Whether or Not the On-Line Marketing Will Eventually Replace the Traditional Marketing Approach in the Future - Research Paper Example

Marketing Management - On-line Marketing - Table of Contents I. Introduction ................................................................................... 3 II. Product ………………………………………………………………. 4 a. Physical Product vs. Non-Physical Products ……… 4 III. Place ………………………………………………………………… 5 a. Traditional Marketplace vs. On-line Marketplace …. 5 b. Product Distribution Channels: Retailing vs. e-tailing …………………………………… 5 c. Product Regulation in Traditional Marketplace vs. Internet Marketplace / e-marketplace ……………….. 7 IV. Price …………………………………………………………………. 8 V. Promotion …………………………………………………………… 9 a. Traditional Advertisements vs. On-line Advertisements ………………………………… 9 b. Limited Traditional Marketing Information vs. Unlimited On-line Marketing Information ……………. 10 VI. Conclusion ..................................................................................... 11 References ............................................................................................... 14 - 16 Introduction Globalization has lead to a tight competition among the existing companies today. In order for a company to maintain its competitiveness in both domestic and global market, marketers should be able to effectively reach out to its target customers and eventually satisfy their needs in terms of the product quality, place or distribution channel, promotion, and pricing. The continuous development of information and communication technology over the years has a great impact on the marketing approach since the late 1990s. Even though 32% of the American adults do not use the Internet (Fox, 2005), the estimated population of the Internet users has grown up to 6.5 billion all over the world (Internet World Stats, 2007). The significant increase in the number of Internet users has encouraged a lot of marketers to extend their product and services advertisement on the Internet via business-to-consumer (B2C) or business-to-business (B2B) approach. To maximize the benefit of implementing a marketing strategy and eventually meet the demands of the target consumers, marketers should not stick with a single marketing approach. Today, a lot of marketers have been relying on the use of advertisements on television, radio, newspapers, magazines, and billboards. Aside from the traditional marketing approach, the use of e-tailers such as Amazon.com, American Greetings, Barnes & Noble, eBay, eToys, and Toys”R”Us have also increased over the years. For the purpose of this study, the researcher will utilize the traditional framework of 4P’s in discussing the ways in which the on-line marketing environment has influenced the changes in the traditional marketing approach. Based on the discussion, the researcher will answer the question as to whether or not the on-line marketing will eventually replace the traditional marketing approach in the future. Product Physical Product vs. Non-Physical Products According to Philip Kotler, a product is “anything that can satisfy a need or want.” (Kotler, 2000: 11) It can be a person, place, idea, physical object or service. In a traditional market place, tangible products can be physically observed and tested by the prospective consumers whereas e-marketing depends highly on the use of images and marketing text when selling a product. The on-line marketing environment changed the traditional market in the sense that the opportunity to physically examine a product by the consumers is not provided in an on-line environment. The limitation behind the use of an on-line market environment is that physical interaction between the prospective consumers and the products remains a major concern. Even though it exists, personal items such as dresses, jeans, or shoes may not be suitable in an on-line market environment for the reasons that consumers would want to fit the clothes before buying. On the contrary, non-personal and less expensive and standard items such as books, golf balls, drugs, airline tickets, or movies in DVD could be successfully sold over the Internet. (Kimiloglu) Selling of perfumes or any expensive items like automobiles and jewelries are not effectively sold on a virtual market. Consumers who wishes to buy perfumes would go to a traditional store where they could test the scent of each product. The same reason applies when buying luxury items. Prospective buyers would prefer to see the actual product before they purchase the item with a huge amount of money. The only similar thing between a traditional and an on-line market environment is ‘branding.’ Consumers who purchase goods on-line are very much aware with brandnames as a way of identitying the quality of consumer goods. Place Traditional Marketplace vs. On-line Marketplace In a traditional marketplace, intermediaries like retailers, distributors, wholesalers, agents, and brokers are needed to bridge the gap between the manufacturers or sellers and the consumers. In the case of on-line marketing, the on-line market place itself acts as a channel intermediary to bring the products closer to the consumers via virtual exchange process. Considering the differences between the two market environments, the online marketplace has removed the intermediaries (retailers, distributors, or wholesalers) which is required in a traditional marketplace to get the products reach the target domestic and international consumers. (Gallaugher, 1999) Product Distribution Channels: Retailing vs. e-tailing In a traditional retailing, products are usually purchased by bulk from the manufacturers or supplies which will be delivered in a central warehouse. Eventually, the products will be allocated in different geographic warehouses close to the retail stores. Upon running out of stock, the store manager would place an order from a close distributor. Since retail store outlets are open during the regular office hours, the business opportunity is very much limited. For example, the marketing manager of Nike athletic shoes and apparel could decide on limiting it market distribution exclusively to six different kind stores such as: (1) specialized sports stores; (2) general sporting goods stores; (3) department stores; (4) mass-merchandise stores; (5) Nike retail stores; and (6) factory outlet stores. Consumers who are interested in purchasing Nike shoes and apparels should go to either one of these stores to have a feel of the product and eventually purchase the item. In the process, sales personnel at the store could build a good relationship and rapport with the customers which eventuallyincreases the level of customer satisfaction. e-tailing changes the limitation of the traditional product distribution channel by making the products available to potential consumers 24 hours a day and 365 days a year from the comfort of their own home. (Regan, 2007) Upon ordering a product from the Web, e-tailers would arrange the necessary electronic documents with the warehouse and eventually delivers the purchased item to customers’ residence by the company itself or via Federal Express, United Parcel Service, or the United States Postal Service. The practice of doing on-line marketing approach minimizes the unnecessary documentations which could prolong the delivery of ordered items to the consumers. Aside from the convenience e-tailing offers, an on-line marketing environment cuts down the extra operational cost associated with extra manpower and the need to establish numerous store outlets worldwide. (Kimiloglu, 2004) The marketing strategy used by Armenager.com, the e-tailer to relied much on the product delivery coming from the manufacturers and/or wholesalers in order to avoid holding on large amount of inventories and spending on the high cost of maintaining a warehouse. The problem with this strategy is the fact that customer service will not be able to solve the delivery problems at once in case the ordered product is not available either from the manufacturer or wholesaler. (Kieffer, 2006) To avoid having such problem, e-tailers like Amazon chooses to invest millions of dollars in maintaining several large warehouses and the establishment of a reliable market distribution system to enhance the delivery system. (Thompson, 2007) Basically, similar to promotion, product distribution has also been shifted into a more personal approach unless the product can be delivered electronically. (Kimiloglu, 2004) Eventually, as the on-line market environment grows and eliminate some of the traditional distribution channels, eventually new ones such as the peer-to-peer (P2P) will be developed. (Twist, 2005) Product Regulation in Traditional Marketplace vs. Internet Marketplace / e-marketplace Product regulation on food and drugs can be easily monitored by the US Food and Drug Administration (FDA) within the domestic marketplace. The problem with the on-line market environment is the fact that it is free from regulation. (Scaria, 2003) For this reason, it is possible that the quality of products being sold on-line is below the quality standard acceptable in the market. Price The traditional product and service distribution channels include the use of warehouses, transportation vehicles, and several trade or intermediary channels like distributors, retailers, and wholesalers. (Kotler, 2000: 15) In general, these intermediaries contributes a lot on increasing the sales and revenue of the company by making the products easily accessible to the target market segments. However, the longer the chain of intermediaries are, the higher the prices of goods by the time the product reaches the consumers due to the fact that each intermediary would add up a portion to the producer’s price. For instance, P&G sells product A at US$ 5. Assuming that each intermediary would add a mark up of 5% each. By the time P&G delivers product A to intermediary A, the price of product A would become US$.5.25 (US$5 x 5% + US$5). In case product A will have to pass through intermediary A and B, the price of product A would have become US$5.50 ([US$5 x 5% + US$5] 2) by the time the product is sold to the consumers by intermediary B. Online market environment makes price issue sensitive to consumers (Brynjolfsson and Smith, 2000; McCune, 1999) as compared to a traditional market environment. Pricing in an on-line environment allows the consumers to make a quick price comparison among the on-line retailers. Since price sensitivity is higher in on-line environment, reduction in price of comparable goods is necessary. The good thing with e-tailing is the fact that it eliminates unnecessary intermediaries like retailers, distributors, wholesalers, sales agents, and brokers throughout the chain of product distribution. (Mathwick, Rigdon and Malhotra, 2001) Cutting out the extra expenses related to intermediaries allows the e-tailers to sell the products at a much competitive price. The only disadvantage of doing an on-line market business is the fact that the that it is not easy to set a competitive price considering the tight competition in the on-line market environments and the high cost of conducting a personal delivery on each ordered product. (Kimiloglu, 2004) However, the positive impact of intermediaries on the consumers such as the bonding that middlemen could develop suffers. (Kimiloglu, 2004) Promotion Traditional Advertisements vs. On-line Advertisements Advertisements are referring to a “paid-message in a form of media” with the purpose of attracting the attention of the target consumers. (Faber, Lee and Nan, 2004) Aiming to reach for the target audience, the traditional advertisers utilizes newspapers, magazines, radio, television, mail, telephone, billboards, posters, fliers, CDs, and audiotapes as a communication channels. (Kotler, 2000: 15) On the other hand, the use of on-line advertisements such as the use on-line banners (usually appears at the top end of a web page), e-mail, search engine advertisements such as Google.com or Yahoo.com, the interactive on-page media ads, streaming audio and video among others has been widely used to catch the attention of online viewers. (Bruner, 2004) In fact, it is considered as on of the fastest growing advertisers. (Faber, 2002) According to the Interactive Advertising Bureau (IAB) and PricewaterhouseCoopers (PWC), within a short span of a decade, the on-line advertisements in U.S. alone has totalled $12 billion with 3.1 billion revenue as of the third quarter of 2005. (Leyden, 2005) The use of the online advertisement alone grew at the rate of 31.5% since 2003 to 2004 whereas the growth in TV broadcasting increases at 10%. (Bruner, 2004) In 2005, the NBC TV advertising alone has reported a $900 million decrease in the sales of TV ads. The shift from the traditional advertising medium to on-line advertisement resulted to a change from mass advertisement to a more personal advertisement. For this reason, advertisers could take advantage of the interpersonal communication between the use of the Internet advertisements and the target consumers (Arndt and May, 1981) since the use of Internet advertisements provides a two-way communication between the advertisers and the viewers (McMillan and Hwang, 2002). Having a product placed on the Internet does not necessarily mean that the product is being advertised. Since some e-tailers display the photo and brandname of the product they sell on-line, some people fail to distinguish between advertising and having a brandname and product promoted by the on-line seller. (Faber, Lee and Nan, 2004) Limited Traditional Marketing Information vs. Unlimited On-line Marketing Information The high cost of television, radio and newspaper advertisements limits the amount of information being delivered to the audience. Since the traditional marketing media target a mass audience, the information conveyed has to be generalized. On the other hand, information delivered using the Internet advertisements are more flexible (Elofson and Robinson, 1988) since it can be written in a more personal manner. Despite the differences between the two advertising medium, the study conducted by Gallagher, Foster, and Parsons (2001) in terms of the consumers’ response on the same advertisement presented in a traditional print ads and in Web format does not provide any significant difference in terms of having the viewers recall the message conveyed in the advertisement. Conclusion Due to the limitations offered by the on-line marketing environment to the consumers, I don’t think that it would totally replace the traditional marketing approach. It is possible that the continuous promotion of the on-line market environment would eventually increase the value of the non-physical product features. However, there will always be unresolved issues with the on-line market environment with regards to product regulation as well as information and personal safety. Since the Internet has been designed to accomodate a free-flow of information (Paul, 1996), the legal procedures developed for the use of on-line transaction is not complete or has remain unclear for many years (Wijnholds and Little, 2001). Another consequences of having the Internet unregulated, problems related to the invasion of privacy will always be present. (Wang, Lee and Wang, 1998) With regards to product issue, since consumers are deprived from physically examining a product, not all items such as clothing or luxury products like cars and jewelries could be effectively saleable in an on-line market environment. Aside from the reason of physically examining the quality of a product, a large portion of the consumers would still prefer to experience the traditional shopping in malls and other retail store where they could socialize more than using a virtual market place. When it comes to distribution, the on-line market environment has shifted more into a personal approach rather than a commercial way. Since the traditional intermediaries such as distributors, retailers, and wholesalers are being ommitted in the on-line market environment, a lot of overhead costs such as salary for employees and sales agents as well as the brokers’ fee are deducted from the selling price of the product. The only problem with it is the high cost of conducting a personal delivery unless the product or services ordered can be delivered to the clients. Pricing of products in a traditional market environment is much easier than pricing a product to be sold on an on-line environment due to the fact that the prospective consumers could easily check the price of homogenous products in other websites. Since there is a tight competition in the on-line market environment, pricing of goods should always be competitive. Even though there is a rumor spreading that the trend of revenue among the Big Four broadcast TV networks would continuously decline over the years due to the possibility that most of the 30-second TV commercials would eventually be replaced by a 10-second Internet advertisement via MPEG or on-line movie (Leyden, 2005), I do not agree that this would literally replace television advertisement with the Internet advertisement. In fact Antony Noto, a media entertainment and Internet analyst at Goldman Sachs stated that “the advertisers will always be wherever the audience is.” (Wong, 2004) Since people will continuously consider watching TV as a form of entertainment, advertisers would continuously remain using TV advertisement. Based on the basic law of supply and demand, it is possible that the shift from TV ads to Internet ads is due to the high cost of television advertisements. Eventually, when the television ads becomes less saturated, the cost of TV advertisement would eventually decrease in order to create more demand. The case of the Internet advertisement is different. Since the available resources needed in the creation of an Internet-based advertisement is unlimited due to the fact that anyone with an IT knowledge could develop their own website, even if the demand continuously increases, competition alone would prevent the cost of Internet advertisement from increasing too high. In fact, some companies uses the Internet only as part of a sponsorship, a non-paid promotional communication, or a brand placement. (Faber, 2002) Considering the pros and cons of the on-line market environment, it is important for the marketers to utilize the benefits offered by the World Wide Web. Since there is a limitation in both the traditional and on-line market environment, I consider integrating both as part of the marketing communication strategy to be the best solution in enabling a company grab most of its target audiences and potential consumers. *** End *** References: Arndt, Johan and Frederick E. May. "The Hypothesis of a Dominance Hierarchy of Information Sources." Journal of the Academy of Marketing Science (1981): 9: 337 - 351. Bruner, Rick E. "The Decade in Online Advertising 1994 - 2004." Double Click (2004): 1 - 21. Brynjolfsson, Eric and Michael Smith. "Frictionless Commerce? A Comparison of Internet and Conventional Retailers." Management Science (2000). 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