Published: Mar 10, 2004 in Knowledge@Emory
Beware of the dreaded Bonzi Buddy. Heard of it? If you live at least part of your life online you have no doubt seen it. The now notorious software program, made by Bonzi Software of San Luis Obispo, California, got into trouble for using popup advertising on the Internet that closely resembled the look and content of Microsoft Error messages, as a way to lure surfers to its site. It’s just Internet marketing, argued Bonzi. That is, until the company, in late May, settled a class-action lawsuit filed against it by the Spokane, Washington-based law firm, Lukins & Annis. Among other changes, Bonzi’s popup windows will now contain the term “Advertisement.”
Now travel to the East Coast, taking yet another online Internet marketing route. According to a June article from news service Reuters, beleaguered concert promoters are modifying their marketing strategies as a way to attract last-minute buyers for their concert tours. The folks at Global Spectrum in Philadelphia, for instance, use their cyber club, a site that notifies registered users of upcoming events at First Union Center and other Spectrum arenas, to attract business.
Internet marketing strikes again. The term means different things to different people—an advertising tool or a way to sell products online—but it is undeniably a buzz phrase for the new millennium. Internet marketing, while perhaps not as readily embraced as some initially predicted, continues to transform the way many businesses operate, in terms of selling and distributing products and transacting with other businesses. The same holds true for the advertising dimension of Internet marketing, which lost some ground following the burst of the Internet bubble in 2000, but is regaining strength as an effective way for companies to capture the attention of potential customers. The best, say observers, is yet to come as marketers refine their techniques and integrate their strategies across multiple mediums.
The approach to Internet marketing depends on whether a company is a client or is trying to use the Internet to market its services. The latter holds the most power to transform, in that it has prompted many companies to embrace an entirely new way of doing business, both with the general public, as well as with vendors and other businesses. In these terms Internet marketing is going to be used heavily in a few ways, suggests Jagdish Sheth, a professor of marketing at Emory University’s Goizueta Business School. “If a product can be strictly ordered using the Internet and also fulfilled and distributed over the Internet, that is the most effective approach,” notes Sheth, who has published more than 200 books and research papers in different areas of marketing. “This would include airline tickets, banking functions and stock brokerage, where the product itself is something that can be digitized and sent over the Internet.”
When it comes to selling products online, however, Internet marketing is far less effective in the mass, consumer market, argues Sheth, adding that the cost of fulfillment is often too high. “This is why Webvan failed, because the margins were not big enough in grocery products to cover the cost of warehousing they had to incur. This is also why Amazon.com finally began to be profitable once they added higher priced and better margin products to books and CDs. Ultimately, we believe that in traditional, consumer product industries, you will have to create a blended mix. Bricks on one hand, and clicks on the other hand. Most retailing will be more like the pizza industry. You can go dine there, or you can order it and have a takeout, or they will do a home delivery.” Internet marketing will also be successful in the consumer market, notes Sheth, for those retailers that operate an active catalog business in which customers are used to ordering merchandise over the telephone.
Even with several existing distribution channels, many traditional retailers in search of Web-based sales have had to think long and hard about how to alter their strategies, notes Douglas Bowman, a professor of marketing at Goizueta. “Now that we have these multiple channels of distribution, one of the challenges, especially for retailers, is to what extent you standardize or customize across a channel of distribution,” Bowman points out. “Take someone like Eddie Bauer. They have stand-alone stores, catalogs and now the Web. The stores used to be very different than their catalogs. In many ways, they treat the two channels very differently. The Web adds a new dynamic. They can do things like a pair of mittens might go on sale in February in Arizona, but maybe won’t on the Web. It becomes a challenge for companies that sell products that shouldn’t theoretically be treated differently by category.” Standardization of pricing also poses challenges, adds Bowman. Amazon, for instance, used to charge different prices to customers for the same items based on their purchase histories. The company amended that approach when customers began to complain.
The growth in Internet marketing has also sparked digital revolutions in business-to-business exchanges. So-called B2B e-commerce is basically how companies manage business-to-business transactions and the relationships that support and drive them. “In business-to-business marketing, we think the Internet will have a much stronger hold as a marketing tool,” explains Sheth. Transaction costs, he notes, are removed on both ends. While the bursting of the Internet bubble in 2000 shook up the online business-to-business arena, companies are still buying into the approach, adds Sandy Jap, a professor of marketing at Goizueta. In her recent paper, “Leveraging Internet Technologies in B2B Relationships,” Jap writes, “Executives still seem to believe that the promise of B2B e-commerce is real.”
One aspect of the online business-to-business exchange for which Jap has completed considerable analysis is the buying and selling of commodity-driven raw materials, such as agricultural products, industrial chemicals and steel. These transactions are known as reverse auctions. Long used as a tool for industrial sourcing, reverse auctions are so named because the sellers bid instead of the buyers and the prices are bid down instead of up. Everyone’s getting in on the online reverse auction game, from large corporations and government agencies in search of the least expensive suppliers to e-commerce and software businesses clamoring to offer reverse auction products and services. “They clearly generate cost savings, on average 5% to 25%,” explains Jap, who has written several papers on the topic, including “The Impact of Online, Reverse Auctions on Buyer-Supplier Relationships.” “For a business earning a 20% gross margin, every $1 saved in cost is equivalent to adding $5 in revenue. We see their use at big companies like Schering-Plough and the big three automakers. It’s really quite pervasive.”
Few companies using growing online marketing strategies like reverse auctions can argue the benefits. Is it worth the cost? They merely need to look at their burgeoning bottom line. But what of that other dimension of Internet marketing where the Internet becomes a medium for advertising? Despite the clamor that banner advertising on the Web would overtake all other media, companies have been slower to adopt the approach, fearful that it was a waste of their advertising dollars. “Internet advertising, like the rest of the Internet, was going to be huge. Everyone was going to pull their money out of traditional media and put it into the online environment,” explains Jason Bacharach, vice president of marketing at Gráphica Group, an advertising and marketing firm based in Chester, N.J. “Like everything else with the Internet bubble, that proved not to be the case.”
That said, many companies still consider Web advertising a viable option, notes Bacharach, for a variety of reasons. “The ability to target has been one of the main things that has attracted people to the Internet for advertising. You can target down to very small Web sites that give real, vertical information in much the same way magazines do,” Bacharach explains. “Also, it can be interactive. You can engage customers right then and there.” Publishers, like the Wall Street Journal Online, which have figured out how to microtarget visitors to their site, are particularly valuable to online advertisers, adds Bacharach.
That immediacy of giving customers information, finding out a little bit about them and responding back to them is something that people thought would push online advertising to great new heights previously unreachable in traditional media, explains Bacharach. While it has fallen short of that goal, Internet advertising is yet again making an impact as companies begin to understand how to use it, he adds. “It’s come back from the perspective that companies are using the Internet in much the same way they would use TV,” Bacharach notes. “It’s brand-awareness oriented, not just direct-response oriented. The value of seeing a Coca-Cola or McDonald’s banner ad on the site has a value of seeing a billboard or a transit poster. It’s a different way to calculate the value of keeping that brand in front of people.”
Sheth agrees that more and more companies are understanding the value of Internet advertising. “The big power of the Internet is that you can not only inform the public about the product, you can close on the sale,” he points out. “I can order online. Because of that we think Internet has a much stronger potential power.” Clients also get a better fix on the caliber of their advertising message. “When it comes to TV and print, the advertiser doesn’t know if there is a direct relationship between the dollar he spends on advertising and the return he gets. There is no direct line of sight,” suggests Sheth. “If you pour a dollar into Internet advertising, you’re going to get the following return: it measures second, by second.”
In the end, agree Sheth and Bacharach, the Internet is here to stay, and so too are all types of promising marketing strategies. “There is no way you can ignore it,” says Bacharach. “Everyone is online. Internet penetration is 80%—at home, at work, all the time. It’s a matter of how you use it and how you reach that audience.” Ultimately, he says, it will require better communication between Web site and client. “I think advertisers are looking for publishers who are willing to take some risks, to try different types of banner ads that are not locked into specific sizes or formats,” notes Bacharach. And much like the services side of Internet marketing, Bacharach believes companies looking to advertise online will settle on a varied approach, where messages are integrated across many channels. In other words, Internet marketing isn’t changing the world completely, only offering choices that make it much more interesting—and sometimes challenging—to do business of all kinds.