internet. Management at P&G, which spends in excess

of $3 billion dollars, has voiced impatience with the pace at which the advertising

community has been developing Internet marketing. In addition, while companies are

intrigued by the Internet’s capability of allowing consumers to immediately respond to

ads and the wealth of marketing information that can be obtained by customers, no one

has figured out an effective way to measure Internet consumer response. This has made

big companies somewhat cautious in their approach to the medium, as even P&G expects

to spend only $12 million this year on the Internet (less than 1% of its huge $3 billion

advertising budget). The outcome of the summit was a rigorous marketing goal set by

P&G for itself and the rest of the ad world—devise and formulate standards for Internet

advertising by September 1999. Such standards are to include more persuasive formats,

privacy protection for consumers and a system that will measure the effectiveness of ads.

P&G stated as part of this challenge that it will commit 80% of its advertising budget to

the Internet by the year 2000, if the medium improves. (Horovitz, 2)

32

On a recent trip to visit my family in New Jersey, I happened upon a televised

broadcast of the 1998 World Internet Conference in Belgium. Most of the televised

discussions focused upon the rapid growth along with technological improvements that

need to made in terms of the infrastructure, such as improvements in bandwidth,

equipment, hardware, etc. Furthermore, in order to combat the unparalleled growth and

the “net congestion” outcome, there was one point that was made at the conference that I

found to be extremely thought provoking (especially as many of us attempt to look into

our respective crystal ball and forecast the future success of the Internet, along with the

companies and technologies that support it). The Chairman and CEO of Compaq

Corporation Mr. Eckhard Pfeiffer gave his personal view of the Internet looking ahead in

the next 3-5 years, and in turn where Compaq will be focusing its efforts. He believes

that for the Internet to be truly successful and to reach its fullest expected potential, a new

one would need to be created. This “new” Internet, coined “Internet II” by Mr. Pfeiffer

(for lack of a better title) would offer “significant” improvements over the current

Internet structure in place. Mr. Pfeiffer cited the main problem that Compaq, and other

competing organizations see with current Internet technology is that it is based and

structured upon an “academic model.” Because the Internet was developed by the

government and then later used as a communication tool between scientists at

universities, it was never “intended” to support many of the corporate and business

applications that are currently spurring its phenomenal growth. Therefore, this new

“Internet II” would be based upon and used solely as a business application. Its

framework and foundation in turn would be designed to benefit business ideology, and

would entail a “corporate mindset”.

On the upside according to Pfeiffer, Internet II would enable impenetrable levels of

security, lightning speed, as well as increased amounts of information to further enable

“knowledge sharing” between organizations. Now before you go and start saving your

pennies, so you can be the first one on your block to be hooked up to Internet II, there are

some question marks that remain. Internet II, because of the privileged nature of the

information and the fact that it will be designed for business and those who work within

it, will cost more than the current Internet…in the words of Mr. Pfeiffer, “significantly

33

more”. It will be designed to keep more general and casual Internet users out, rather than

encourage them to peer in. There will be increased amounts of “restricted sites” with

higher costs or special privileges needed to access the information stored within those

sites. While casual users and academics will still have the current Internet to use at their

discretion, Internet II will offer all of the best discoveries and innovations of the current

Internet. In doing so, it will also offer none of the “garbage” that is currently cluttering

up the Web and making it increasingly difficult to access information. Internet II will

not allow “personal Web pages”. It will be made by business, for business and will

ultimately be policed by a select group of “technology-focused businesspeople” in order

to ensure that the goals of the new model remain uncorrupted and intact.

Still, Internet commerce is rapidly becoming a force that can't be ignored.

Government figures estimate that online commerce totaled about $8 billion last year and

expect that number to grow to more than $300 billion in the next four years. Combine

that with the overall cost savings to business due to increased efficiency and the Internet

is estimated to add $10 billion to $20 billion to the US Gross Domestic Product by

2002. (Hof, 124)

Yet to some customers, despite its obvious importance, price is not all that matters.

For many, price is second to real value. And there is real value in a tool that enables a

user to shop or have questions answered at any hour of the day, for almost anything at all,

anywhere on the globe. There is real value in building relationships with customers, and

for customers to actually see their feedback and input be incorporated into a corporate

vision, further improving the way companies do business. For business in an art form;

one that requires constant attention and refining in order to create a masterpiece that

others can only wish to emulate. In this case, business is forced not only to refine itself,

but additionally the way it chooses to utilize a medium that also needs to be refined. A

difficult task for even the most visionary of firms. But with more than 1/3 of Americans

over age 16 using the Internet—an increase of more than 18 million people since

December 1997—this medium is certainly worth the corporate and media attention that it

has been gaining. (Bergen Record Web site: www.bergenrecord.com 8.31.98) And even

34

if this growth does not result in immediate profits for a given company on the Web,

building value for the customer—while easily overlooked in corporate bottom lines—is a

sound long-term strategy that should not be underestimated by any stretch of the

imagination. Keeping the customer a priority is a solid long-term focus that will

inevitably help strengthen awareness and foster public confidence in the medium,

ultimately resulting in the increased revenues and growing client bases that those

companies existing on the Web so fiercely desire.

Once again, it is important to realize that this is a medium that is in its infancy. Rapid

changes will continue to take place as standards are refined and more careful measuring

systems are utilized to accurately measure success. At this point in time however, the

Internet does offer firms both small and large an alternative to more limited traditional

advertising mediums, so that they can further grow their businesses both efficiently and

effectively. It enables companies to better monitor the “pulse” of their customer; closely

overseeing the tastes and preferences of fickle consumers, and developing products to

better meet these changing tastes. Furthermore, whether a company decides to use the

Net as a supplemental tool in a larger spectrum advertising campaign (teaming it with

more traditional alternatives) or to develop a full-blown virtual storefront, it remains

apparent that a long-term strategy broadly focused on enhancing revenues along with

customer value (through the use of two-way communication) can potentially go a long

way towards success in this wildly competitive environment. And while it remains to be

seen exactly which evolutionary path the Web will take, the verdict is already in that the

Internet will continue to revolutionize the way business in conducted amongst all

companies that compete within the ever-changing global marketplace.

35

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Internet Sites:

http://www.bergenrecord.com – Northern New Jersey Daily Newspaper

http://www.cnnfn.com – CNN Financial News

http://www.usatoday.com – USA Today Newspaper