23909483 how-internet-help-to-develop-business

Contents

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Word Count: 8183.................................................................................................................................1

Vikas Kumar Viswash...........................................................................................................................1

Date: 09/12/2009..................................................................................................................................1

Acknowledgment..................................................................................................................................4

Executive Summary..............................................................................................................................5

CHAPTER 1: Introduction....................................................................................................................61.1 The Internet: A technology changing the boundary of the firm.....................................................................6

1.2 What is e-business? .......................................................................................................................................7

1.3 The effect of Internet on business..................................................................................................................7

1.4 Dissertation Objective....................................................................................................................................7

1.5 Project Structure.............................................................................................................................................7

CHAPTER 2: Literature Review...........................................................................................................92.1 The Internet and its impact on International Marketing.................................................................................9

2.1.1 The Internet.............................................................................................................................................................9

How internet help developing a Business

A project report submitted in part requirement for the MSc

in Management.

University of Glasgow

Word Count: 8183

Vikas Kumar Viswash Date: 09/12/2009

How Internet help to develop a Business

2.1.2 Internet commerce..................................................................................................................................................9

2.1.3 The Internet and International Marketing................................................................................................................9

2.1.4 Characteristics ......................................................................................................................................................10

.....................................................................................................................................................................................11

2.2 The Internet and the e-value chain...............................................................................................................11

2.2.1 Netchising or Virtual value chain..........................................................................................................................11

2.2.2 International value chain.......................................................................................................................................11

2.2.3 International information chain.............................................................................................................................12

2.3 International Marketing Strategy and e-business.........................................................................................13

2.3.1 Internet issue and foreign market entry.................................................................................................................13

CHAPTER 3: Electronic Marketplace.................................................................................................15

3.1 “Internet” a virtual market...........................................................................................................................15

3.2 Physical vs. Virtual Value Chain .................................................................................................................15

3.3 Relationship marketing................................................................................................................................18

CHAPTER 4: Marketing on the Internet..............................................................................................20

4.1 Internet and Global Business Strategy.........................................................................................................20

4.1.1 Drivers of Internet Adoption in International Marketing.......................................................................................20

4.1.2 Impact of Internet on International Marketing Variables.......................................................................................22

4.2 Advertising on internet.................................................................................................................................23

4.3 Interactive advertising..................................................................................................................................23

4.4 Marketing with push technology..................................................................................................................25

4.5 Corporate identity in cyberspace..................................................................................................................25

CHAPTER 5: Analysis and Methodology...........................................................................................27

5.1 Competitive Advantage via Internet.............................................................................................................27

5.1.1 Porter’s three generic strategies for competitive advantage...................................................................................27

5.1.2 Stuck in the middle ..............................................................................................................................................28

5.2 E-business marketing Models and International Competitiveness..............................................................29

5.2.1 Rayport and Sviokla Model..................................................................................................................................29

5.2.2 Dutta and Segev’s Marketspace Model.................................................................................................................31

5.3 SWOT Analysis of Internet .........................................................................................................................33

5.3.1 Strength:................................................................................................................................................................33

5.3.2 Weakness .............................................................................................................................................................34

5.3.3 Opportunity ..........................................................................................................................................................35

5.3.4 Threat ...................................................................................................................................................................36

5.4 Safety tips.....................................................................................................................................................37

CHAPTER 6: Case study: eBay...........................................................................................................38

6.1 Introduction .................................................................................................................................................38

6.2 Acquisition of PayPal and Skype.................................................................................................................38

6.2.1 PayPal...................................................................................................................................................................38

6.2.2 Skype....................................................................................................................................................................39

6.3 SWOT Analysis of eBay..............................................................................................................................39

CHAPTER 7: Conclusion....................................................................................................................41

7.1 Introduction..................................................................................................................................................41

7.2 Replacement of old management technique................................................................................................41

Vikas K Viswash .2 of 48 MSc Dissertation 2009


7.3 Increased competition .................................................................................................................................41

7.4 New opportunities .......................................................................................................................................42

7.5 New threats...................................................................................................................................................43

7.6 International marketing via Internet.............................................................................................................43

7.6.1 Potential benefits ..................................................................................................................................................43

7.6.2 Barriers ................................................................................................................................................................44

References & Bibliography: ..............................................................................................................45

APEENDICS:.....................................................................................................................................47

TABLE 1: .........................................................................................................................................................47

TABLE 2:..........................................................................................................................................................47



Acknowledgment

I would like to sincerely thank to all those, without their help it would be impossible to

complete this dissertation. I would like to thank:

• Mr Robert Marshal, our dissertation guide, who guides me throughout the completion

of dissertation and shared his vast knowledge to improve our writing and understand

ability.

• Our librarian Ms Moira Sinclair, who helped me finding relevant books, journals and

database from the vast collection of University of Glasgow library.

• www.scribd.com and those who share scholarly articles and research work online; and

help their bit to spread knowledge across the globe.

• Yahoo Finance, who shared financial details of top organisations and helped me find

relevant data.

• All those scholars who have worked on different aspects of this topic and share their

knowledge.


http://www.scribd.com/


Executive Summary

The internet has major impact on the development of businesses. Now a company need not to

invest heavily to become a global company. They just need to have an infrastructure and a

product with global appeal. The consumers can reach them via internet.

The marketspace created by internet give opportunity to the firms to penetrate global market.

This marketspace is now the main focus of firm as it grows with high rate and the

infrastructure (i.e. bandwidth etc) is improving. They can now explore this marketspace by

innovative and creative way of marketing and product/service offering.

The internet has made increased the market size and hence sales volume; but at the same time

it made the competition even tougher than ever before. Now consumers are better informed

and want better value for their money. Apart from this the linkage between other partners of

business has become stronger and complicated giving a better business proposition. All this

raised the standard of product and services and consumers expectations.

The internet has allowed the firms to gain competitive advantage through reducing their costs

in value chain operations; allowing them to offer fast and efficient service; customizing

product to suit customer by interacting directly with customer; and helping move them

operation to cost effective place.



CHAPTER 1: Introduction

1.1 The Internet: A technology changing the boundary of the firm

The internet is a network of computers who can share data and communicate between them.

Its reach is almost every place in this world (see table 1). Any other technology has never

changed a business as fast as internet has done. There are many stories of how a business

been transformed on internet. EBay, the biggest e-shop was created by his founder to trade

niche goods but now, one can buy or sell almost everything in this world to virtually

everywhere. You can transform your business if you are nicely connected to your customers,

suppliers and other trade partners. Internet is the best possible connector in a business who is

at your service for virtually nothing. There is whole world at your disposal and you don’t

need to open a shop everywhere. Only thing you need is internet connection with some

computer system. If you are able to offer a better deal you are in business otherwise,

irrespective of how big or small you are, you are going to run out of business. The impact of

internet includes:

1. Less importance of economies of scale.

2. Fewer barriers to internationalization.

3. Lower marketing communication costs.

4. Greater price standardization.

5. Less information floating time.

6. Easy and fast communication between buyer and sellers.

7. Changes in intermediary relationships.

The internet lowers transaction costs in three ways:

1. Search costs: The amount of information available to the buyer and the seller can be increased with the help of internet and that can be accessed conveniently and timely.

2. Contracting costs: The internet helps to establish better communication and monitor the performance of partners in business relationship. It is easier to negotiate and compare prices via internet.

3. Co-ordination costs: The cost of sharing information is reduced due to internet and is helpful in integrating business operations.



1.2 What is e-business?

(Kotler and Keller, 2006) e-business describes the use of electronic means and platform to

conduct a company’s business. E-business is short form of electronic business, where internet

and related technology is used for normal business operations. Here internet is used to

increase productivity, reduce costs and thus to increase turnover.

1.3 The effect of Internet on business

Internet has changed the business immensely. It has made the world come closer and trade

economically and efficiently. It has created a virtual market where everything is available, not

physically but virtually. The greatest effect internet has done on business is that it made trade

price sensitive and more logical. A customer now is able to do the research work or

comparisons before buying a product or services. Not only customer but it has benefited firm

as well. Now firm is able to reach distant customer easily and cheaply. They can create

awareness about their product and can interact directly with customer to know their

preference, problem and potential solution. There is lot more to come and has impact on

almost every sector of business. In further chapters we will discuss about these impacts in

detail.

1.4 Dissertation Objective

The objective of writing this dissertation is as follows:

1. To analyse the role of internet in development of business.

2. To highlight the way a firm can effectively use internet technology to gain

competitive advantage over their competitors.

1.5 Project Structure

This dissertation is divided in seven chapters with each chapter dealing with a specific topic

dealing how internet helps in developing a business. First chapter ‘Introduction’ contains the



basic detail about the internet and their business application. Chapter 2 with heading literature

review discusses about the internet and its impact on international marketing, the internet and

the e-value chain and international marketing strategy and e-business. Here, the things

discussed are the essence of the academic work of known writers. Chapter three discusses

about the virtual market (marketspace) and their different aspects (like how this market can

be exploited, what the possible pitfall are and where opportunities lies). Chapter four is about

marketing on internet. Here some of the important discussions are on interactive marketing,

push marketing and advertising via internet. There is also discussion about global business

strategy and driver that need to be adopted for international marketing via internet. In chapter

five, the academic analysis of internet as a tool for development of business is done. Here

porter’s generic competitive advantage model, Rayport and Sviokla model of marketspace

and Dutta and Segev’s marketspace model has been discussed in brief. Further a SWOT

analysis of inter is done with some suggestions. In chapter sis a very brief case study of eBay

is done. Chapter seven is about the managerial implication of the changing scenario due to

internet and in marketplace.



CHAPTER 2: Literature Review

2.1 The Internet and its impact on International Marketing

2.1.1 The Internet

(Fletcher et al, 2005) The internet is a global network of interlinked computers operating on a

standard protocol that allows information exchange. (Carolyn Siegel, 2004) It is the world’s

largest network of interconnected distributed computer networks. Thus we can infer that any

system which is able to share information to other system through a globally accepted

protocol is part of internet and this whole interconnection may be called as internet.

2.1.2 Internet commerce

(Kotler and Keller, 2006) e-commerce means that the company or site offers to transact or

facilitate the selling of products and services online. The internet user in the world is growing

fast and so is the market scope for the marketers. According to Internet World Stat, 23.8% of

total world population are active internet user. Thus, a vast population of more than 1.5

billion is ready to buy and sell on internet given a better deal. It can be only imagined the

vastness and growth of market that within 8 year (2000 – 2008) the world internet users grew

by 342% and out of those users, 85% have purchased something on internet (Source, Nielsen,

Feb 2008).

2.1.3 The Internet and International Marketing

(Carolyn Siegel, 2004) Marketing is a collection of activities that bring buyers and sellers

together to make exchanges that satisfy and give value to all parties. (Carolyn Siegel, 2004)

Internet marketing or e-marketing (electronic marketing) is marketing on internet with the

help of emails, World Wide Web or other means. It also includes production and selling of

internet related products. According to Fletcher et al, 2005, the introduction of electronic

business has changed the fundamental principles of international marketing. He pointed out

certain things that internet has changed are:

1. Size of firm is no longer a barrier to internationalization.



2. No need of overseas intermediaries as it became easier to locate customer and deal

directly with them.

3. No longer is traditional way of internationalization (moving from familiar to less

familiar country) applicable as information became easily available and the

communication medium is interactive.

The internet (as a low cost medium) allows small and medium firms to become global

marketer at their early stage. This is due to the fact that internet can help establishing

better communication among overseas customers, suppliers, agents and distributors.

We will discuss more about drivers of internet business model, impact of internet on

international marketing in chapter 5.

2.1.4 Characteristics

According to Richard Fletcher et al, 2005, the internet is both communication and a

marketing intelligence tool. As a communication tool it helps to build and maintain effective

communication with overseas suppliers, distributors and customers. The internet has good

information processing capability which acts as link between firm and external environment

(discussed later). This ability of internet used as marketing intelligence tool. The internet is

used as marketing channel and has following characteristics:

1. Ability to store vast amount of data (information) inexpensively at virtually different

location.

2. Interactivity and ability to provide information on demand.

3. Relatively low entry and establishment costs for sellers.

4. Serve as distribution medium for goods like software, e-books etc.

5. Powerful and cheap tool for searching, organizing and processing information.

6. The ability to provide better insight of a product than that of other form of printed

catalogue.



2.2 The Internet and the e-value chain

2.2.1 Netchising or Virtual value chain

According to Beck and Morrison (2000), the physical value chain activity while globalization

has not seen good results. This is due to the fact that a firm uses their resources in overseas

activity at the expense of opportunities of domestic market. Not only that, there are other

problem faced by an organisation like coordination of physical operations across the globe,

the cultural differences, the cost of expatriates and vulnerability to environmental risk that

can damage reputation of the firm. Most of these problems can be effectively solved by

‘netchising’, a term coined by Beck and Morrison (2000). Netchising is the practice of

handing over overseas operations to partners (generally overseas) by outsourcing,

subcontracting or franchising. Netchising has following advantages:

1. Efficiency: generally overseas partners are more efficient and are specialized in

carrying out the outsourced activities than the outsourcing firm.

2. Convenience: exchange of information becomes easy. Now, orders can be directly

placed to the firm without any local agent and a firm can also share information to the

customers directly.

3. Reduction in Transaction cost: It reduces the cost of carrying business operations

which ultimately benefit the profitability of firm.

2.2.2 International value chain

According to Plumley (2000), international e-business value chain is the combination of e-

commerce platform and secure transaction support (see figure 2.1). The e-commerce platform

builds on the countries business rules and language where as secure transaction support

builds on currency clearing and legal requirement. According to Gartner Group, internet

affects the supply chain (see figure 2.2). It shows that a customer can buy and pay for the



product or services easily and at the same time a supplier can also communicate directly with

customer and with their own other internal departments.

2.2.3 International information chain

According to Karmarkar (2000), internet value chain is closely linked with international

information chain. The language and cultural differences is the main hurdle in the path of

globalization of a firm. When a firm deals with information product (like music, e-books or



software) then it becomes easier to go global. In certain cases when product or services are

not much attached to language or cultural factors (for ex. Technical publishing and industrial

sevices), then also it is easy to become global. In production of information product and

services low labour cost is the key as relative cost of hardware and software has come down.

Now, firms look for low cost labour market (like India, China) to develop information

products. Outsourcing of information services (customer care service such as call centres)

and software development cell are some examples. Thus we can say that in information value

chain, the physical infrastructure doesn’t play a vital role.

2.3 International Marketing Strategy and e-business

2.3.1 Internet issue and foreign market entry

According to Oxley and Yeung (2000), the e-commerce readiness of a market is determined

by three factors:

1. The rule of law: A customer is not able to see the original product while purchasing

online. Therefore, they need to be assured that if they purchase a product or service

online; they will get them as they were told or shown online in given time limit.

According to survey by e-consultancy in 2008, 84% buyers look for the sign that a

website is secure before making a purchase. Thus, a market (country) must be able to

provide an environment where property rights are well defines, courts are efficient in

resolving disputes and consumer credits and consumer protection regulations are well

established and enforced (i.e. strong tradition of the rule of law).

2. The transactional integrity of online business: It is difficult to track a e-business

trader by their e-mail address or website. Also, the entry and exit barrier in e-business

is low and this is used as a weapon by dishonest e-traders. They can execute fraud and

again be able to do it with a new name (as they can entre again in market with new

identity). When dispute arises, it is hard to practise legal action in a different country

and can be costly.



3. The availability of infrastructure: migration from traditional market to online

market is not possible until customers have access to personal computer and internet

connection at reasonable price. Apart from these facilities, they do have the facility of

credit card or online payment system. Thus, internet related infrastructure and

financial infrastructure are essential



CHAPTER 3: Electronic Marketplace

3.1 “Internet” a virtual market

According to Garrison, (1996), the internet acts as a catalyst for sociological change. It has

changed the nature of market, the way of business operation and the mode of communication

with customers and other business partners. It has created a marketspace which has affected

the traditional marketplace and consumer preferences by providing greater facilities to them.

Internet has become the largest market available to mankind where almost everything is been

sell or bought. This marketspace doesn’t exist in physical terms but can get everything

available in physical market.

3.2 Physical vs. Virtual Value Chain

Value chain is nothing but a set of value adding activity for the product or services. Rayport

and Sviokla, 1996, argued about a new value chain termed as ‘virtual value chain’ where

product or services exist as a piece of information and can be delivered through information

based channel of communication. This virtual value chain is different from physical or

traditional value chain where one can see or touch products. He said the virtual world as

‘marketspace’ while the physical world as ‘marketplace’. According to Fletchar et al 2005,

the virtual value chain is a realm where products and services exist as digital information

delivered through information based channel. He also differentiates virtual value chain and

physical value chain on the basis of information used. The virtual value system uses

information as the source of value while in physical value chain it is used as a supporting

element of value adding process. Thus we can say that now a day a firm has to compete in

two business environment, one is traditional and other is virtual business environment. The

distinction between the two can be understood by this example. “when consumers use

answering machines to leave a message, they are using an object that is both made and sold in

the physical world, however when they buy electronic answering services from the phone

company they are using the marketspace — a virtual realm where products and services are



digital information and are delivered through information-based channels.” (Rayport and

Sviokla, 1996)



Figure 2: The Virtual Value Chain in relation to The Physical Value Chain (source: Hollensen,

2001).

Adoption of Value Adding Activities: Company adopts value adding information activities

in the following three stages:

1. Visibility: Here large scale information systems are used to coordinate activities in the

physical value chain.

2. Mirroring Capability: It is the capability of substituting physical activities with virtual

and thus creating a parallel virtual value chain in the marketspace (see figure 2).

3. New Customer Relationship: This is the flow of information to customer to deliver

value in new ways. This parallel physical and virtual value chain operation allow

firms to deliver value to their customer in both marketspace and marketplace. These

operations create marketspace based relationship with customers.

The virtual value chain consists of five steps, say, gathering, organising, selecting,

synthesizing and distributing information. These value adding activity allow company to

identify customers desires more effectively and fulfil them more efficiently. This happens, for



example, when a car manufacturer shifts its R&D from the physical to the virtual value chain.

By doing so, they involve customers of different locations in the new product development

process. The physical value chain is linear (a sequence of activities with defined input and

outputs), whereas the virtual value chain is non-linear (a matrix of potential inputs and

outputs that can be accessed and distribute by a wide variety of channels).

3.3 Relationship marketing

It is a way of marketing where marketers or firm try to attract, maintain and enhance

relationship with customers and other business partners. Internet (or website) acts as the best

medium to communicate with people related to business. Firms now focus on relationship

marketing to gather information from customers, to develop customized product or services

for a focussed customer group.

The internet helps firms to improve relationship with their customers and suppliers; and help

them to work effectively. Now a firm doesn’t need a middleman or a agent as they can sell

directly to the customer via internet. Thus the distance with customer is decreasing and a firm

need a smaller supply chain which can increase their profitability. The lesser distance also

allows firms to establish a close relationship with customer and provide those customized

products or services as per their need.

The firms (like eBay, Google etc) involved in innovative business have always realized the

power of customer relationship. They bank on the ability to process large relationship

database. With the help of this relationship database they formulate their strategy and develop

innovative way of marketing. The relationship marketing not only benefit the firm but also

the customers. The customers are benefitted because firm can develop customized and

focussed marketing message.

Mattsson, (1996), has described a relationship as combination of three main components,

which affect the parties involved in a business. Those components are legal(L),

behavioural(P), and atmospheric (E). These three factor determines the success and failure of

a relationship marketing in a particular market. Thus it is possible to have a successful buyer-

seller relationship in domestic market totally failure in overseas market. Finally we can say



that relationship marketing includes the management of a firm and thus it must be included in

the business plan



CHAPTER 4: Marketing on the Internet

4.1 Internet and Global Business Strategy

(Kotler and Keller, 2006) e-marketing describes company offers to inform buyers,

communicate, promote and sell its products and services over the internet.

4.1.1 Drivers of Internet Adoption in International Marketing

Once a firm establishes a internet portal (website), they automatically become a MNC (Multi

National Company). Quelch and Kelvin (1996) describe two evolutionary paths of a website:

1. Information to Transaction Model (figure 4.1) adopted by existing MNCs where

they offer information to address the needs of existing customers.

2. Transaction to Information Model (figure 4.2) adopted by internet start-up

companies where they begin with transaction and use the medium to build brand

image and secure repeat orders.



The basic purpose of these models is either to reduce cost or to increase revenue.

According to Quelch and Kelvin (1996), these drivers fall into four quadrant as given in

figure 4.3.

1. Internal customers focus/ cost reduction (quadrant 1): This is applicable to the

companies who use website as a tool to communicate with their customers. Their



main focus is to provide customer services for domestic market. They just happen to

attract international traffic.

2. Internal customer focus/ revenue generation (quadrant 2): This is applicable to the

companies who use website not only to communicate with their domestic customers

but also offer transactions online. This enables a firm to reach those international

customers who might be inaccessible via other media.

3. External customer focus/ cost reduction (quadrant 2): This is applicable to the

companies whose main aim is to attract international audience through their website.

This happens to benefit all customers because of the international scope of operations.

4. External customer focus/ revenue generation (quadrant 3): This is applicable to the

firms who not only focus on attracting international audience but also offer

transactions worldwide. Here transaction involves connecting buyers and sellers.

Company target providing services to existing customers and attract new customers

from global market.

4.1.2 Impact of Internet on International Marketing Variables

The modification in marketing mix variables is necessary while using internet for

international marketing. The impacts of internet on application of marketing mix while going

to international market are as follows:

1. Pricing: Due to internet customers are more aware of prices in different countries and

thus there is increase in price standardization across borders and price differential

become narrow. One advantage of this is that price can be customized easily with

customers need and their profile (segment).

2. Distribution Channels: Internet has dramatically reduced the number of intermediaries

earlier needed for worldwide distribution channels. As now, less capital is needed for

inventory and thus the role of intermediaries has been changed. The new roles of



intermediaries include collection, spreading, interpretation and distribution of

information rather than traditionally handling and distribution of products.

3. Creation of new Market: Internet offers new opportunities for firms to create market

by helping buyers and sellers to locate and negotiate trade terms with each other (ex.

eBay etc). There is also a market developed for executing transaction between traders

(ex. PayPal etc).

4. New Product Diffusion: The traditional ‘test as you go’ practice where shifting

products from one country to another is now outdated. Now, new product

announcement or launch generates immediate demand (as information travel faster on

internet) and that requires immediate availability of goods.

5. Customization: Due to internet, getting demographic and purchasing profile of

customer became easy. This allows firms to customize products for local adaption as

per local market demand.

4.2 Advertising on internet

Internet is a low cost advertising medium having reach to global audience. Advertising on

internet includes banner advertising on website, email, blogs and links to search engines. As

traditional media of advertising is quite expensive and at the same time internet infrastructure

is improving day by day and able to prove support to video and graphics on web. With this

improvement a firm can successfully launch an online advertisement campaign.

4.3 Interactive advertising

According to Haeckel, “Marketing interactivity is a person-to-person or person-to-technology

exchange designed to effect a change in the knowledge or behaviour of at least one person.”

He also point out that interactivity is function of certain dimensions, which is given as:

I = ƒ(N, C, F, SI, CI, T, CT, SY, M) Where,

I = impact of interaction,

M = Type of media involved



(Other factors not discussed as not relevant to current topic).

Now, as a technology, internet is the strongest media for interactive

marketing. The reason for that is

1. Internet is used by almost a quarter of the total world population.

2. It is not limited to a particular geographic reason.

3. The growth of user is fast.

4. Cheapest and fastest way of interacting with majority of population

(both for customer and marketers).

Haeckel also pointed out that there is going to be much more business

and marketing use through internet. He made a graph which shows how

we find usage of a new technology with time (see graph below) and thus

we can say there is more in store than what we are seeing and using

presently. Even interactive marketing may see turnaround with this

technology.



4.4 Marketing with push technology

(Wetzel, 2008) defined push marketing as, “customers are provided information by receiving

or viewing advertisements digitally, such as: e-mail, SMS, RSS, phone calls, etc., as

subscribers of the latest product and service information provided by the company”. The

internet is the cheapest and most effective media that is used for push marketing.

Advantages of Push Marketing via Internet

1. Tracking of Customer Preference: It is easier to track user preference with the help

of push technology (internet) and customize according to their preferences. A good

example of this is Google AdSense that tracks the users visited website or keywords

in mail and according to those criteria it shows advertisement (related link).

2. Increase Accessibility: With the help of push marketing a firm can increase customer

accessibility by the firms marketing and advertisement of the products. Subscribers

get pushed by built in developed software called PointCast that enable users to receive

automatic content updates via their internet connection and web presence as the

channel to get information when their computers are not in use.

4.5 Corporate identity in cyberspace

Firms are now using web to extend and reinforce their companies brand image in a cost

efficient manner. This serves as a complementary media device that re-establishes a firm in

consumers mind. By providing valuable information to users a firm can expand their brand

image. The regular updating of information may attract customers to visit website regularly,

which will reinforce firm’s image and provide them a chance to create a new and extended

cyber image.



CHAPTER 5: Analysis and Methodology

5.1 Competitive Advantage via Internet

5.1.1 Porter’s three generic strategies for competitive advantage

According to Porter (1985), a firm can earn high return if they are able to position themselves well enough, irrespective of the structure of the industry and profitability of the industry. He pointed out the fundamental basis for above average performance is ‘sustainable competitive advantage’ in long run. For that sustainable competitive advantage he gave three generic competitive strategies.

1. Cost Leadership: According to porter (1985), a firm is having cost advantage over

his competitors if the cumulative cost of performing value activity is less than the

competitors. He further discussed that a firm’s cost position is a function of; (a) the

composition of their value chain to their competitors, (b) their relative position in cost

drivers. Now, we see that how internet helps them to achieve them cost leadership by

affecting the above two functions.

2. Differentiation: Porter (1985) describes another strategy for competitive advantage is

to differentiate their product with competitor’s products. This means raising the

quality with ignoring the cost for the sake of quality. Now internet can help them to

do that by interacting directly with customer and customizing products according to

target group. Many firms now use blog site to interact with customers and promoting

their new or customized product.

3. Focus: Porter describe this as customizing products or services to suit a focused or

small segment of consumer group. The internet helps firms to focus on different

aspects of the products and customer group. Internet even allow firm to receive

specification from each and every customers and according to them they can produce

customized products or services.



As discussed in chapter 3, the relation of physical and virtual value chain (Hollensen, 2001),

we find there is virtual value chain corresponding to each physical value chain. By applying

this value chain a firm can become cost leader as it depends on two factors discussed above.

A firm can shift to virtual value chain to gain cost advantage over their competitor’s physical

value chain. For example Federal Express (FedEx), a shipment company allows consumer to

track their parcels. This tracking system via internet is very efficient and economical. The

FedEx has now reduced more than a million query calls per month by providing online

shipment tracking system. This is one of the way of reducing cost and step towards cost

leader position and at the same time it differentiate FedEx from their competitors. But this is

not enough as sooner or later others will follow same practice and FedEx lose the competitive

edge. The real edge lies on the innovative and creative way of finding or changing physical

value chain to virtual value chain. So now apart from technology, innovative idea of using

technology is the key for success of a firm.

5.1.2 Stuck in the middle

Porter (1985) points out a situation, where a firm try to achieve both generic strategy (cost

leadership and differentiation) but fails to achieve any of them. He calls this situation as stuck

in the middle. According to him, a firm stuck in the middle will compete at disadvantage as



others competitors (cost leader, differentiators) will be better positioned to compete in any

segment. In case of Google AdSense, Google is offering a differentiated advertising tool at

very low cost (usually one get this via auction, where price is driven by customer not

producer) is offering a differentiated (highly unique and effective) advertisement. Here both

cost leadership and differentiation is achieved by Google with the help of technology.

Johnson et al (1998) discuss about the core competency of a firm may be difficult to imitate

because they are complex. The google is doing the same thing by making the internal

structure complex, which is hard to imitate by competitors. Thus, they can put themselves in

a position where for an advertisement position (ex. Out of five position or space, advertisers

bid for first position then second and so on), firms bid among themselves.

Thus, it is possible to achieve a position where a firm can achieve cost leadership and

differentiation without compromising one for the other with the help of technology (say

internet) and their own creativity (say way of using internet).

5.2 E-business marketing Models and International Competitiveness

5.2.1 Rayport and Sviokla Model

According to Rayport and Sviokla (1995), the internet has changed the nature of trade.

Internet has made both physical location of inventory and the actual place (marketplace) of

trade irrelevant. They argued that traditional marketplace (the physical market) transaction

has been replaced by marketsplace (virtual market or e-market) transaction. They concluded

that brand equity is created in marketplace through content (i.e. the product offering), context

(the communication programmes) and infrastructure (i.e. the pricing and value chain activity

related to distribution). While in marketspace (internet marketing); content, context and

infrastructure has been transformed to innovate new ways of creating value. The changes are:

1. Content: Now, everything possible is delivered electronically whether it is product,

service or information. Even though operating system (Microsoft window) are

available online. They time to time update your system online without your request.

But here is a challenge for a firm on deciding what information and service should be



provided. How much access should be given to customers to the firm’s database? The

success of a firm will depend on the nature of the firm and the answer to these

questions.

2. Context: now, information is accessed through mobile phone or computers. Whatever

information you want, from your bank account details to horoscope, all available

electronically. The challenge here to identify who and where the potential customers

are connected electronically. If there is any compatibility between computers and

other mode of access information.

3. Infrastructure: The internet provides the backbone for connection and delivery of

value. Here the main question arises is about the reach, capability and potential of

value creation via internet.

Although this framework defines impact of e-business marketing but there is lot more to

be done in terms of content, context and infrastructure. For a international market, the

product (content) need to be customized as per local demand. This means, information

delivered (context) should also be customized (i.e. need to be given in local language) and

finally infrastructure is about transaction. Since there is no common currency in the world

and it is also not easy to transact one currency to other and moreover suspicion remains in

customers mind for foreign firms (especially for small firms).



5.2.2 Dutta and Segev’s Marketspace Model

Dutta and Segav (1998) has done a lot of research on market space and found that it has two

dimension; technological capability and business strategy. The technological capability is

further divided in two dimensions given below;

1. Interactivity: according to Dutta and Segav (1998), internet is able to establish a

interactive relationship between a firm and customers. Due to this there is a paradigm

shift in customer services and product design.

2. Connectivity: As internet can be accessed globally, so it creates a global marketspace.

The growth in connectivity increases coordination and communication between a firm

and consumers.

These two aspects are transforming business model of organisation when applied to

marketing mix of that firm. In this model one more element ‘customer relationship’ has

been added.

1. Transformation of product: This transformation is due to customization of products

for a customer or a segment of customers. This is done with the help of active

participation of customers in the specification and design of the products.

2. Transformation of promotion: This transformation is a result of the use of online

promotions (like sales and discount), online advertising, participation of customers

in online promotion (like blogs), customization of online promotion and links with

search engines or other related websites.

3. Transformation of pricing: This transformation is a result of online availability of

pricing information, pricing negotiation, and/or charging for the actual product

consumed not for the whole product (ex. Internet service provider charges only for

the amount of download not for staying online).



4. Transformation of place: This transformation is due to facility of online ordering,

real time processing of orders, online distribution of product and secured online

payment facility.

5. Transformation of customer relationship: this transformation is a result of online

communication with customers. They are also offering online customer service,

online customized service and processing of online feedback from customers. Figure

5.4 illustrate the new customer relationship.

It was found that that internet transform the marketing mix variable to different degrees.

According to their research the transformation in customer relationship is 62%, product

39%, placement 38% promotion 29% and price 12% due to use of internet. His research

revealed that the firm using internet for customer relationship (such as using website to

provide customer services) has done well compare to their competitors. The online

customer service include providing product guides online, creating blog to share

experience after using a product or service and providing online chat services.



5.3 SWOT Analysis of Internet

5.3.1 Strength:

• Expand Reachable Market: Internet allows you to reach to the markets which were

previously unreachable to you without too much expenditure on it. Your potential and

existing customers can now access you at any point of time without much fuss,

irrespective of their location (home, office, park, café, any where).

• Information Distribution: You can now provide information about your product and

services to the audience without hassle. One can have a look of your store without

physically reaching the store.

• Value Added Service: It is now easy to provide value added customer services

online, such as providing technical publications, examples of product use, instructions

and other value added bits of information.

• User Information Request: Customer can easily access information of a firm and

their product or services via internet. They are now able to place a order and



communicate with the firm for a customized product. A firm can get valuable

information about their customer profile by exchanging information.

• Easy Location of Data: Users can easily access the information in the site by using a

search engine. Firms also provide links as a form of advertisement to popular sites

and search engines.

• Consistent Marketing: Utilize your existing communication, marketing and outreach

strategies on the internet to establish a consistent communications approach.

Integrating current or existing marketing assets like logos and customer artwork, can

help save on web development costs.

• Utilize Existing Networks: Very effective and cheap way to reach your potential

customers through links from related site or search engines or internet catalogs. The

changes and addition to the site can be notified via e-mail to the customer.

• Save Mailing Costs: Once you are on internet, your lots of paper work and mailing

costs vanished.

• Changing Content Is Easy: It is easy and cost effective to change contents after the

design and architecture of a web site has be established and produced.

• Project and Work Sharing: now distance is not an obstacle to assist your boss or

subordinate as you can share your work and help them through internet. Software like

TeamViewer4 (will be discussed later) allows you to control others system through

your system via internet.

5.3.2 Weakness

• Existing infrastructure is unsuited to future requirements of mass market interactive

multimedia communication.

• Many users do not trust the security of internet.



• E-mail which is the cheapest and fastest medium to send and receive information is

often used to spread viruses, which can destroy data of system.

• Cookies, which are used by website to track your movement on that site, can also be

used to track your movement to other sites, where you give your details while

purchasing via credit card. This information can be used for malicious purpose.

• Internet is overloaded with information, much of it useless to most people.

5.3.3 Opportunity

• The internet become faster and is able to provide large bandwidth which can support

worldwide communication via video, audio and multimedia services.

• Demand for internet services and application will increase, justifying improvements

in software and infrastructure.

• Internet users will demand faster and more powerful computers.

• Demand for simplified computer system may develop, so that non PC literate

consumer can gain internet access.

• Traditional PC software will be improved to take advantage of internet opportunities.

• Demand for internet servers and other communication hardware will continue to rise.

• Increased home computer use may create demand for home-service computer

maintenance.

• Commercial advertising will discover new approaches to communicating with

customers.

• Enhanced universal education opportunities for the whole population.



5.3.4 Threat

• Spam: It is basically unwanted e-mails and popup, usually in the form of advertising

for a product or service. They not only waste your time but also uses up considerable

bandwidth on internet.

• Malware: These are software made with wrong intention of damaging your system or

to get information such as viruses, worms, Trojans, spyware, adware, etc.

• Computer viruses (includes Virus hoaxes, Computer worms, Trojans): It is a

programme made with wrong intention of destroying a system or data stored in the

system.

• Phishing: According to Financial Services Authority (FSA), the phishing has risen

by 8000% by 2005 to 2008. According to an estimate by APACS, £45.7 million will

be lost to phishing scams in 2006, compared to £4.5 million in 2003/2004. It is the

practice where fraudsters acting as a legitimate organisations such as banks, online

payment services etc., send misleading e-mails requesting personal and financial

details (which includes credit cards, bank accounts, social security numbers, security

codes, names & addresses, login names & passwords and phone number etc.) from

unsuspecting recipients. They further use these information to transfer money into

their own account from someone else account.

• Adware and Spyware: It is a software application, in which advertising is displayed

while the programme is running, which often run without knowledge of users. These

are in the form of banners or pop-ups that appear on the computer monitor. They

reduce computer performance and disturb user. Some adware used for collecting

information about users, they are called Spyware.

• Identity theft: Fraudsters are not only interested in your credit card details but also

information about your credit reports, passwords and PIN, social insurance numbers,

driving license numbers, mortgage details, addresses and phone numbers. Computer

criminals realized the power of information and they eye robbing databanks. This



crime is growing rapidly and if they use remote computers they are hard to catch.

According to internet statistics compendium, 2008, U.S. alone loses $53 billion per

year.

5.4 Safety tips

• Installing a fire-wall can reduce the risk of hackers gaining access to your computer. It

also protects the system from Internet-borne threats such as spyware.

• Install anti-virus software to eliminate any infected data received.

• Install anti-spyware software to eliminate any spyware which will get through.

• Be cautious about giving your personal data online.

• While sending sensitive data, encrypt (encode) it, so that only desired recipients can

decode it and access it.



CHAPTER 6: Case study: eBay

6.1 Introduction

No one ever thought of the idea that a complete strangers bidding for a thing which is held by

a stranger at some unknown place. This idea with the help of internet technology created a

magic for Pierre Omidyar, the founder of eBay. Although he never attended any auction in his

life, yet he decided to do that for people who want to sell his used stuff at a minimum price

decided by him. And if more people are interested, he decided to let them bid for it. When he

started this website called AuctionWeb in 1995, it was free and thus started attracting visitors.

By the end of 1995, there were more than ten thousand bids hosted by AuctionWeb. After that

he decided to charge some percentage of final sales prices from the sellers. The revenue

continued to grow every month. This small idea of Pierre Omidyar of connecting buyer and

sellers now become a promising business and currently eBay (as it is now called) is the

largest e-commerce site with 81 million average monthly unique visitors to eBay. More than

$100 billion worth of used items sold on eBay making it world’s largest engine for selling

used goods. EBay has invested heavily in the market to diversity itself by acquisition of

Skype and PayPal.

6.2 Acquisition of PayPal and Skype

6.2.1 PayPal

PayPal is an e-commerce business who provides facility to transfer money and make

payments through the Internet. It is nothing but electronic version of traditional way of

sending money (like money order, cheque etc). EBay has bought PayPal on October 2002 in a

strategic move to gain market share in online fund transfer and to control transactions on

eBay. As eBay has more than 81 million unique visitors and most of them buy and sell

through PayPal. According to eBay annual report, 2008, PayPal manages more than 175

million accounts in 190 markets and over 60 billion volume transacted in 2008. PayPal

support transactions in 19 currencies worldwide and allows customers to send, receive, and

hold funds electronically.


http://en.wikipedia.org/wiki/Internet

http://en.wikipedia.org/wiki/Money

http://en.wikipedia.org/wiki/E-commerce


6.2.2 Skype

EBay purchased Skype in October 2005 in a strategic move to diversify them. Skype is a

software application which helps users to make VoIP calls (i.e. voice calls over the Internet)

either free or at very low price. Skype has currently more than 405 million users in over 220

countries and is leader in VoIP call providers. It allows user to make and receive video or

audio calls through internet and now its application can be accessed on mobile phone as well.

6.3 SWOT Analysis of eBay

1. Strength

• It is the largest online auction forum with more than 100 billion value of pre-

owned item sold.

• Active users in millions (81 million unique monthly visitors).

• Recognizable brand name (eBay becomes synonym of online auction)

• Over 27000 different catalogues.

• Majority (82%) of top 100 US retailers are in shopping.com (eBay’s online

shopping portal)

• Strong customer relationship (both buyer and seller have to register on eBay

and they leave feedback for each other which helps to find genuine user).

2. Weakness

• Technological malfunction (there are times when both eBay and the payment

system PayPal have encountered shutdowns and outages).

• Illegal activity on site

• There are some fake auctions found.

3. Opportunity


http://en.wikipedia.org/wiki/Voice_over_Internet_Protocol

http://en.wikipedia.org/wiki/Software_application


• Rapid growth in internet use

• Acquisition of PayPal and Skype

• Time honoured brand name.

• New and emerging market (like china and India) is an opportunity as the

consumer here becoming rich.

• Opportunity in current market (i.e. market penetration), as there are potential

customer yet to understand the benefits of eBay.

4. Threat

• Increase in online trading sites (like amazon.com, ubid.com, epier.com etc).

• Rapid growth of amazon.com

• Some charges are not in control (like delivery charges and credit card charges).

• Attack by illegal practice (online fraud, trading counterfeit goods etc) may earn

bad name for eBay.

5. Suggestion:

• Block fake auction

• Use digital signature



CHAPTER 7: Conclusion

7.1 Introduction

Internet technology provides a huge market space for you to explore and exploit it. It is left to

your creativity and innovation that how you are going to use this technology for the

betterment of your organisation. If it poses threat of increased competition and well informed

consumer then at the same time it also save you from unnecessary cost overhead. It teaches

managers new marketing technique, innovation, creation and cooperation among other

business. There is limitless opportunity for new ventures with bright idea as we have seen the

case of eBay, Google and others. Finally, we can say that internet is benefiting both buyers

and sellers, and is able to make life better than ever. As a technology, the use and application

of internet will grow and one can only imagine about the next big thing which is going to

happen in next few decades.

7.2 Replacement of old management technique

Internet has made old management techniques outdated. You cannot rely on traditional

marketing mix of 4-P (Product, Price, Place and Promotion) as the definition of market is

changing itself. As internet provides you virtually the world at your desk as market, and thus

you need new strategy, new business model and creativity to cash on. They need to create

new marketing mix with insight into customer and suppliers that can be integrated with

internet capabilities.

7.3 Increased competition

Internet is a great source of information and the information gives a customer the power to

choose between alternatives. This power of customer increased the competition in this level

market where both large and small firms compete with each other. The market on internet is

highly price sensitive as the customer can compare your price with your competitor within

minutes. This power of customer forces marketers to find innovative and creative way to



maintain their customer base (either by reducing price or increasing quality or value

perception) and to penetrate into competitor’s base. All this is creating a competitive

environment which was never been experienced before in real market.

This competitive environment brings new things in the market as cooperation between two or

more different organization to get competitive advantage over others. There is more

cooperation between the company, the suppliers and the distributors in order to get

competitive advantage and to maximize their profits. As Jack A. van der Veen et al, pointed

out in his book win-win situation in supply chain partnership that how by sharing information

both manufacturer and retailer maximize their profit. That is now become a reality, as every

party in business (manufacturer, retailer and supplier) are connected to a common goal of

maximizing their profit, by offering consumer best possible deal without expense of anyone

profit margin.

7.4 New opportunities

In chapter 5, we have already discussed about the surprise index of a technology. With time

and creativity and innovation, the utility of the technology grows to a unthinkable position.

We have seen a lots of internet usages (from interactive marketing to ad-sense) and there is

lot more to come in future. With rapid growth in internet user (1.17 billion till 2007, source:

internet world stat), the focus of firms moved to internet marketing and usage in different

field. There is no wonder that internet has become the most powerful tool for marketing and

selling available to businesses. In future the marketers are not only involved in marketing via

internet but also in its development. They will have to innovate new ways to exploit the

potential of internet. The success will depend on their level of understanding to correlate

between their customer and the potential of internet. The success of a firm will depend on:

1. Their quick reaction time.

2. Their strong relationship with customers, suppliers and distributors.

3. Their innovative products, services and operations.



4. Exploiting new opportunities offered by internet.

7.5 New threats

With new opportunity, there are also new threats posed by internet. The internet gives a

customer a new power that enables them to conduct extensive research and cost comparison

between the firms, their products and services. Also, the threat of information overload will

reduce the ability of marketing with new push technology of the internet. Overuse of e-mails,

adware and other marketing methods will make customer insensitive toward them and

marketing with push technology will not be effective. Security while transaction via internet

is another issue that scare customers. The increase in cyber crime pulls back customers and

until the offer is really lucrative they are not willing to take chance. As 12% of British

internet users (or 3.5m people) fall victim to online fraud last year, with around half of them

losing out while shopping. [Source: internet statistics compendium, March 2007]. Firms are

left with a challenge to find totally secured transaction method and that to make a customer

believe it.

7.6 International marketing via Internet

7.6.1 Potential benefits

• Increased sales

• Increased profit

• Corporate Image

• Visibility to wider market

• Speed of business

• Ability to customize products or services

• Low resource market entry

• Interaction with customers



• Global niche strategy

7.6.2 Barriers

• Increased competition

• Low penetration of internet

• Price transparency

• Cultural barrier

• Language barrier

• Legal complexity

• Market offering customization required

• Logistics of serving global market

• Costs of serving international market

• Need to create awareness of website



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