Internet Marketing Essay, Research Paper

Internet Marketing:

Paradoxical Paralysis or Proactive Profiteering?

Introduction – The Potential for Profit

Electronic marketing on the Internet has bounded into the forefront of marketing communications. Not because it is a proven medium for marketing but because it offers vast, yet undiscovered potential for profitable business activity.

There are many reasons why Internet marketing has achieved such elevated status so rapidly. In this paper we’ll introduce some of those reasons and discuss the proactive abilities this new marketing channel provides. We’ll also introduce some of the challenges this medium creates.

As we end the first year of Internet commercial activity, the communications channel is also facing several larger paradoxes, including numerous contradictions to current thinking. These issues are binding growth and forcing us, as marketers and business people, to examine the Internet more fully. More importantly, we must develop integrated marketing techniques in order to use the super highway as a profit-making tool.

The year of 1994 is being called the year of the Internet primarily because it was the first year its potential as a marketing tool was considered. Now that the first half of 1995 and the massive initial movement of companies to the Internet’s World Wide Web is over, we as marketers must ask ourselves if the challenges involved in Internet marketing will be met.

Will marketing professionals be proactive profiteers, using this new channel successfully? Or, will we continue to let the nay-sayers paralyze the Internet’s marketing potential by highlighting its negative paradoxes.

The primary reason for the Internet’s explosive growth is the media write-up it received in 1994 and 1995. Major publications including Time, Business Week , Newsweek, and many others, have featured the Internet as an almost magical, all-encompassing solution to interactive communications. In reality, the Internet has been around since the early 1970s but was primarily used by academics and researchers for information exchange.

The release of World Wide Web (WWW) browsers in 1994 was the catalyst of the media attention. The web’s easy-to-use, point and click interface and graphic and multi-media presentation abilities create a branch of the Internet for which the business world was waiting. The WWW has done for the Internet what Apple Macintosh and Microsoft Windows did for desktop computing. The Web made Internet user friendly for the common person. We’ve all been waiting for the electronic marketing channel and now its potential is available. Unfortunately that doesn’t mean it’s being immediately recognized.

Because most people believe what they read, the adoption of Internet’s presence by US businesses has been overwhelming. By some estimates there are about 50,000 companies and over 1.75 million web pages (about one computer screens worth of information, text and graphics) now available for Internet surfers.

The good news is these pages are available worldwide seven days a week, 24 hours a day, and they can be edited daily. Media coverage is certainly warranted because of the opportunity the Internet offers. The bad news is that most of the pages were put up by companies desiring an Internet presence rather than by companies supporting a larger communications strategy.

Positive Internet Marketing Attributes

The advantages of marketing on the Internet are many. Some of its best qualities include:

Interactivity: Visitors to a home page can review graphics, read text, as well as interact with the location, download information, send in comments, see videos, hear programs, buy and request products or services, etc. The only limitations on a WWW site are the resources supporting the site.

One-on-One Communication: A person can ask specific questions and receive answers to those questions on-line, regardless of traditional distribution channels or customer ownership issues. Manufacturers can converse with end users of products and services, gathering valuable market feedback at negligible cost. The Internet provides the truest form of direct marketing.

Like all communications, this process is best accomplished with guided interaction. Like any information gathering project, Internet interactions should have a portion that limits response and a section for open dialogue. Response is also direct so inquiries and comments can be dealt with easily and inexpensively using e-mail.

Flexibility: Information providers have the ability to change all parts of their Internet locations at any time. Unlike other media which restrict media due to lead times, Internet presence can be modified dynamically. There is no down time and no lead time for worldwide changes. If a mistake is made, it can be changed instantly. No more lingering typos or dated pricing.

Minimal Cost: The Internet is a truly unique communications media because variable communications costs are fixed, regardless of presence. In contrast, a full page ad in a magazine has a cost. Two full pages cost a little less than twice as much. These two pages run on a year contract has a lower per unit cost, but a substantially higher overall cost.

On the Internet a home page (the initial page seen by a site visitor) has a cost. This includes technology and programming investments plus connection costs. Additional pages don’t add significantly to cost, regardless of their number or complexity. All pages are run on- line, year round and around the clock, until the company takes them down. The telephone is the most recent example of a media which has such massive adoption potential.

A recent study by The Gartner Group states that most of the costs of developing an electronic marketing effort are “up front” in the organization, development, and execution of the effort. Adding additional channels, such as e-mail communications in addition to a WWW presence, to this effort increase costs only incrementally (10%-20% per channel). The study also states that enterprises becoming electronic marketing merchants will pay back their investments in 12 to 24 months, with a 0.8 probability. This study assumes top management support, which such a major change in business activity requires.

Challenges in Internet Marketing Some of the challenges that the Internet faces in marketing include:

Security: Much has been written about the lack of security of the Internet. Part of this supposed problem arises from real threats of “hackers” breaking into secured areas of corporate Internet servers. Firewall technology makes this process extremely difficult and new defensive measures are regularly being employed.

This server security issue has been somewhat transposed into the theoretical danger of transmitting proprietary information over the net. This problem is based more on theory than on the practical issues involved. Most important for electronic marketing is the different types of security being discussed for the communication of credit cards. To date there are no documented cases of credit cards being used fraudulently on the Internet. In addition, using a stolen credit card is fraud no matter how a criminal gets the number. The fear of credit card fraud has not reduced credit card use in traditional direct or retail sales environments.

However, in theory, a credit card thief could lurk on the net and grab packets data as it flies by at the speed of light. Assembling the data and using it are not beyond the grasp of high-tech criminals. Realistically, the danger is not that high. Business people rarely think twice about handing credit cards to restaurant service personnel and leaving a signed slip on a table or dictating numbers over 800 lines. The Internet is no more dangerous.

The spreading use of encrypted transaction software will further alleviate this issue. In April, 1995 a security standard was agreed upon by most of the major Internet players including: IBM, AOL, Prodigy, Compuserve, and Netscape among others. Standardized encryption software developed by these and other companies is expected for release this fall.

Connectivity: In order to do business over the Internet, both parties involved must have Internet access and know how to use it. Theoretically, it is not advantageous for a company to set up an Internet site if its customers can’t access the information. Fortunately, this issue is literally disappearing overnight. Growth of Internet users is doubling annually.

Depending on which expert you consult, the current figures of 30-35 million Internet users is expected to double by this time next year. The latest numbers of Internet users accessing the WWW are 3.8 million daily. As the private on-line services are now releasing web browsing software, these numbers are also predicted to double this year. These private on-line services include: America On-line with 2.5 million users, Prodigy’s 1.5 million subscribers, and Compuserve’s 2.8 million users. Additionally, the 4 million IBM OS/2 Warp users and an estimated 80 million Microsoft Windows 95 users will soon have easy access to the Web.

Time: The Internet is a worldwide communications vehicle that is always on. All viewers are seeing the same thing at the same instant – regardless of their time zone. A viewer in Australia is viewing something tomorrow and communicating to a Boston based company, yesterday. This is a positive issue for those East coast marketers, for example, who have trouble communicating with the West coast. This is a negative issue for companies who want to communicate in real time as they have to be prepared to do so 24 hours a day.

Location: The concept of cyberspace is quite true when considering that all surfers can be at the same location at the same time, wherever that location is physically. As far as an end-user is concerned, the location is on their desktop, regardless of the origination of the information. Location is irrelevant for English speaking surfers, the current language of the Internet. If a surfer is interested in non-English presentation information, location becomes important. Information providers in many other countries provide information in their language.

For marketers, fulfillment can be an issue. The ability of UPS, FedEx, and DHL to deliver world wide at reasonable cost is helping this situation. Monetary conversion can be handled through the institutions issuing credit cards.

Limiting Demographics: The Internet is a medium which requires a user to be literate, to think in some level of abstraction and to have access or own a desktop computer. These people are not the less fortunate of any society. They will tend to be people who use technology in some form in their daily activities. For retail marketers, this demographic segment is a desirable target market. For business marketers, technology and desktop computing is already common in the workplace, making this segment easily accessible through the Internet channel. In both cases, Internet access is crucial and inevitable.

Restrictive Behavior Etiquette: The unwritten rules of communication on the Internet system, referred to as netiquette, dictate the ways in which marketing professionals can act in this environment. Unfortunately for the marketers, these rules are contrary to the current IYF (In your face) techniques. The general rules of netiquette state that personal access to information and privacy of actions are paramount. More importantly, netiquette also states that unsolicited communication is unacceptable. This means that the Internet marketer must act in a receptive manner, making marketing materials readily available on-line and receiving proactive action from customers instead of initiating targeted communication. Traditional direct mail over the Internet, although possible, is not acceptable unless the end-users have requested the communication effort.

The Current Paradoxes in Internet Marketing

The Internet has several paradoxes that appear to be restricting its explosive growth as a marketing tool at this time. Some of these contradictions include:

1.The demographic paradox.

Marketers are reluctant to market to consumers on the Internet because there is not sufficient demographic information available concerning Internet buyers. Inversely, demographic information can only be captured by initiating on-line market research activities, which are traditionally executed as part of a larger marketing program. How does a sports event create a score when all of the players are spectators?

2.The buyer paradox.

Until 1995 merchandise available on the Internet has been primarily male oriented: computer parts, software, and accessories. Current reports indicate that only men buy products on the Internet. These same studies also indicate that most users are men so this situation is logical. However, The number of female end-users is growing rapidly so it’s imperative to give the Internet some time to attract women shoppers before the mania of stereotyping begins.

In addition, concern is growing about the number of buyers in the marketplace overall. Though few Internet marketers are talking, the numbers appear to be growing. The Internet Shopping Network recently revealed in an industry newsletter that 5% of its 10,000 daily visitors are purchasing on-line.

On-going studies on World Wide Web usage by the Hermes Project at the University of Michigan Business School, in conjunction with the GVU Center at the Georgia Institute of Technology report promising findings. They indicate that 18% of survey respondents spent over $50 purchasing products on-line in the last six months.

3.The security paradox.

Security of credit card information on the Internet is a media field day prompted by the theoretical assumption that credit cards over the Internet are unsecured. As previously stated, to date there has been no reported case of anyone’s credit card being misused as a result of transmission over the Internet. The only reported abuse of credit cards on the Internet involves a hacker who stole tens of thousands of credit card numbers out of a corporate server operated by Netcom, a west coast based Internet connection provider. This robbery did not occur during the transmission of the credit card numbers over the Internet. The card information was in storage on the server. None of the card numbers were used illegally.

4.The cost paradox.

The most commonly asked question when discussing the Internet is, “Will my phone line charges go up when I am talking to a person in Hong Kong?” The answer is no. Costs are the same when talking to China or the building next door using the Internet. Aside from the initial fixed connection to the Internet, the worldwide communication has no increased cost to the user. This situation for the most part, is a paradox against all formal training and practical experience.

The fixed costs of Internet marketing are not small. Setting up an effective business presence on the WWW, for instance, can cost $5k – $200k depending on the presence. These costs include in-house or out-sourced hardware, software, personnel, and connection charges. Once these financial commitments are made, however, the variable costs are negligible. This factor makes Internet marketing extremely attractive in the larger picture.

A second cost paradox is also in existence. According to the Gartner Group study, corporate purchasing agents and consumers expect products and services from electronic vendors to be less expensive than traditional channels because of the direct interaction without retail or distributor overhead. Electronic vendors, on the other hand, are interested in charging back the initial costs of implementing the service and are assuming the greater convenience of electronic commerce is worth more money. This assumption is dangerous and, according to the study, ill-founded.

5.The information paradox.

The demand for statistics and user information is growing. Yet, in our competitive world successful people generally do not divulge their secrets for success. Would you? The pioneers of Internet marketing are claiming the territory, and they are telling no one.

One thing is certain. Every Internet server (host) can be programmed to track its contact with users. This is the truest measure of an electronic marketer, determining exactly who looked at what, when, and for how long. At this point many vendors aren’t capturing such information, according to the Gartner Group study. Such measurement is crucial.

6.The presence paradox.

All types of companies and people are putting up pages on the World Wide Web and expressing disappointment with the lack of results. Internet marketing requires a comprehensive strategy encompassing multiple channel applications in both electronic and traditional areas. Unfortunately, no strategy, goals, or expectations were established before developing the strictly Internet presence. Results involve reaching established goals and notInternet marketing requires a comprehensive strategy encompassing multiple channel applications in both electronic and traditional areas. Unfortunately, no strategy, goals, or expectations were established before developing the strictly Internet presence. Results involve reaching established goals and not just taking action. eir technology professionals in charge of the company’s Internet activities, which is wrong. This is comparable to putting the accounting department in charge of advertising.

7.The buying paradox.

O’Reilly & Associates indicate that 72% of the Internet users surveyed used the Net for gathering information on products before making purchases (as published in the 4/17/95 issue of Communications Week p.29) . However, when it comes time to pay, the users usually buy off-line via more conventional means. Survey respondents say they tend to limit on-line purchases to things such as software and music CDs, which are the primary products available for on-line purchase. This points to another paradox: few Internet advertisers have on-line ordering so people don’t order on-line. It seems that such a report does not consider the logistics of the statistics. People don’t order on line because they can’t. And when given the opportunity to buy on-line they don’t because they are not yet conditioned to do so. To condition the buyer, the retailer needs to offer on-line ordering.

In a separate study by ActivMedia Inc., 21 percent of responding Web sites reported sales of more then $10,000. The study predicts $118 million in sales through web sites from September 1994, to August 1995.

8.The mental paradox.

Planning is a process which creates a present that is hopefully improved over the past. Since no one can predict the future, this process relies on the mental capacities of managers to assimilate information to predict and then change accordingly. Currently, the Internet does not have a place in the mental matrix. The Internet, once the hype and hyperbole are stripped away, requires non- traditional thinking. It’s a brand new game requiring a brand new set of rules. And, without an educated understanding of cyberspace, the mental exercise for managers is futile in the planning process.

The paradox is that there is no comprehensive explanation of the Internet which managers can incorporate into their thinking process. Unlike the children’s story, the sky is not falling, it is being organized into a new entity, which future spectral analysis will reveal in detail. The problem is we can’t wait for the analysis and must move into this new marketplace with educated assumptions, long-range strategy, and realistic expectations.

Conclusion: Making a Plan

It is our hope that recognizing the aforementioned issues involved with Internet marketing will be the first step in eliminating the problems and helping the reader move on with this exciting direct marketing opportunity. The numbers and potential are very promising.

In a recent report entitled: Electronic Marketplace 1995: Strategies for Connecting Buyers and Sellers produced by SIMBA Information Inc., a 27% increase of revenues from electronic transfer of tangible goods occurred between 1994 and 1994. The report states that revenues for this period climbed to $362 million and include all electronic mediums including response TV and kiosks.

The private on-line services account for the majority of transactions in the electronic marketplace and sales generated from business and consumer on-line marketing efforts represent 90% of the market, or $324.9 million in 1994, according to the report.

Although the Internet represented only 6% of transactions in 1994, the study predicts it will be the second largest electronic marketplace by the year 2000 with revenues nearing $950 million.

The question presently facing the Internet market how do we overcome the problems previously mentioned to the profits predicted by the year 2000? The only way to do this is to educate ourselves on this new