Operations, Information & Technology , Marketing

Principles of Internet Marketing

In a new book, an economist explains how the internet's immediacy can cause a company to rethink its entire marketing organization.

February 01, 2000

| by Barbara Buell

Marketing has always been the voice of the customer—a conduit through which the rest of the company can hear the wishes of its customers. With the Internet, the voice of the customer becomes a shout, says GSB faculty member Ward Hanson.

Early online marketing began in 1995 with simple sites on which companies published little more than brochures or technical manuals. Those sites evolved rapidly as both marketers and customers learned the power of real-time information, such as order-tracking, online account information, and catalogs packed with exact inventory details. Today, Web traffic and the information generated from each visitor is an asset, a valuable marketing opportunity.

In one of the first comprehensive books on the subject, Principles of Internet Marketing (Southwestern College Publishing, 1999), Hanson lays out the strengths and weaknesses of Internet technology, describing how it can generate immediate benefits and how it can cause a company to rethink its entire marketing organization.

“The person I had in mind when I wrote the book was really the VP of marketing, anyone responsible for knowing what is fundamentally new and different about the Internet and its use in marketing,” says Hanson, who teaches courses in Internet marketing at the MBA and executive levels. “My goal is to systematically explain why and how Internet marketing is exploding and how it can create value and profits.” The chief tasks at hand for the Internet marketer, he says, are building brand name, generating traffic, achieving personalization, and creating an effective online retailing environment.

The explosion of Web content has grown faster in the last year than Web usage. As a result, it is actually harder to get noticed and have people stay around a site than it was three years ago. Marketers not only must get people to their site, they must get them comfortable enough to place an order. As a result, one of the biggest challenges on the Net is creating brands—strong ones like eBay, Yahoo, or Amazon that achieve an image of quality, trust, and familiarity. Beyond that, there’s the problem of generating traffic. So-called “stickiness”—how often people visit your site and how long they stay there—is a good measure of value. And it’s measurable, thanks to the information that can be gleaned from every website contact.

Part of the branding and traffic issue is figuring out where to spend advertising money. Radio and TV are effective media for building brand strength. Traffic, on the other hand, is often generated by external website links and alliances—such as having a dedicated button to your site or a banner ad on the pages of a Web portal such as Yahoo or Excite. Traffic seems to flow from these alliance deals as well as from targeted email to customers who have asked for specific information on future product promotions, not just blanket spam.

“Personalizing Internet marketing is the hardest thing to do right now because it’s the least familiar,” says Hanson. Historically, this was the job of the sales force. Now it is the marketer who must understand when people want personalized products and when they don’t. “It’s important to match the type of personalization with the type of product that you sell,” adds Hanson. Whether you’re Avon or Amazon or Ford Motor, whether or not it’s profitable to personalize depends on a couple of variables, including the so-called “spread of lifetime customer value.” In other words, will personalization keep customers coming back for more over a lifetime?

One good example of successful marketing through personalization is Barbie.com. Customers now can create their own customized Barbie by giving her a unique skin color, eye color, name, wardrobe, and even a printed-out life story. While Barbie has struck a creative marketing strategy for now, this added, online, distribution channel is a huge vulnerability for many large companies that cannot afford to alienate their regular distributors.

The inevitable conflict with traditional distributors is perhaps the hardest thing for established companies to confront. The distribution system that has served established companies so well to date was designed for a different world, a world in which retailers, distributors, and resellers were the contact point with customers. In the past it was much cheaper for a customer to go to a store than to go to each individual manufacturer, so most sales have been done through an indirect distribution system. But now companies have found that in the Internet world the cost of customer contact is not only much cheaper but it can be turned from a cost into a benefit. Companies can get more information and more loyalty and can sell additional products that way. The marketer with an individual connection to a customer has more sales incentives and opportunities.

But while relatively new companies like Dell Computer have used direct distribution to their advantage, older companies such as Compaq and HP are struggling between developing direct relations with customers and keeping longstanding middlemen happy. The fact is that middlemen will have to change too. Distributor Egghead Software, founded in 1984, offered early evidence of the problem. Customers would go to a store, get information, and then order cheaply from a catalog. Eventually, Egghead became unprofitable, and in 1998, it made the transition to an Internet-only retailer.

“The Internet is going to put pressure on retailers and middlemen,” says Hanson. “It’s going to force them to offer different capabilities if they are going to stay in business.” One thing retailers do offer is convenience and ambience, he notes. Stores in malls can sell fashion shows and concerts and take advantage of the immediacy of their sales and of impulse buying to hang on to their markets.

Behind all of these decisions is the delicate balance between man and machine. The cost savings and speed of the Internet are seductive, but online marketers must be careful that their technology is useful, understandable, and friendly. Consumer expectations are rising faster than technical capabilities. Bad uses of technology, such as poorly organized websites or losing the human touch in online customer service, can alienate some of the most valuable customers.

One thing is for sure: The Internet is changing the very structure of many marketing organizations. Instead of a portfolio of products, marketers of the future will have a portfolio of customers. Rather than having a marketing agent in charge of fiction books or non-fiction books, an online bookseller may have a marketing manager responsible for college students or women in book clubs. “It’s almost like private banking,” says Hanson. “They will draw upon the customer. A marketer will be responsible for the relationship, not for a narrow product.”

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