Unit 9

Marketing in a Complex World
Unit 9
e-Marketing
Judith Margolis with Andrew Lindridge
Masters
Copyright ª 2007 The Open University
2.1
CORE COURSE TEAM
Andrew Lindridge, Course Team Chair External assessor

Josie Woods, Course and Award Manager
Professor Malcolm McDonald, Cranfield
Haider Ali, Author University
Sally Dibb, Author, Course Team Member
Jeanne Barby, Course Team Assistant External examinar
Vyv Pettler, Course Team Member Professor Len Tiu Wright, de Montfort
Gareth Stone, Course Team Member University
External authors Production team

Judith Margolis Martin Brazier, Graphic Designer
Ian Reid Holly Clements, Media Assistant
Terry O’Sullivan Helen Coolen, Editor
Palamadai Krishnan Viswanathan Jenny Edwards, OUBS Quality Improvement
Frederick Thomson Julie Fletcher, Editor, LTS Project Manager
Jill Winter Jenny Gray, Software Developer
Leslie de Chernatony Dave Richings, Print Buying Co-ordinator
Fiona Harris Diane Hopwood, Compositor
David Mercer Roy Lawrance, Graphic Artist
Claudia Simoes David Massey, LTS Quality Assurance
Tony Stapleton Katie Meade, Rights Executive
Grant Miller, Project Officer
Keith Honnor, Learning and Teaching
Technologies Manager
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2.1
CONTENTS
1 Introduction 5
1.1 Reflection 5
1.2 Keeping up to date 6
1.3 Aims and objectives 7
2 Chapter one: Introduction 9
2.1 Understanding e-marketing 9
2.2 Marketing planning 12
2.3 Complexity revisited 13
3 Chapter two: Ps, Cs or Is? 15
3.1 Is that all there is? 16
3.2 Delivering service at a distance 18
3.3 Flying from the computer 20
4 Chapter three: e-models 23
4.1 Power relationships 24
4.2 Increased bargaining power of suppliers 24
4.3 Equal bargaining power of buyers and suppliers 27
4.4 Increasing bargaining power of buyers 31
5 Chapter four: e-customers 33
5.1 Customer relationships 34
5.2 Risk 34
5.3 Building trust 37
5.4 One size fits all? 38
6 Chapter eight: CRM 41
6.1 Knowing customers as individuals ‘again’ 41
6.2 Making the best use of the internet 41
6.3 Keeping it personal 42
7 The internet and beyond 45
7.1 Digital segmentation 45
7.2 Viral marketing 45
7.3 And finally: the perfect internet customers? 48
8 Conclusion 51
References 53
1 INTRODUCTION
INTRODUCTION
1
In this last unit of your course we will introduce you to concepts
and ideas used in the area of e-marketing. The course team realises
the importance of providing you with current and topical
information about this subject, and have decided to focus your
study around the textbook e-Marketing Excellence (Smith and
Chaffey, 2005) as a way of keeping you up to date in this rapidly
changing area. As you no doubt will have learned by now, there is
no one right way of ‘marketing’ and this guide is designed to get
you thinking about the ideas and models used in the textbook, and
how they apply (or not, as the case may be) to your organisation
or other case studies we have found.
This unit should take about fifteen hours to complete. There are
five chapters in the textbook that have been selected for further
discussions in this study guide and we have estimated that, on
average, each chapter and its related study material should take you
about two and a half hours to study. We have chosen Chapters 1,
2, 3, 4 and 8 because they take a more to strategic focus to the
subject and link with other ideas you have met on the course, this
will enable the discussions in the study guide to be of a more
analytical nature. However, you will probably find the sections on
web design and marketing tools interesting because they will give
you a good ‘how to’ guide.
1.1 REFLECTION
Of course there is nothing to stop you just reading the textbook
and ignoring this study guide altogether. If only it were that easy,
all we would have to do is send you a box of textbooks and
examine you at the end of the course!
You will have discovered by now that studying at MBA level
involves more than memorising theory and regurgitating it back in
an exam. As an experienced ‘reflective practitioner’, you know the
importance of not only understanding the espoused theoretical
models, but also having the opportunity to evaluate their
applicability. This study guide provides you with an opportunity to
critically reflect on the subject and apply some of the main ideas
to your own situation, because it is only through this process of
reflection that you will truly understand the ideas and concepts
discussed in this unit.
OU BUSINESS SCHOOL 5
UNIT 9 E-MARKETING
1.2 KEEPING UP TO DATE

A 2005 UK study of marketing budgets highlighted the extent
of the technological revolution and the paramount importance of
digital media to our marketing communication activities. Marketers
spent £1.4 billion on online advertising, far more than on consumer
magazines or poster advertising (£827 million and £896 million
respectively) and more than twice as much as on radio advertising
(£640 million) (Croft 2006). These figures are even more impressive
when you consider that online advertising tends to be a lot
cheaper than advertising through other ‘traditional’ media outlets,
so more exposure can be bought for the same money. And of
course that’s just the tip of the iceberg; the figures only reflect
marketers spend on online advertising and paid for search
marketing, they do not include expenditure on search engine
optimisation, mobile marketing, interactive television or other forms
of technology driven marketing activities.
A decade ago, academics wrote about how the Internet had
enhanced the way organisations do business; some described what
was happening, as an evolution, of business practices, others
described it as a revolution of business models. Most identified the
Internet’s potential to change marketing communications from a
one way monologue, targeting large segments of customers, to
a two-way dialogue with individual customers. But although ideas
about mass-customisation were popular, e-marketing tactics were
still regarded as an optional extra.
Since then, organisations have recognised the potential of digital
media to help them respond more quickly and effectively to
customer needs than ever before (Thorpe 2006) and e-marketing
activities have been incorporated into ‘mainstream’ communication
planning.
Current research from the Chartered Institute of Marketing (CIM)
shows that while marketing professionals understand that new
marketing technology has the potential to increase competitive
advantage by creating new market spaces and greater efficiencies,
they do not regard it as a panacea for all. Drawbacks identified
were: lack of personal attention, intrusion and ethical concerns, and
the potential of human redundancy. Additionally, some marketing
professionals think that eventually e-marketing techniques will lead
to the erosion of imagination and creativity. As Thorpe (2006)
states: the challenge for twenty first century marketing is to
consolidate the two faces of technology; to use it to offer increased
benefits for customers without eroding the traditional values of
human contact and personalised approaches.
There are four strands of research in the current e-marketing arena
(outlined below). All of them relate to how ‘interactivity’, facilitated
by various digital technologies, has an impact on contemporary
marketing practice (Coviello, Milley et al. 2001):
1 Revolution: The Internet changes everything. That is, IT-enabled
interactivity has the potential to affect all businesses and all
6 OU BUSINESS SCHOOL
1 INTRODUCTION
types of product, with interactive technologies fundamentally

changing how all organisations relate to their markets in terms
of both their philosophy and their strategy.
2 Evolution: ‘bricks and clicks’ balance suggests that technology-
enabled marketing offers different opportunities to different
organisations in various contexts. In this perspective, the key is
to allow for convergence of old and new, online and offline,
traditional and revolutionary.
3 Extension: opportunities provided by different information
technologies might simply offer tools to support or augment
traditional approaches to the marketing mix.
4 Distribution: the Internet is nothing more than a fourth sales
channel which must be integrated into other channel strategies.
This is regarded as ‘extension’ because the literature discusses
how interactive technologies offer what is primarily a new
channel to the market; a channel that allows direct access to
customers and the ability to bypass or complement existing
channel members.
As you read the course text and this study guide, you will form a
view as to which definition you agree with. The course team have
taken a ‘contingency’ approach to the discussions because of the
following reasons:
l The ideas listed above are not mutually exclusive.
l E-marketing has certainly lead to an extension of espoused
theory and you will be encouraged to make links to materials
you have studied elsewhere in your course as you work
through this unit.
l You will read descriptions of e-marketing activities and we will
show that these have evolved from some sound marketing
ideas.
l In some cases advances in technology has encouraged some
organisations to take a revolutionary approach.
1.3 AIMS AND OBJECTIVES

This unit considers the role that interactive media can play within
an integrated marketing communications plan, and discusses how
the strategic and tactical decisions made will affect the whole
organisation.
The aims of this unit are to:
l Introduce you to current issues in e-marketing and
technological communications via ‘new media’.
l Draw links to materials elsewhere in the course to that will
explain how the underlying theoretical marketing models
translate into an e-marketing context.
l Change your perception of e-marketing from an Internet focus
to a digital focus.
UNIT 9 E-MARKETING
l Assess the strengths and weaknesses of the opportunities being

offered by these new developments.
l Evaluate the impact that e-marketing has on an organisation’s
strategic decisions.
The objectives of this unit are that upon completion you should be
able to:
l Evaluate the effectiveness of the planning model.
l Understand the differences between traditional marketing
communications and new media marketing communications.
l Evaluate the implications of the shift in power in the
relationships between buyers and sellers.
l Understand the important elements of online service delivery.
l Appreciate the influence of risk and trust on business
relationships.
l Identify how customer relationship management can be
facilitated in the online environment.
l Understand the implications of the growth in digital media and
how exploiting platform synergies can add value to e-marketing.
��
2 CHAPTER ONE: INTRODUCTION
CHAPTER ONE:
2 INTRODUCTION
2.1 UNDERSTANDING E-MARKETING
ACTIVITY 2.1
Before you start reading the first chapter of your textbook,
think about what e-marketing means to you. You may wish to
begin with the question ‘What is marketing?’ Predictably, you
may get answers revolving around advertising, sales and
marketing communications. How do you think a definition of
e-marketing would differ from one of traditional marketing?
Your definition of e-marketing:
‘traditional’ marketing e-marketing

Marketing is the management
process responsible for identifying,
anticipating and satisfying
consumers’ requirements profitably
(source: http://www.cim.co.uk/cim/ser/html/infQuiGlo.cfm?letter=M)
COMMENTARY
Although you may have given slightly different descriptions,

we would encourage you to compare your definition to
different interpretations that are reflected in the e-marketing
literature. As you begin to read more widely around this
subject, you will find many different definitions most, like
your own work will take their emphasis from the various uses
organisations have found for the internet, for example:
l Communication: the delivery of information and customer
support.
l Automation: the mechanisation of business transactions
and work flow via the internet and digital devices.
l Service delivery: cutting the costs and delivery times of
services, while improving their quality.
UNIT 9 E-MARKETING
l Sales: making it possible to buy and sell products,

information and services over the internet.
To confuse matters even more, you will probably come across
several different business e-terms for instance: e-commerce,
e-business and e-marketing. Smith and Chaffey (2005) give
good definitions for all of them, they explain that, even
though e-marketing is a subset of e-business, for the most part
we can take e-marketing as being broadly similar to the other
terms. You will also find that most professional literature use
the terms interchangeably.
A workable description of e-marketing is given in your
textbook: ‘e-marketing can identify, anticipate and satisfy
customer’s needs efficiently’ (Smith and Chaffey 2005)– this is
based on the traditional CIM definition. However, there is still
a debate to be had about a standard definition and just what
makes e-marketing so different from ‘traditional’ (for want of a
better word) marketing
Today’s e-marketing has a much wider focus, which takes into
account other digital media. You will notice in the textbook
that the authors move on to discuss how digital and ‘e’
marketing definitions are very similar. Considering our earlier
discussions regarding the different approaches to the subject
e-marketing appears to have a more ‘evolutionary’ focus,
whereas the digital marketing definition has a more
‘revolutionary’ focus. What do you think?
An important factor to be considered when understanding the

differences between traditional marketing and e-marketing is that
digital media allows the results of every marketing activity to be
measured instantly. The results from a traditional media advertising
campaign are retrospective (because it takes time for the data from
sales or branding objectives to be collected) and tend to be very
generalised (results do not identify which segments of customers
(or individual customers) react to the messages, nor do they
identify response times). Digital media on the other hand, allows
campaigns to be tracked from start to finish. Marketers can see
conversion rates immediately (what worked what didn’t), and drill
down to identify individual customer preferences, if need be.
Armed with this information, campaigns can be adapted much
sooner in order to optimise effective messages or media.
Technology enables:
Competitive advantage; new market space; greater efficiencies;
small companies to compete with larger ones.
Increased measurability and tracking – can be instant
However, the drawbacks are:
lack of personal attention; intrusion and ethical concerns; potential
of human redundancy; erosion of imagination and creativity.
The challenge for twenty first century marketing is to consolidate
the two faces of technology: to use it to offer increased benefits for
customers without eroding the traditional values of human contact
and personalised approaches.
(Source: Thorpe 2006)
ACTIVITY 2.2
Now read the introductory chapter in your textbook and,
while you are reading, try to make links to some of the theory
you have already met in the course. You will also notice that
there are plenty of questions at the end of the chapter to help
you test your understanding of the ideas covered in the text.
It’s a good idea to complete them if you can, they will help
you identify the main points.
As you read this material, pay special attention to section 1.10.
When you come across references to branding make notes on
the ways in which your knowledge of ‘added functional and
emotional value’ and ‘the atomic model of the brand’ help you
understand the material. You should also notice how the
brand essence pyramid is relevant here.
COMMENTARY
Your textbook refers to the internet offering new

opportunities that add ‘extra value’. This links with the
material in Unit 5 on ‘functional’ and ‘emotional’ added values.
The latter were defined as, ‘the extra functional or emotional
benefits that differentiate the organisation’s brand from the
core commodity or other competitors’ brands’.
There is also an important conceptual link between the
reference in the reader to the brand as a means of building
trust, and the notion of the ‘risk reducer’ as one of the elements
of the atomic model of the brand (as covered in Unit 5).
Another important point made in textbook is that an
important aspect of risk is the difference between actual and
perceived risk. No matter what the actual level of risk is in
UNIT 9 E-MARKETING
a transaction, it is what people perceive that will determine

their behaviour. However, in the long run actual levels of risk
will have an impact on people’s perceptions
You also might like to revisit your B820 course materials for
a discussion on strategy formation. It will help you critically
evaluate the text’s description of e-strategy
2.2 MARKETING PLANNING

Smith and Chaffey (2005) use the planning model ‘SOSTAC’ to get
readers thinking about the marketing planning process and to give
structure to the introductory chapter. For undergraduates the
formula is simple, logical, and emphasises the need for a structured
approach to marketing activities. At postgraduate level this
approach is considered simplistic because it does not account for
the complex realities of the contemporary marketing environment.
ACTIVITY 2.3
This activity encourages you take a more critical approach to
reading the text. You will have read earlier in the course about
some of the shortcomings of using marketing planning as a focus
of marketing activities. Now that you have almost completed
your MBA you should be able to analyse the appropriateness of
these models and decide for yourself their usefulness to your
own situation. There are two issues to think about here:
l The appropriateness of using marketing planning models
to organise marketing activities.
l The broader issue, does thinking about marketing in an
operational setting (i.e. through a plan) really capture the
true essence of marketing in a complex world.
For this activity you will need to identify the strengths and
weaknesses of using a structured model for marketing
planning. To help you the traditional marketing strengths and
weaknesses have been given.
Strengths Weaknesses
Enables practioners to:
1. follow a structure
2. take account of their environment
3. set measurable objectives
4. set objectives that can be evaluated
COMMENTARY
These are some of the strengths of using the marketing

planning process:
l It forces an assessment of the external environment.
l It forces an assessment of the organisation’s internal
competences.
l It quantifies the expected performance goals for the new
venture.
l It identifies the scale of the required resources and the
degree to which these will have been met through the
attraction of external funds.
l It creates a ‘road map’ that can be used to monitor actual
performance against expectation.
Some of the weaknesses may be:
l Preventing innovation – taking a resources based approach
may prevent managers identifying new technological
opportunities.
l Does it work? Research has failed to produce convincing
evidence that structured planning contributes to the
success of organisations.
l Apart from the arguments to do with the value of planning
marketing activities, and the applicability of the traditional
model to e-marketing, you may like to reflect on the more
general argument that marketing should be much more
than an operational activity.
In 1997 Nigel Piercy chose to drop the use of the word marketing.
Instead he now uses the phrase ‘going to market’ because he
believed that customer focus should be a priority for everyone
in an organisation, not just the marketing department. He wrote:
‘My view of this is that if marketing is what traditional marketing
departments do (or did), then ‘going to market’ is what companies
do (and always will). Marketing belongs to marketing specialists
but going to market is a process owned by everyone in the
organisation’ (Piercy 1997).
It may be that one of the problems with focusing e-activities
around the marketing planning process is that this approach does
not reflect the wider ‘pan-company’ view of marketing.
2.3 COMPLEXITY REVISITED

Chaos theory applied to management means that planning anything
may be fruitless because the future is unknown. If we accept
this statement, we can have no idea of the future environment and
then long-term planning becomes an irrelevance, if not a
UNIT 9 E-MARKETING
hindrance. Stacey (2002) makes a key distinction between ordinary

and extraordinary management.
In a stable environment, ordinary management is necessary if the
organisation is to deliver cost-effective performance. This will
include some sort of logical planning process because managers
need to carry out day-to-day problem solving in order to achieve
the organisation’s established objectives.
Extraordinary management, by contrast, is what is required if the
organisation is to be able to transform itself in situations of
open-ended change. Here, rationalistic forms of decision making
are largely inoperative, since these require as their starting point
precisely those ‘givens’ which may not be available. One can see
how, in a fast moving technological marketplace, visionary
e-commerce (EC) entrepreneurs need to ignore rational models in
order to create innovative products and services.
��
3 CHAPTER TWO: P S , C S OR I S ?
CHAPTER TWO: PS, CS OR
3 IS?
ACTIVITY 3.1
Now read chapter 2 of the reader ‘ReMix’. While you are
reading section 2.7 make a few notes that link the ideas with
section 4.1 of Unit 6.
COMMENTARY
To provide a more strategic focus to what you leave just read
you may wish to consider the following thoughts.
First, the chapter is based on a well-established conceptual
model of the marketing mix, whether it be Ps, or Is, or even
Cs (if you can remember back to your first year studies).
The idea is the same, identify your customer’s needs,
construct the right combination of the elements of the ‘mix’
to make your marketing strategy more effective. Of course,
every marketer agrees that you have to have some structure to
marketing activities. Are there situations where the ‘mix’
models may not work? You might want to discuss online with
your tutor and fellow students how far they fit with your own
situation.
Second, it is interesting to see how the concepts of mix,
integration, creativity, interaction, globalisation and resourcing
can be linked to some extent to the communication process
model outlined in section 4.1 of Unit 6.
The chapter emphasises the importance of understanding
communication models; the marketer must make sure that
messages reach their audiences in an undistorted manner.
You have read how all communications must support the
overall positioning and online value proposition; the idea is
that the consistency will mean that the coded messages have a
better chance of reaching the target audience without being
distorted. In the text ‘Creativity’ can be understood in the
context of ‘coding’ a message, i.e. for the coding to be
effective amongst other things it should be creative.
Finally, the concept of ‘Interaction’ (between the internet user
and the marketer) in the reader is similar to the notion of
‘feedback’ as outlined in the communication process model.
Any communication needs to be understood by the receiver
UNIT 9 E-MARKETING
before feedback can take place. In a similar way, interaction

between the website owner and the customer can only take
place if it is clear to the customer what is being offered and
what they will get out of the interaction.
So, what should you conclude from this? What should be
becoming clear is that when we consider e-marketing
concepts and models we can often see ideas that have a
similar basis to those found in more traditional marketing
disciplines. And the latter can be used to help improve our
understanding of concepts related to e-marketing and even
more importantly to assess the extent to which what we are
coming across are simply the same ideas in a different guise
(evolution) or indeed totally new phenomena (revolution).
3.1 IS THAT ALL THERE IS?

So far, most of the marketing content of the MBA has centred on
contemporary approaches that focused on the customer as the
main driving force for marketing activities. This has included ideas
and concepts that focus on managing the exchange process
between customers and suppliers, and have reflected on the
mounting pressures of increased customer choice and power to
most organisations. However, there are many contexts where these
pressures do not apply, including the following:
l High-tech industries rely on innovation and intellectual property
to provide a competitive advantage that exempts them from
competitive pressure, even if only for a short period. During this
period, the consumer has little effective power.
l Many public services are monopolies, protected from
competition and operate in sectors where there is a structural
surplus of demand over supply. In these situations, too, the
consumer has limited power.
l In economically less developed countries, purchasing power
may be weaker, supply less competitive and distribution more
inefficient. Under such conditions, the balance of power is
likely to remain firmly with the producer or supplier, and there
are fewer pressures to engage with the customer.
l Even in the more economically developed countries, not all
sectors of the economy are equally competitive. Through
restrictive practices, government intervention or oligopolies,
there may be little effective competition and the position of the
consumer will be correspondingly weaker.
In these situations, some of the traditional marketing planning
models are likely to be more useful than the customer participation
perspective.
ACTIVITY 3.2
Now thinking about your own situation: can you identify the
‘mix’ of ingredients that are used in your e-marketing
activities? Alternatively if your organisation is not suitable you
may want to look at the Dell web site instead (www.buypc
online.co.uk/dell.htm)
As a revision exercise, identify what mix framework you
want to find. Can you match the descriptions with the
different mix? In the table below, put the correct reference (a,
b, c, or d) against the definitions below beside the matching
framework.
1 The seven Ps. People Processes and

Physical Evidence
2 The five Is. Identification, Individualisation,

Interaction Integration and Integrity
3 The four Cs. Customer needs and wants,

Cost, Convenience and Communication
4 The four Ps. Price, Product, Place and

Promotion
a Probably the most widespread marketing model of all,

this ‘mix’ is a checklist of the marketing tools available
to marketers. They reflect a producer-driven view of
marketing, with little scope for customer involvement.
This approach was developed to reflect marketing
situations in which the balance of power lay with the
manufacturer or service supplier, and can still be useful
where these market conditions still apply.
b An extension of the four Ps to make them more suited
to service provision. Like the four Ps, this model also
reflects market conditions in which customer influence
was limited.
c This mix defines the process you need to think about
when you are designing e-marketing activities and can
be used to complement service delivery.
d This model was developed as an alternative way of
approaching the marketing mix, to give greater weight
to the customer’s position in the marketing transaction.
While reflecting greater recognition of customers, this
model still projects the customer as a passive
participant in the transaction.
COMMENTARY
Check your answers

1 = B, 2 = C, 3 = D, 4 = A
UNIT 9 E-MARKETING
ACTIVITY 3.3
Now look at your own organisation. Here’s a grid for you to
make notes:
Mix element Evidence from your organisation or

the case
Price (or Cost)
Product (or Customer needs and

wants)
Place (or Convenience)
Promotion (or Communication)
People
Processes
Physical evidence
COMMENTARY
You probably found that identifying the four marketing mix

variables in your own organisation or the Dell case study was
quite easy, and you may even have found evidence of the
extra service elements. The Dell case was chosen to draw your
attention to the following discussion regarding the challenges
of online service delivery.
3.2 DELIVERING SERVICE AT

A DISTANCE
There is a discussion about service delivery in the textbook, which
focuses on the seventh ‘P’. Service marketing theory suggests that
service delivery should be easier online – if you think about it, we
know that one of the main functions of service quality is customer
expectations and to satisfy those expectations an organisation needs
to be consistent. Automating service delivery is one way to keep
tight control over the service experience. You will find a discussion
in Chapter 4 of your textbook about managing customer’s
expectations, which is also relevant here. Current research takes
these ideas further and identifies the importance of how the
integration between virtual and physical service channels (Sousa
and Voss 2006) should aid consistency and improve quality.
Looking at this issue in more depth, the authors of the service
quality measurement SERVQUAL identified five key elements that
customers use to evaluate service quality and adapts them into an

online context (Gefen 2002):
l Tangibles: physical facilities, equipment, and appearance, of
personnel.
The appearance of the website: an appealing interface, ease
of use, and understandability of the website interface, and
the clarity of the purchase procedures are tangible service
benefits.
l Usability: how easy is the site to navigate e.g. from researching
products to purchasing?
l Reliability: ability to perform the promised service dependably
and accurately.
Providing the service on time and as ordered online.
l Responsiveness: willingness to help customers and provide
prompt service.
Providing a prompt service, helpful guidance when problems
occur, and accurate information about the products or service.
l Assurance: knowledge and courtesy of employees and their
ability to inspire trust and confidence.
Assurance that the online store is knowledgeable and
courteous can be shown through the system’s ability to guide
the customer through the process, and to supply additional
beneficial services. In addition, courteous help-screens, and
appropriate error messages and guidance boxes, among other
means, can help customers in a manner comparable to
guidance signs and instructions in a regular store.
l Empathy: caring, individualised attention that is provided to
customers.
Creating a personalised service through customised contents,
personal greetings, and individualised email.
Customer profiling: creating personalised dialogues with
customers using information collected from previous
interactions. This will contain historical customer data about not
only purchasers but where and when they visit the web site,
what pages they view, and what links have they clicked on.
There is a good example of online service quality on the car
manufacturer Honda’s website (http://www.honda.co.uk/car/) which
was designed in response to customer research. The company
discovered that many car buyers avoid visiting showrooms because
they are worried that salespeople may pressure them into
purchasing. Honda’s virtual showroom enables customers to
become familiar with their products without obligation; customers
can customise their chosen model, watch a demonstration, book a
test drive and even can speak to a technician.
As well as the obvious benefits to Honda in terms of increased
customer satisfaction levels, they can use the data to inform their
e-marketing activities. For example targeting emails to potential
customers who chose a certain model but never went through to
book a test drive.
UNIT 9 E-MARKETING
3.3 FLYING FROM THE COMPUTER

Benefits to organisations and their customers in the growth of
automated services can also be identified in the travel industry. As
a recent article in The Economist explains people are now more
willing to book their holidays or travel arrangements online:
Freed from having to ring busy call centres or queue at high-street

travel agents, consumers have gone online in droves to find flights,
hotels, car rentals and other travel services, making travel one of
the most successful forms of e-commerce. The industry was ideally
suited to be an internet business. Most booking information already
existed in computer systems, but it was used by clerks and not
directly available to consumers. By designing websites that
ordinary people could use, online travel agents were able to put
product availability and price transparency at their customers’
fingertips. ‘That was a real revolution,’ says Dara Khosrowshahi,
chief executive of Expedia, an American company that has grown
into the world’s biggest online travel agent.
Websites have already become the most important shop window
for many airlines, hotels and car-rental companies. An example is
ba.com. ‘It has transformed the way we sell our tickets and the
way we stay in touch with our passengers,’ says BA’s Mr Parks-
Smith. Because the internet has made it easier to compare deals,
BA realised that users wanted to start by finding the lowest fare.
‘There was no point kidding ourselves about that,’ adds Mr Parks-
Smith. So people booking online are now presented with a range
of fares to choose from, with the busiest flights commanding the
highest premiums. Customers are shrewd enough to understand
the laws of supply and demand, BA concluded.
The airline [BA] is now making its website easier to use. The
ability to check in and choose your own seat online has proved
extremely popular, so a new facility to print your own boarding card
at home is also likely to be a hit. Services such as booking rental
cars, hotels and even guided tours at destinations will be added.
(Economist Special Report 2005)
Most organisations agree that the benefits of e-automating service

delivery systems include: cost and time savings, 24/7 access, and
improved service quality. Although this approach offers a variety of
advantages there are a number of disadvantages:
l they (organisations) could see it as a way to cutting staff
budgets.
l The information on the website needs to be relevant, up to date
and fast, so the site needs to have very good usability. Those
of you who tried to upload the Honda website using dial up
connections would probably have been frustrated by the use of
graphics that increased the download time. When designing an
internet service, organisations need to make sure that the

effectiveness of the campaign is not going to be diminished
through different circumstances.
l It’s still time consuming. In the UK, holiday destinations and
related searches were queried by 7.5 million U.K. consumers
who made 9.8 million travel purchases in the three-month
period from December 2005 to February 2006. Only a small
portion of these consumers made immediate purchases,
85 per cent of travel searchers transacted within ninety days
of their initial search (Burns 2006).
l The service quality is inconsistent. In its annual survey of
100 leading organisations Transversal, the internet research
organisation (http://www.transversal.com), found the travel
sector came out worst at delivering answers to straightforward
questions about such things as flight destinations, refunds and
visa information. Holiday and airline websites could, on average,
only answer a very poor one question out of ten, with
40 per cent unable to answer a single question online.
Response times for customers who asked questions by
email were an average of 66 hours. One site took 149 hours
to respond to an email (Mutel 2006).
l Internet analysts believe that companies who consistently
deliver poor e-service will probably go out of business because
consumers will spend their money with whoever offers the best
prices and services. This competition is good for customers as
long as it does not force the online travel industry to
consolidate into too few organisations.
YOU’VE BEEN TANGO’D!

For readers living outside the UK. The Marketing Insight on page
55 of your textbook refers to an orange flavoured soft drink (or
soda) that is sold in the UK.
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UNIT 9 E-MARKETING
4 CHAPTER THREE: E-MODELS
CHAPTER THREE:
4 E-MODELS
In chapter three, Smith and Chaffey outline new ways that

organisations have found to communicate with their customers. It
illustrates both ‘buy side’ and ‘sell side’ changes in an organisation’s
market place and shows how, by using digital media, businesses
can re-engineer their customer interfaces and supply-chain
partnerships. In this e-commerce context, the internet can provide
the most economical platform for communicating with customers
without any additional network.
ACTIVITY 4.1
Now read Chapter Three in your textbook and, while you are
reading, try to make links to some of the theory you have
already met in your course. As a prompt you might like to
think about the following areas:
l Sections 3.3–3.6 relate to concepts from relationship
marketing. Write down the specific insights that your
knowledge of strategic alliances and networks can bring to
your understanding of this material.
l Section 3.8 refers to buying models that are discussed in
Unit 5, you may like to try and recall where that
discussion took place.
l Section 3.10 discusses loyalty models. Write down the
ways in which your knowledge of relationship marketing
units can inform your understanding of this material.
COMMENTARY
Section 3.3–3.6
Figure 5.1 in Unit 4, (‘Factors influencing the propensity of a
firm to enter into strategic alliances’) identifies the different
factors that will influence whether or not a firm will engage in
strategic alliances. For example, in an e-marketing context it
may be quite important to have ‘speed of entry into a market’
(one of the factors in the model) and there may also be
‘significant technological change’ (another factor). So in each
business situation, when you consider the importance of the
value networks the reader refers to, you should also take into
account the wider factors that may or may not encourage
the move.
UNIT 9 E-MARKETING
Section 3.7
The notion of multi-stage communications as covered in the
reader is not actually covered in the communications unit and
you should pay special attention to it since the notion of
multi-stage communications has relevance to not only the case
of e-marketing but marketing communications more widely.
Section 3.10
The ladder of loyalty referred to in the reader is similar in
principle to the ‘relationship marketing ladder of customer
loyalty’ referred to in section 4.1 of Unit 4. Other issues in
Unit 4 related to building loyalty with consumers in are
covered in section 6.2 where the unit makes reference to such
issues as trust and warmth, ease and frequency of transactions,
closeness, similarity, mutuality, goal interdependence and peer
group norms. You may want to consider the extent to which
these are replicable in an online environment.
4.1 POWER RELATIONSHIPS

A useful concept from your previous studies that will give the ideas
outlined in this chapter a more strategic focus is the traditional
Porter’s ‘five forces’ model. The following text uses dimensions
from the model to explain the shift in power relationships between
channel players in an e-commerce environment.
4.2 INCREASED BARGAINING POWER

OF SUPPLIERS
Smith and Chaffey describe an e-procurement model where large,
supplier-orientated marketplaces, can dominate customers in one of
two ways: either suppliers still have specialised purchasing systems
managed through an ‘extranet’ and have contractual relationship
with their buyers, or they have taken an early lead with online
services delivered to a wider audience using the internet. This is
shown overleaf in Figure 4.1.
Still the most common example of this model is the supplier-
orientated marketplace. Most of the large internet enabled
businesses use this model that allows both individual consumers
and businesses to use their online ordering systems. This simple
concept makes no differentiation between B2B and B2C
transactions. Dell (www.dell.com) for instance, does not differentiate
between its B2C and B2B web presences, even though it sells
90 per cent of its computers to business buyers; it still encourages
all consumers to design and purchase their computers online.
The problem with this simple marketplace is that it is based on
the assumption that both B2B and B2C buyers will make series of
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Figure 4.1 E-marketing
one-off transactions; it is not so convenient for customers who have

repetitive orders.
Disintermediation
The increased power of suppliers has also caused the predicted
decline in the importance of traditional channel intermediaries.
Your textbook illustrates this idea in the traditional ‘channels of
distribution’ model. Disintermediation grows from the idea that the
internet offers all organisations flexible, cheap, one-to-one
communication with customers. Taken to the limit, the internet has
the capacity to entirely eliminate retailers and wholesalers.
Although Smith and Chaffey outline how the internet provides an
inexpensive and targeted means to help manufacturers and build
one-to-one relationships with their customer, some writers dispute
these potential benefits. Peterson and Balasubramanian (1997) give
several reasons why disintermediation has yet to evolve as a viable
B2C model:
l Manufacturers may not wish to destroy the existing retail
relationships that account for most of their sales.
l Manufacturers do not have the logistical infrastructure to
distribute their goods to their online customers. For example,
Levi Strauss launched an online store for Levis and Dockers in
November 1998, stocking more than 120 items in 3,000
variations. It closed it a year later, because selling jeans over the
Web was unprofitable; instead the site directed internet buyers
to the online stores of JC Penney and Macy’s, because they had
‘very sophisticated fulfilment capabilities’.
l Most manufacturers do not have enough products to satisfy
consumers’ needs, for example most organisations have a wide
range of office stationery requirements. There are just too many
individual suppliers for their buyers to form individual
relationships.
UNIT 9 E-MARKETING
l Some products cannot be sold electronically. For example, they

may require demonstration, be highly specialised, or need
expert installation.
l Manufacturers are not resourced to make the buyer–seller
relationships needed to reduce the risk of buying online.
However, some disintermediation or vertical integration will occur,
but it will be minimal compared with that of conventional
distribution channels (Sheth and Sisodia, 2002).
ACTIVITY 4.2
Read the case study below about the music industry. Can you
find any other examples of disintermediation via the internet?
What are the advantages and disadvantages of trading in
this way?
DOWNLOAD FANS BOOST MUSIC SALES

Media analysts Screen Digest’s analysis of Europe’s online music
market shows that more than 7 per cent of Europeans own and
use a portable music player. In 2004 that figure stood at 2 per
cent. Alongside MP3 player ownership there is a booming interest
in music portals such as Napster and Apple’s iTunes through which
many people buy tracks to put on their player.
In 2006, Screen Digest predicts that Europeans will spend E280m
(£189m) buying music online. The analyst firm expects this market
to reach E1.1bn by 2010 when the number of portable players
owned by Europeans reaches 80m.
Source: adapted from a story from BBC NEWS http://news.BBC.co.uk
COMMENTARY
There are two issues highlighted in this article. Firstly, online

sales of digital products, such as music, are perceived as being
almost pure profit. Artists do not see why record companies
have to make so much commission, even though they
understand about the huge marketing costs.
Secondly, the traditional public relations channels for popular
music (television and radio) have moved to the Internet. New
technology facilitates a far wider variety of access points for fans
to hear music, allowing musicians to have closer relationships
with their fans. At the heart of this revolution is a social
networking site called ‘MySpace’ (http://www.myspace.com)
There are number of web related artistes such as Sandi Thom
(http://www.sandithom.com) who broadcast to the world
from her basement in South London UK and Gnarls Barkley

(http://www.gnarlsbarkley.com/), whose debut single ‘Crazy’
was the first UK number one single to be achieved by
download sales alone.
4.3 EQUAL BARGAINING POWER
OF BUYERS AND SUPPLIERS
This sharing of bargaining power is illustrated in Smith and

Chaffey’s section on reintermediation and the idea is also dealt with
later in this section. The channel relationships are mediated by
intermediaries who handle information and logistics.
Reintermediation
The consequences of the shifting power relationships and the
evolving business models relate to the need to manage buyer/
supplier relationships online. You will have read that the
importance of e-marketing to organisations is that it provides the
ability to help (in the right situations) build long term customer
relationships. However, using automated processes creates problems
in several areas, including: logistics, credit, financing and customer
service (Banham, 2000). E-commerce has created a paradox;
suppliers demand solutions that create savings in people and
paper-based transaction costs, but this depersonalisation has created
a need for the reintermediation of a range of services designed to
put back the trust that the e-systems took out.
While disintermediation has occurred in some industries, for
example music and travel, in others there has been a noticeable
emergence of new intermediaries between customers and suppliers.
ACTIVITY 4.3
As de-regulation has commoditised the energy market, uSwitch
(http://www.uswitch.com) offers energy consumers the ability
find the cheapest energy suppliers and change companies with
the minimum of fuss. Read this recent article from the
Guardian newspaper.
Almost a million gas and electricity customers switched suppliers in

March 2006 in response to rocketing household bills over the
winter, according to an Ofgem report published today.
UNIT 9 E-MARKETING
The industry regulator said more than 900,000 of the UK’s

26 million domestic energy customers sought out a cheaper
alternative supplier in March - the highest figure for a single month
and 200,000 up on normal levels. Ofgem claimed the figures were
proof that competition in the sector is alive and kicking. It said that
overall prices for gas and electricity had risen by 40% over the
past two years.
‘Ofgem’s research shows that recent price rises have seen large
numbers of customers vote with their feet and take advantage of
the competitive market to change their energy supplier’, Ofgem’s
chief executive Alistair Buchanan said. ‘Competition is so vigorous
that not only can you change your supplier but you can also
choose from a selection of tariffs. This variety of options means
that there are significant savings to be made for all customers,
including those on pre-payment meters. Customers who have
never switched supplier can save over £110, so across Britain
there are unclaimed savings of around £1billion.’
(Brignall, 2006)
Infomediaries
The term ‘infomediary’ was coined by John Jagel of McKinsey to
describe a third-party provider of unbiased information, which
helps vendors to target customers more effectively. The term then
broadened to mean an organisation that provides the following
functions:
l a trading platform
l a credible source of information for buyers and sellers
l an expert adviser for both buyers and sellers.
Infomediaries may take the form of:
l Buyer agencies: infomediaries who help users to search out
information. Yahoo! and Alta Vista come under this heading, and
there are other more sophisticated services that use agent
technology to search out the best deals. E-loan (http://www.eloan.
com) searches through 50,000 products from seventy financial
institutions to find the best fit between buyers and sellers.
l Aggregators: these help buyers in fragmented B2B markets to
select products and a single point of contact for the service.
They gather the requirements of many customers and seek the
best deal for bulk purchases from suppliers. An example of this
is SciQuest (http://www.sciquest.com), which provides a one-
stop shop for academic researchers and companies in the
pharmaceuticals industries to purchase their supplies.
l Market Makers: infomediaries who bring together buyers and
suppliers in virtual markets where, in an ‘inventory-less’
business model, companies touch none of the merchandise
sold. They may act as support systems, fulfilling orders for less
efficient vendors. For example, the Roadrunner Transport

Exchange (http://www.roadrunner.uk.com/cgi-bin/lc_pub/
lc_index), winner of the DTI (the UK Government’s
Department of Trade and Industry) e-commerce award for
innovate use of electronic commerce, provides an interface for
professional haulers and potential users. The site can match
empty trucks returning from deliveries with customers wishing
to send goods to the trucks’ original locations, or connect
shippers that have loads they want to move cheaply with fleet
managers who have space to fill.
l Seller Agencies: intermediary-based e-shopping malls or e-stores
developed for both the B2C and B2B markets. These infomediaries
help sellers to connect with buyers. Successful models are
ProcureNet and Utilyx (http://www.utilyx.com) for e-procurement
and uSwitch (http://www.uswitch.com/) for customers
Electronic auctions
Auctions are another good example of an intermediary orientated
marketplace; the most popular, eBay (http://www.ebay.com), uses
customer profiling to create long term relationships with their
buyers. Most people are familiar with the success of eBay and some
of the unusual things you can buy (see below):
£25,000 REVENGE OF DJ’S WIFE

It’s one thing cutting up your errant husband’s clothes and throwing
them out on the street. Selling his £25,000 sports car on the
Internet for just 50p is another matter entirely. But that’s just what
the scorned wife of a controversial Disc Jockey did.
During a live interview with Jodie Marsh...Tim Shaw told the
glamour model he was prepared to leave his wife and their two
children for her. Wife Hayley was listening and said her husband’s
flirtatious interview was the ‘last straw’ in their relationship.
After having a few drinks, and while her husband was still in the
studio presenting his show, she posted an advert on eBay for the
Lotus Esprit Turbo with a ‘Buy It Now’ option of 50p. The item
description read: ‘I need to get rid of this car in the next two to
three hours before my husband gets home to find it gone and all
his belongings in the street.’
The car sold within five minutes.
...Mrs Shaw said: ‘When he said he would leave me and the kids
for Jodie Marsh, that was it for me. I am sick of him disrespecting
this family for the sake of his act. The car is his pride and joy but
the idiot put my name on the log book so I just sold it. I didn’t
care about the money, I just wanted to get him back.’
She added: ‘There is no hope for a reconciliation.’
Littlejohn, 2005
UNIT 9 E-MARKETING
In the B2B arena, suppliers use auctions and sophisticated customer

profiling to create loyalty and cement existing business relationships.
The computer reseller Ingram Micro only opens their auction site
to existing customers. Sellers can get rid of surplus or liquidated
goods, and business customers can find large discounts. These auction
sites are very popular; liquidations can realise up to 600 per cent more
than if they use offline auctions (Turban et al., 2000).
While it is very productive for businesses to attract new customers,
these new relationships create a high degree of uncertainty and,
therefore, risk for both buyers and sellers. Not knowing the
creditworthiness of the new customer, can the buyer follow
through on a bid, or be able to pay the invoice? Will the supplier
fulfil the right quality and quantity of the order? What are the
delivery costs? Add the fact that this transaction may be occurring
internationally, and the risk of doing business increases
considerably (you have met the discussion about trust earlier).
To answer these questions, businesses are turning to traditional
logistic organisations to provide trusted-third party solutions. New
forms of ‘infomediarys’ are offering a range of internet-based credit
and logistic services that can be seamlessly sewn onto existing
market exchanges. If we look at the eBay example again, a popular
third party (Paypal) now handles all financial transactions offering
purchase guarantees and security of personal financial information
(see figure 4.2).
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Figure 4.2 PayPal as an intermediary
A report by Matsuno shows that the importance of the

‘infomediaries’ sector is directly attributable to the demand for
security from business buyers and sellers. They state that
‘infomediaries’ can alleviate existing market imperfections because:
l they reduce search costs incurred when collecting information
about buyer and seller;
l they offer quality control by providing information and

guarantees;
l they allow sellers to target buyers’ needs more effectively.
4.4 INCREASING BARGAINING POWER

OF BUYERS
The demand for e-commerce has increased the power of buyers for
two reasons. Firstly, the information available to customers creates
product and price transparency. Secondly, buyers have access to
more suppliers than ever before, creating, in an economist’s terms,
perfect, or near-perfect, competition.
From a purchaser’s point of view, the Internet has increased their
purchasing power; they see e-commerce leading to a reduction in
search times in manual processes, transaction costs and cycle times,
speedier communications, automatic recording and, in B2B, an
elimination of maverick buying (Milligan, 2001).
Problems for suppliers

In competitive terms, this power shift causes particular problems
for suppliers; as the power of buyers increases, prices are squeezed
to the margin. The only way to offer further cost savings is to cut
quality standards. However:
l This model takes no account of business relationships;
l customers are assumed to be fickle and to buy only on price.
While it is true that this may be the case for some
goods – accessories and consumables, for instance – the more
essential purchases will still involve long-term business
relationships.
Transparency
The internet provides access to a wide range of information about
prices, features and competitors. The benefit of this information
explosion to customers is that they can see all the costs of the
products and services they require. In economic terms this is called
‘price transparency’ and it is much more than just comparing retail
prices with online prices. The internet encourages highly rational
shopping; buyers now have the ability to compare prices, features,
and brand offers dispassionately. There are many sites that offer
price comparison services: recently shopping.com has teamed up
with Paypal (http://www.paypay.uk.shopping.com), offering
customers the opportunity to search for items, compare prices, read
reviews of UK stores and purchase without giving away their
financial information.
UNIT 9 E-MARKETING
The consequential problems caused to selling companies

as described, in the Harvard Business Review, by Indrajit Sinha
(2000) are:
l Cost transparency severely impairs a seller’s ability to obtain
high margins.
l Cost transparency turns products and services into commodities.
l Cost transparency weakens customers’ loyalty to brands.
l Cost transparency can damage companies’ reputations by
creating perceptions of unfair prices.
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5 CHAPTER FOUR: E-CUSTOMERS
CHAPTER FOUR:
5 E-CUSTOMERS
In this chapter of your textbook you will recognise some themes

that you have already addressed in earlier sections of this study
guide: customer profiling, relationships, and loyalty are familiar to
you now. When you have finished reading the chapter re-examine
the issue of ‘trust’ in an online environment.
ACTIVITY 5.1
Now read chapter four in your textbook (E-customers) and,
while you are reading, once again try to make links to some of
the theory you have already met in this course.
As you read section 4.5 pay special attention to the material on
the buying process. This aspect of buyer behaviour has a
powerful link with a buyer behaviour model that you came
across in Unit 5. Make notes on how that model influences
your understanding of the six stage model presented here.
As you read section 4.8, make notes on how the material on
brand communities in Unit 5 helps your understanding of
Brand Communities.
COMMENTARY
Section 4.5
The buyer behaviour model presented in Unit 5 is reflected in
section 5.3 and is referred to as ‘a typology of consumer
buying processes’. The link with the model presented in the
text is where customers ‘perceive significant differences
between brands’ and where there is a ‘high level of consumer
involvement’ that ‘extended problem solving’ will take place.
That extended problem solving is likely to show itself as
consumers going through the six-stage process is outlined in
the reader. It is unlikely that customers that have low levels of
involvement perceive few differences between brands will
through the stage process.
You should also keep in your mind the models of buyer
behaviour when you read through my next discussion about
‘trust’ and ‘risk’
UNIT 9 E-MARKETING
Section 4.8
You will find that Unit 5 provides a comprehensive account
of Brand Communities, because it discusses why they are
important to marketers and why they may sometimes have
negative repercussions for brand owners. All of these issues
are relevant to people building brand related communities in
an online environment.
5.1 CUSTOMER RELATIONSHIPS

You will have read in your previous studies how most marketing
approaches put an emphasis on the quality of the buyer–seller
relationship and its effect on the long-term profitability of business
transactions. As with service marketing, these ideas first emerged
from the industrial buying behaviour literature, but are now just as
relevant to consumer interactions.
Although it is naive to assume that all buyers will develop into
loyal customers, it is important to understand the factors that help
build loyalty and how they can best be exploited.
Frederick Reichheld (1996) points out that successful organisations
are the ones who are able to identify those segments of customers
with ‘loyalty potential’. ‘Find out what your customers need and give
it to them’ is a fundamental concept of marketing. This paradigm
does not only mean satisfying customers with the right products and
services but with the right kind of business relationship. The
discussion that follows concentrates on the various elements of these
buying situations and their impact on the resulting buyer–supplier
relationships.
5.2 RISK
In business buying, research has shown that a buyer’s choice of
supplier is influenced by the amount and type of risk in the
purchase. V. W. Mitchell (2005), quoting Valla, identified five areas
of risk in business buying: technical risk, financial risk, delivery risk,
service risk and the risk related to supplier–customer long-term
relationships. The first four tend to be related to single transactions,
the last to transactions over time.
ACTIVITY 5.2
Consider these five risks and how they apply to a manager in
an IT department. A decision to move to electronic commerce
(EC) has already been made, this manager is looking for a
solution which will provide customers with online purchasing

opportunities and service delivery.
Technical risk
Financial risk
Delivery risk
Service risk
Relationship risk
COMMENTARY
Here are some of the ideas that you may have included in
your answer. They are not in any order of importance yet,
but you may like to tick the ones you think most critical for
the IT manager.
Technical risks include:
l The staff may not be able to operate the system.
l The department may not be able to integrate the present
IT systems.
l Servers may not be able to cope with the extra demand.
Financial risks include:
l Investment in EC is very expensive.
l Will extra sales justify the extra investment?
l Investment may not prove profitable within the period
required.
l Banks and investors may be dissatisfied with their rate of
return.
Delivery risks include:
l The solution will be unable to provide the extra service
required.
l Delivery systems may not be able to cope with the
increased demand.
l Bad design makes customers unhappy.
Service risks include:
l The supplier may not live up to service agreements.
l There may be no backup if the system breaks down.
l The software may not live up to its promises.
UNIT 9 E-MARKETING
Relationship risks include:

l Existing customers may be upset if the system breaks
down.
l The department may be unable to meet customers’
expectations of service quality.
l The department may lose long-term customers to those
suppliers that already have online services.
l The department may provide customers with access to
competition (reducing switching costs).
ACTIVITY 5.3
Now put yourself in a salesperson’s position. You have the job
of persuading a client that your e-solution is the one that will
solve all their problems. You can tell them that your product
is the best on the market, but how can you make them believe
it? Their concerns can be addressed only if they have trust in
you. Of course, this example is of an extremely risky buying
situation and the decision would probably involve several
people in the customer’s organisation. However, it does
illustrate the risky nature of organisational buying and the
important role of trust.
COMMENTARY
In Unit 4 (for example in sections 6.1 and 6.2 but elsewhere

as well) attention is paid to the importance of trust in
relationships. In addition, the notion of risk reduction is an
important one as people face different types of risk when they
make a purchase. Coverage of low and high involvement
purchases took place in section 5.3 of Unit 5. That unit
pointed out that marketers need to address the risks that
consumers perceive as being the most important. This is a
relevant issue in e-marketing because there are clearly some
specific risks that people believe they face when buying and
selling over the internet.
Academics recommend that strategies to build long-term
relationships should be put in place precisely as they reduce
the risks in purchasing decisions in two ways. Firstly, these
relationships, by their very nature, encourage each party to
trust the other. Second, they facilitate a high degree of
information exchange.
5.3 BUILDING TRUST

Trust is a topic studied in business, political science, sociology,
psychology, medicine, philosophy, law and economics. In business,
trust is mainly equated with behaviour, reliability and predictability
for example, ‘Can I really count on you?’ ‘How do I know if what
you are promising will happen?’ ‘Will you look after my needs
should a problem arise?’
The concept has been a common thread throughout this unit and
its important for you to understand how consumers trust their
online transactions (Bibb and Kourdi 2004). In buying behavioural
context, trust is built up gradually by a series of successful
outcomes from risky transactions. The first transaction is the riskiest,
because you have no experience of the results of your actions.
When, or if, you have experienced a successful outcome, you are
more likely to trust the next one.
ACTIVITY 5.4
Think back to your first internet buying decision and list the
things that made you feel safe about your purchase.
Business to Business relationships

Trust is even more important to industrial buying behaviour. In the
past these relationships have always been about handshakes,
keeping your word, writing contracts, ensuring informed consent
and sharing information. But where there is little or no human
contact businesses have to think about systematically designing
‘trust’ into their electronic transactions (Keen et al. 2000).
Decisions contain not only elements of personal risk – the thought
of letting your colleagues down or damaging your own
reputation – but also organisational risk to production and services.
IBM understood this in the 1970s and 1980s when they created the
strapline ‘No one ever got fired for buying IBM’ to justify their
premium pricing strategy (Mercer 1988).
Relying on technology to reduce risk is not without its problems;
computer glitches and server failures can be devastating when
organisations rely closely on one another (for example food
retailers and their suppliers). Risks developing from technical and
transactional uncertainty can be reduced with the use of extranets,
but this creates another kind of risk, one coming from the
increased dependence on this technology. Business partners that
have that high a level of trust and commitment also have high
expectations of each other, so the reduction of technological risk
does not always mean that conflict will not exist.
UNIT 9 E-MARKETING
5.4 ONE SIZE FITS ALL?

It comes as no surprise that writers such as Porter (2000) believe
that effective, long-term buyer-seller relationships are of strategic
importance to organisations. So far, this study guide has reflected
these ideas and talked about the need for the organisations to build
loyal customer relationships in order to reduce the risk associated
with online purchases. While a lot of the ‘how to’ relationship
marketing books put great emphasis on this aspect of marketing, it
is important to understand that there are some situations in which
relationships are not needed or wanted.
Expecting every customer to become a loyal, long-term buyer may
be expecting too much. Reichheld (1996) writes ‘all companies look
for more profitable customers. Most of them put a lot of thought
and labour into pursuing the elusive market segment that will find
their offerings irresistible. But few realise that some customers are
inherently more loyal than others.’
Lohita and Krapfel (1994) describe ‘customer development’ as
identifying the attractiveness of individual customers. This idea is
taken up in your textbook too. Attractiveness describes the degree
of potential customer loyalty, the commonality of interest between
customers and the expected value of any long-term relationship.
Lohita and Krapfel recommend that marketers use a process of
‘typing’, that is, segmenting customers by the kind of relationship
they want and matching the e-commerce mode to that type. They
also recommend that organisations should build up a portfolio of
various customer relationships. You can see that their ideas are very
similar to customer profiling, which you read about earlier.
The matrix on the next page brings these concepts together. It is
adapted from Lohita and Krapfel (1994) and has been combined
with the ideas we have met before covering buying behaviour,
information needs and types of relationships.
The concept of ‘commonality’ can be understood as the level of
mutual commitment. This can be illustrated by the amount that
organisations and their customers are prepared to invest in creating
trusting relationships. In the context of this discussion, it may be
considered as the same level of e-commitment.
You can see, from the chart overleaf, that ‘Acquaintances’ and
‘Rivals’ may be content with an online sellers’ catalogue, accessed
through an internet web page and password, whereas ‘Partners’
and ‘Friends’ may require a more substantial e-presense.
Value of relationship
High Low Low
Alliance (Partner) Relationship (Friend) High
High economic Committed re- Commonality

investment, high purchasers; common interest
interdependence, high goals; current low
switching costs, economic value,
customised responses information sharing;
limited investment; may
have been or becoming
partners; needs
monitoring and joint
planning
Relationship (Rival) Transaction

(Acquaintance)
Routine re-purchasers; Need to identify whether Low

high value but low they are value-based re-
commonality of interest; purchasers or new
want to go it alone; may customers looking to
be competitors as well as make a relationship;
customers; do business market-based
because they have to, not relationship; lots of them;
want to; limit investment standard products and
and customisation; have routine producers;
exit plan; look for other minimal investment;
partners serve through distribution
channels
ACTIVITY 5.5
Consider your organisation’s customers. Can you divide them
into the four categories in the matrix? Depending on your
situation you may be able to identify only two or three of the
categories, but even that should tell you about the needs of
your customers.
Partners
Friends
Rivals
Acquaintances
��
UNIT 9 E-MARKETING
6 CHAPTER EIGHT: CRM
CHAPTER EIGHT: CRM
6
6.1 KNOWING CUSTOMERS AS
INDIVIDUALS ‘AGAIN’
Chapter 8 in your textbook outlines approaches to Customer
Relationship Management (CRM) and gives a good account of the
basics of CRM, which should create resonance with the relationship
marketing content of this course that you have studied earlier.
ACTIVITY 6.1
As you read Chapter 8 consider the issue of ‘permission
marketing’, which is given a significant amount of attention.
Which relationship marketing concepts (as covered in Unit 4)
can you see this being linked to?
It will also be useful to work through the questions at the end
of the chapter, order to reinforce the wide range of ideas
contained in the section.
COMMENTARY
In Unit 4 (for example in sections 6.1 and 6.2 but elsewhere as

well) attention is paid to the importance of trust in
relationships that rely on open communication between
parties. The notion of ‘permission marketing’ as outlined in
the reader works on a similar principle. The approach
involves ‘gaining permission, then trust and then loyalty’. At
each stage of the permission marketing process the customer
has the right to opt out, but the incentives are in place to
discourage this.
6.2 MAKING THE BEST USE OF THE
INTERNET
One of the premises of this e-marketing unit is that the internet

offers much more than a means to advertise goods and services to
potential customers. As you have read in your textbook, at a very
basic level, it allows marketing managers to take advantage of
substantially enhanced EC networking between their head offices
and their subsidiaries, to tie together all those involved in the
UNIT 9 E-MARKETING
customer relationship and to deliver goods and services direct to

customers. Used as communications medium it facilitates closer ties
with channel intermediaries, network partners and end users
through the provision of email, message boards, online
conferencing and real-time transfers of corporate data around the
globe irrespective of time zones. Mclvor writes:
... electronic commerce can reduce the costs of integrating
customers and their suppliers and, through electronic networks,
companies can achieve integration by tightly coupling processes at
the interface between each stage of the value chain. Electronic
linkages in the value chain are already fundamentally changing the
nature of interorganisational relationships. Linked to these changes
is the trend towards companies adopting more collaborative
relations with their key suppliers. Companies are now pursuing
more intensive and interactive relationships with their suppliers,
collaborating in new product development, integrating key
business processes and cross-functional information sharing on a
range of issues.
McIvor (2000)
E-marketing provides huge advantages for CRM. Customer

relationships can be built and sustained using interactive, direct
marketing techniques. Data collected from mass customisation of
promotional activities and targeted communications allows
organisations to identify individual consumer behaviour, purchasing
history, and link it to geodemographic data.
Some words of caution may also be appropriate here:
l Beware of information overload. The amount of data generated
can be overwhelming; customer behaviour, the ratios between
click through rates, and response rates, and customer profile
information provides large quantities of data. Every activity
produces a data set and it’s up to the practioner to decide what
is relevant to their e-marketing activities.
l Marketers now need to treat their customer’s inbox like their
letter box. Marketing messages have to compete with other
‘junk’ mail and need to stand out and be relevant to even get
opened.
l A good database is so important and it can be kept up to date
through e-marketing initiatives. But be aware of EU (European
Union) data protection laws. They contain stricter guidelines
on collating information compared to the USA, e.g. opt in and
opt outs.
6.3 KEEPING IT PERSONAL

One of the criticisms of CRM is that it can easily lead to human
redundancy and dehumanised marketing. Advanced programs and
algorithms have created immense value for low-cost airlines such as
Southwest (www.southwest.com) and easyJet (www.easyjet.com).
6 CHAPTER EIGHT: CRM
These can monitor prices available online and update them several
times a day to ensure that by the date of departure, the plane
travels at its optimum capacity.
The key to intelligent CRM is to use technology to create customer
quality that creates personal space and allows for human contact at
critical points. The AA (Automobile Association) car breakdown
service saved tens of thousands of pounds each month by
automatically sending a SMS (Short Message Service or ‘text
message’) update to stranded roadside customers, removing the
update call from the customer and shortening telephone waiting
times for others.
��
UNIT 9 E-MARKETING
7 THE INTERNET AND BEYOND
THE INTERNET AND
7 BEYOND
7.1 DIGITAL SEGMENTATION

‘Traditional’ (non-digital) television has been an awareness creation
tool for a long time, but customers have to remember the
information until the next purchasing decision occurs. Now
advertisers can use the internet, mobile technology and digital
television to create interactive marketing campaigns that enables
data capture from a wide range of sources. This data has the ability
to offer a more dynamic segmentation and targeting capability,
which can take into account customer’s needs, attitudes and
propensity to purchase. Compared to the comparatively blunt
‘traditional media’ these new vehicles can instantly respond to
customer’s desires and needs.
The Domino’s Pizza delivery service marketing campaign
simultaneously creates awareness and the impulse opportunity to
purchase using the red interactive button on their television remote.
Additionally they make it easier over time by using cookies to keep
track of previous orders that offer a ‘same as last time’ option. Sales
through online channels have reached £300,000 per month from
20,000 orders (NCC 2006).
7.2 VIRAL MARKETING

Viral marketing is a marketing technique that encourages web sites
or users to tell other people, typically friends, about a marketing
message they have encountered. A good example of viral
marketing is Google’s Gmail. Gmail looks pretty simple, sign up
and you have instant email. One of Gmail’s promises to their users
is ‘You see only relevant text ads’ meaning that Google will
deliberately send you advertisements that reflect your personal
interests that you have previously informed Google about when
you register for Gmail. Advertisements that Google will receive
money from the advertiser for delivering their message to an
individual’s Gmail account. In all possibility, you, the individual
receiving these advertisements, may even forward them onto your
friends as well. This is one example of viral marketing.
Another example of viral marketing works like this: you develop a
marketing communication message for a product or service; let’s
choose an organisation that sells flowers, such as Interflora. Our
message could be an online advertisement about a young man who
wants to impress the love of his life but doesn’t know how to. He
suddenly remembers that his would-be lover has a passion for
UNIT 9 E-MARKETING
crimson flowers and he sets out to look for some. The message
could convey the mishaps and problems he encounters trying to
get these flowers, before he arrives at Interflora. As our
advertisement has used comedy to encourage us to watch it and
only mentioned our flower company at the end of the message,
people may want to share this film with others. The act of sharing
this advertisement, where the brand name of Interflora is subtly
mentioned, represents a viral marketing compaign.
The power of viral marketing lies in just one person seeing an
online advertisement, forwarding it to ten more people, who then
forward it to ten more people. By the end of this process one
hundred people, would have seen this advertisement. If this
process is repeated only four more times then a million people
would have seen your online advertisement for flowers! Pretty
impressive, especially as other people have taken the time and
effort to promote your product.
Viral marketing is different from more traditional means of
marketing communication. Most importantly, once a viral marketing
campaign is launched it should not require any further intervention
from you. Once it has started, that’s it! Second, what you are
making viral, for example our advertisement above, must have
value to the person. No value to other web sites or users means
that nobody will forward your marketing communication on. Third,
it’s not about promoting your brand or organisation directly. Viral
marketing is about encouraging people to talk about the message
you have placed on the internet; the fact that your brand or
organisation will be mentioned is of secondary importance to the
message you are sending out on the internet.
Viral marketing is not only about placing advertisements on the
internet and allowing them to be sent to anybody. Another
example of viral marketing is to create an online magazine or
book, that is an e-zine or e-book. An organisation can then use an
e-zine or e-book to demonstrate their knowledge and skills to
internet users and other sites. For example, earlier we looked at
Interflora. Interflora may establish an e-zine to discuss various
flower related topics, in a comical way similar to a normal
magazine. So long as it’s related to flowers and people want to
share it, then viral marketing can allow other users and sites to
distribute Interflora’s e-zine.
This e-zine, aside from being fun to read, will also have links to
the organisation’s products or service offerings. For example,
Interflora may have links to flower arrangements, store locations
and so forth but don’t forget, these links are of secondary
importance People are forwarding your e-zine on because they
want to share something of value with others, not to directly
promote your product or service.
Finally, GOT Corporation, state the viral marketing supports the

following campaign objectives:
l Increasing brand exposure: sometimes all you want to do is get
noticed to start the lengthy process of getting your brand in
front of as many people as possible. Encourage forwarding in
your email and help your brand go further.
l Growing your opt-in list: get your readers to forward your
email, and as long as it has a sign-up offer, you can encourage
new signups – and even match those signups to the readers
who did the original forwarding. See the next point for more
on this.
l Designing loyalty programs: if you knew who was forwarding
your emails the most, and that those forwards were turning into
new subscribers or sales, wouldn’t you want to thank that
person and encourage them to keep it up? Viral email tracking
systems can help you acknowledge or reward those special
people who help your business to grow.
l Driving website traffic: if more people get your email, more
people will see and click on the link that takes them to your
website – where they can be exposed to product information,
cross-selling, sign-up offers, etc. Forwarding can only help you,
but, if you don’t ask, people often don’t even think to pass it
along. Remind them in every email.
l Generating revenue, directly from the email: if your email
contains a ‘buy now’ button, you can directly correlate
forwarding to revenues. The math is simple: the more your
email is forwarded, the more likely you are to increase revenues
beyond the original list’s potential.
l Generating revenue, from advertising: if people forward your
email that contains an ad, more people see or click on the ad.
You could be getting far more ad views and ad clicks than you
ever imagined, and these can translate directly into revenue. For
example, in a recent viral email marketing campaign, the
original email list generated 492 clicks, but after all the
forwarding was done, there were 1,099 clicks – over twice as
many clicks!
Source: www.campaigner.com/resources/emarketing/
viral_marketing_defined.pdf
UNIT 9 E-MARKETING
ACTIVITY 7.1
Considering your own organisations’ website and traditional
marketing communications, how could you use viral marketing
to enhance your marketing campaign objectives?
COMMENTARY
What you might have thought was how different this approach
feels to what your organisation has done before Perhaps you
felt that your organisation can’t afford to use viral marketing?
Remember viral marketing is about letting go and letting
others do the communicating for you!
If you had got beyond any hesitations you may have had then
you might have begun to think about what viral message you
want to send out? Perhaps you thought about an email asking
the reader to read a thought or a joke with a link at the
bottom to your website? Maybe you have been more
adventurous and thought about an e-zine or even an
advertisement with a web link attached? The possibilities are
only limited by our own imaginations and, of course, the need
to protect our brand image.
7.3 AND FINALLY: THE PERFECT

INTERNET CUSTOMERS?
Given the historic domination of the home telephone by teenage
girls, perhaps it is not surprising they are using the internet to
communicate with friends for hours on end. Almost all children
between twelve and fifteen with the internet at home said they
were ‘confident’ surfing the web and did so on average for eight
hours a week. But girls are more likely than boys to use the web
as a communication tool (Guardian Unlimited, 2006).
Companies targeting this group offer chat rooms, bulletin boards,
the latest gossip about showbiz celebrities, beauty advice, emailing
messaging services and, of course, products aimed at the segment
(see www.cosmogirl.com and http://www.smartgirl.org/index.html
for examples).
ACTIVITY 7.2
A Macmillan Childrens’ Books promotion for new editions of
The Princess Diaries (aimed at fourteen year old girls)
involved passers-by pointing their mobile phones at static
posters and entering an instant-win competition.
What ethical considerations do we need to address when
designing marketing communications to minors?
COMMENTARY
The UK’s Advertising Authority’s (www.ASA.org.uk) remit
extends across the entire media spectrum and ensures that all
advertising is ‘legal, decent, honest and truthful’. It has
adapted its codes to cover new advertising mediums such as
SMS. The effects of advertising on children, and the use of
children in advertisements, are particularly sensitive issues.
The CAP (Committee of Advertising Practise) Code includes
a number of requirements and special rules covering
‘pester power’, direct appeals to children, and parental
permission to buy, see the box below.
APPLICABLE CODES
47.1 For the purposes of the Code, a child is someone under 16.
The way in which children perceive and react to marketing
communications is influenced by their age, experience and the
context in which the message is delivered; marketing
communications that are acceptable for young teenagers will not
necessarily be acceptable for young children. The ASA will take
these factors into account when assessing marketing
communications
47.4 Marketing communications addressed to or targeted at
children:
a) should not actively encourage them to make a nuisance of
themselves to parents or others and should not undermine
parental authority
b) should not make a direct appeal to purchase unless the
product is one that would be likely to interest children and that
they could reasonably afford. Distance selling marketers should
take care when using youth media not to promote products that
are unsuitable for children
c) should not exaggerate what is attainable by an ordinary child
using the product being marketed
UNIT 9 E-MARKETING
d) should not actively encourage them to eat or drink at or near

bedtime, to eat frequently throughout the day or to replace
main meals with confectionery or snack foods
e) should not exploit their susceptibility to charitable appeals and
should explain the extent to which their participation will help in
any charity-linked promotions.
Source: www.asa.org.uk
��
8 CONCLUSION
CONCLUSION
8
The beginning of this unit identified seven objectives, that by the
end of this unit you will be able to:
l Evaluate the effectiveness of the planning model.
We discussed how the linear planning model was useful as an
introduction to marketing ideas, but there is a dispute to its
effectiveness in helping organisations respond in a complex
environment. However, for the purpose of structuring chapters
in a book it is a useful framework.
l Understand the differences between traditional marketing
communications and new media marketing communications.
The introduction to this unit noted how e-marketing activities
are incorporated into ‘mainstream’ communication planning,
allowing organisations to use digital media to help them
respond more quickly and effectively to customer needs than
ever before. In section 7.1 the example of Domino’s Pizza
marketing campaign identified a campaign that tried to
simultaneously create awareness and the impulse opportunity to
purchase using the red interactive button on viewers’ remote
controls.
l Evaluate the implications of the shift in power in the
relationships between buyers and sellers.
Widening the scope of e-marketing requires us to investigate
wider e-ecommerce models of e-marketing. This was illustrated
through the shift in buyer–supplier purchasing power to explain
how three e-models have evolved.
l Understand the important elements of online service delivery.
We discussed the importance of identifying elements of a
service that can be automated via an internet environment and
how personal service is still seen as critical to customers
evaluation of service quality. You also applied customer
relationship models to your own organisation.
l Appreciate the influence of risk and trust on business
relationships.
We expanded ideas from your textbook on ‘fears and phobias’
and introduced industrial buyer behaviour research that
explained how the elements of ‘trust’ and ‘risk’ are relevant in
the consumer marketplace.
l Identify how Customer Relationship Management can be
facilitated in the online environment.
We took ideas from customer relationship literature and
expanded them to four different segments and explained how
UNIT 9 E-MARKETING
important identifying these relationships within the organisation

before designing any e-marketing activities. You were asked to
identify these segments within your own organisation.
l Understand the implications to marketers of the growth in
digital media and how exploiting platform synergies can add
value to e-marketing.
Lastly we used the example of the Domino’s Pizza digital
marketing campaign to illustrate the power of a combination of
several digital channels to offer customised marketing and
instant purchasing.
��
REFERENCES
REFERENCES
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Bibb, S. and Kourdi, J. (2004) Trust Matters, Hampshire UK,
Palgrave Macmillian.
Brignall, M. (2006) ‘A million switch supplier as power bills soar’
Guardian Unlimited, London, Guardian Newspapers Ltd.
Burns, E. (2006). ‘U.K. Consumers Check Travel on Web’, ClikZ
stats. 2006.
www.campaigner.com/resources/emarketing/
viral_marketing_defined.pdf [online] accessed October 2007.
Coviello, N. E., Milley, R. and Marcolin, B. (2001), ‘Understanding
IT-enabled interactivity in contemporary marketing’, Journal of
Interactive Marketing, Vol. 15, No. 4, pp. 18–33.
Croft, M. (2006) ‘Increase Your Bandwidth’, The Marketer,
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Economist Special Report (2005) ‘Flying from the computer’
The Economist Issue 377, pp. 65–67.
Gefen, D. (2002) ‘Customer loyalty in e-commerce’. Journal of the
Association for Information Systems, Vol. 3: pp. 27–51.
Gibson, O. (2006) ‘More likely to have a mobile, use the net, listen
to radio and read papers: it’s the girl’ (online) http://technology.
guardian.co.uk/news/story/0,,1766326,00.html
Keen, P., C. Ballance, et al. (2000) Electronic Commerce
Relationships: Trust by Design, New Jersey, Prentice Hall.
Littlejohn, G. (2005) ‘A £25,000 revenge of DJ’s wife’ (online)
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McIvor, R. (2000) ‘Electronic commerce: re-engineering the buyer
supplier interface’, Business Process Management Journal, Vol. 6
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Matsuno, H. (2000) ‘Becoming an e-company: a strategy for doing
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Mercer, D., (1988) IBM: How the World’s Most Successful
Corporation is Managed, London, Kogan Page.
Milligan, B. (2000) ‘Visionaries challenge buying execs to embrace
e-commerce’, Purchasing, Vol. 128, pp. 144.
UNIT 9 E-MARKETING
Mitchell, V. W. (1995) ‘Organizational risk perception and reduction:

a literature approach’, British Journal of Management, Vol. 6,
No. 2, pp. 115–133.
Mutel, G. (2006) ‘Travel websites’ shoddy service diluting their
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oubs.open.ac.uk
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Marketing in a Complex World

Judith Margolis with Andrew Lindridge

Andrew Lindridge, Course Team Chair External assessor

External authors Production team

1.2 Keeping up to date 6

1.3 Aims and objectives 7

2 Chapter one: Introduction 9

2.1 Understanding e-marketing 9

2.2 Marketing planning 12

2.3 Complexity revisited 13

3 Chapter two: Ps, Cs or Is? 15

3.1 Is that all there is? 16

3.2 Delivering service at a distance 18

3.3 Flying from the computer 20

4 Chapter three: e-models 23

4.1 Power relationships 24

4.2 Increased bargaining power of suppliers 24

4.3 Equal bargaining power of buyers and suppliers 27

4.4 Increasing bargaining power of buyers 31

5 Chapter four: e-customers 33

5.1 Customer relationships 34

5.3 Building trust 37

5.4 One size fits all? 38

6 Chapter eight: CRM 41

6.1 Knowing customers as individuals ‘again’ 41

6.2 Making the best use of the internet 41

6.3 Keeping it personal 42

7 The internet and beyond 45

7.1 Digital segmentation 45

7.2 Viral marketing 45

7.3 And finally: the perfect internet customers? 48

1.2 KEEPING UP TO DATE

types of product, with interactive technologies fundamentally

1.3 AIMS AND OBJECTIVES

l Assess the strengths and weaknesses of the opportunities being

2.1 UNDERSTANDING E-MARKETING

‘traditional’ marketing e-marketing

Although you may have given slightly different descriptions,

l Sales: making it possible to buy and sell products,

An important factor to be considered when understanding the

Your textbook refers to the internet offering new

a transaction, it is what people perceive that will determine

2.2 MARKETING PLANNING

2. take account of their environment

3. set measurable objectives

4. set objectives that can be evaluated

These are some of the strengths of using the marketing

2.3 COMPLEXITY REVISITED

hindrance. Stacey (2002) makes a key distinction between ordinary

CHAPTER TWO: PS, CS OR

you may wish to consider the following thoughts.

First, the chapter is based on a well-established conceptual

model of the marketing mix, whether it be Ps, or Is, or even

Cs (if you can remember back to your first year studies).

The idea is the same, identify your customer’s needs,

construct the right combination of the elements of the ‘mix’

to make your marketing strategy more effective. Of course,

every marketer agrees that you have to have some structure to

marketing activities. Are there situations where the ‘mix’

Second, it is interesting to see how the concepts of mix,

integration, creativity, interaction, globalisation and resourcing

can be linked to some extent to the communication process

model outlined in section 4.1 of Unit 6.

��