Internet and Its Impact on Traditional Retail - Literature review Example

Literature Review - The Internet and Its Impact on Traditional Retail - Total Number of Words:2,151 Table of Contents I. Introduction ................................................................................... 3 II. Product ………………………………………………………………. 4 a. Physical Product vs. Non-Physical Products ……… 4 III. Place ………………………………………………………………… 5 a. Product Distribution Channels: Retailing vs. e-tailing …………………………………… 5 b. Product Regulation in Traditional Marketplace vs. Internet Marketplace / e-marketplace ……………….. 7 IV. Price …………………………………………………………………. 7 V. Promotion …………………………………………………………… 8 a. Traditional Advertisements vs. On-line Advertisements ………………………………… 8 b. Limited Traditional Marketing Information vs. Unlimited On-line Marketing Information ……………. 10 VI. SMART Objectives ………………………………………………….. 11 VII. Conclusion ..................................................................................... 11 References ............................................................................................... 12 - 14 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 on ICT has a great impact on the marketing approach since the late 1990s. Even though 32% of the American adults do not use the Internet1, the estimated population of the Internet users has grown up to 6.5 billion all over the world2. The huge number of Internet users has encouraged marketers to extend their product and service advertisements on the Internet via business-to-consumer (B2C) or business-to-business (B2B) approach. Today, marketers are relying on the use of e-tailers aside from the traditional advertisements on television, radio, newspapers, magazines, and billboards. For this study, the researcher will conduct a literature review to examine the impact of the Internet on the traditional retail by utilizing the theoretical framework of marketing mix in terms of discussing the ways in which the on-line marketing environment has influenced the changes in the traditional marketing approach. Eventually, the researcher will answer the question as to whether or not the on-line marketing will eventually replace the traditional marketing retail approach. Product Physical Product vs. Non-Physical Products 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. 3 On-line marketing environment changed the traditional market in a way that physical examination of goods is not provided in an on-line environment. Physical interaction between the prospective consumers and the products becomes a limitation for using the Internet. Selling perfumes, expensive items like automobiles and jewelries, and personal items such as dresses, jeans, or shoes may not be suitable in an on-line market environment since consumers do not have the option to fit the clothes before buying. 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. On the contrary, non-personal and less expensive and standard items such as books, golf balls, drugs, airline tickets, or movies in DVD are successfully sold over the Internet.4 Place Product Distribution Channels: Retailing vs. e-tailing The online marketplace removes intermediaries like retailers normally required in a traditional marketplace.5 In a traditional retailing, products are usually purchased by bulk from the manufacturers or supplies which will be delivered in a central warehouse. Eventually, 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. 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.6 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 unnecessary documentations which could prolong the delivery of ordered items. 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.7 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 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.8 To avoid having such problem, e-tailers like Amazon invest millions of dollars in maintaining several large warehouses and establish reliable market distribution system to enhance its delivery system.9 Similar to promotion, product distribution has also been shifted into a more personal approach unless the product can be delivered electronically.10 As the on-line market environment grows and eliminate some of the traditional distribution channels, the peer-to-peer (P2P) is more likely to develop.11 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.12 Therefore, it is possible for the quality of online products to suffer. Price Traditional product and service distribution channels include investment on warehouses, transportation vehicles, and several trade or intermediary channels like distributors, retailers, and wholesalers.13 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. Assuming that P&G sells product A at £5. If a retailer would add a mark up of 5%. By the time P&G delivers product A to retailer A, the price of product A would become £5.25 (£5 x 5% + £5). In case product A will have to pass through retailer A and B, the price of product A would have become £5.50 ([£5 x 5% + £5] 2) by the time the product is sold to retailer B’s consumers. Online market environment makes price issue sensitive to consumers14 since 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 that it eliminates unnecessary intermediaries throughout the chain of product distribution.15 Cutting out the extra expenses from intermediaries allows e-tailers to sell the products at a much competitive price. The only disadvantage of doing an on-line market business is 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.16 Promotion Traditional Advertisements vs. On-line Advertisements Advertisements or “paid-message in a form of media” is utilized to attract the attention of the target consumers.17 To reach for the target audience, traditional advertisers use newspapers, magazines, radio, television, mail, telephone, billboards, posters, fliers, CDs, and audiotapes as a communication channels.18 With the use of on-line advertisements on on-line banners, e-mail, search engine advertisements like 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.19 In fact, on-line advertisement is one of the fastest growing global advertisers.20 The Interactive Advertising Bureau (IAB) and PricewaterhouseCoopers (PWC) reported that on-line advertisements in U.S. alone has totalled $12 billion with $3.1 billion revenue as of the third quarter of 2005.21 The use of the online advertisement alone grew at the rate of 31.5% between 2003 to 2004 whereas the growth in TV broadcasting increases at 10%.22 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. Therefore, advertisers could take advantage of the interpersonal communication between the use of the Internet advertisements and the target consumers23 since the Internet provides a two-way communication between the advertisers and the viewers.24 Limited Traditional Marketing Information vs. Unlimited On-line Marketing Information The high cost of television, radio and newspaper advertisements limits the amount of information delivered to the audience. Since the traditional marketing media target a mass audience, the information conveyed has to be generalized. Information delivered using the Internet advertisements is more flexible25 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.26 SMART Objectives The literature review is specific and relevant in terms of analyzing the impact of the use of Internet on the traditional retail. The study was completed and achieved within three days since the researcher conducted the literature review. As a result, the researcher was able to submit the paper within the time-bound given by the professor. Conclusion On-line advertising can be effecting in promoting products and services with the target consumers. Due to the limitations offered by the on-line marketing environment to the consumers, it is not possible for online trading to replace the traditional retailing since there will always be unresolved issues with regards to product regulation as well as information and personal safety. Since the Internet has been designed to accomodate a free-flow of information27, the legal procedures developed for using on-line transaction has remain unclear for many years28. Therefore, problems related to the invasion of privacy will always be present.29 *** 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). Elofson, Greg and William N. Robinson. "Creating a Custom Mass Production Channel on the Internet." Communications of the ACM (1998): 41(3): 56 - 62. Faber, Ronald J. "From the Editor: A Glance Backward and the View Ahead." Journal of Advertising (2002): 31(4): 1 - 3. Faber, Ronald J. "From the Editor: A Glance Backward and the View Ahead." Journal of Advertising (2002): 31(4): 1 - 3. Fox, Susannah. "There are Clear Differences among those with Broadband Connections, Dial-up Connections, and No Connections at all to the Internet." [Online] 5 October 2005. Pew Internet & American Life Project. 8 February 2008. . Gallagher, Katherine, Dale K. Foster and Jeffrey Parsons. "The Medium is not the Message: Advertising Effectiveness and Content Evaluation in Print and on the Web." Journal of Advertising Research (2001): 41(4): 57 - 70. Gallaugher, John. "Challenging the New Conventional Wisdom of Net Commerce Strategies." Communication of the ACM (1999): 42(7): 27. "Internet World Stats." 2007. Internet Usage Statistics - The Big Picture. [Online] 8 February 2008. . Kieffer, Danielle. "Showroom: Commentaries." [Online] 2 October 2006. Armenager. 8 February 2008. . Kimiloglu, Hande. "The "E-Literature": A Framework for Understanding the Accumulated Knowledge about Internet Marketing." Academy of Marketing Science Review (2004): 2004(6): 1 - 36. Kotler, Philip. Marketing Management - International Edition - The Millennium Edition. Upper Saddle River, New Jersey: Prentice Hall International, Inc., 2000. Leyden, Joel. "Internet Advertising SEO Soards to 12 Billion for 2005." [Online] 2005. 8 February 2008. . Mathwick, Charla, Edward Rigdon and Naresh Malhotra. "Eperiential value: Conceptualization, Measurement and Application in the Catalog and Internet Shopping Environment." Journal of Retailing (2001): 77(1): 39. McCune, Jenny C. "Boon or Burden?" Management Review (1999): 53. McMillan, Sally J. and Jang-Sun Hwang. "Measures of Perceived Interactivity: An Exploration of the Role of Direction of Communication, User Control, and Time in Shaping Perceptions of Interactivity." Journal of Advertising (2002): 31(3), 29 - 42. Paul, Pallab. "Marketing on the Internet." Journal of Consumer Marketing (1996): 13(4): 27 - 40. Regan, Keith. "WPP Enlarges Online Ad Footprint with 24/7 Buy." [Online] 17 May 2007. eCommerce Times. 8 February 2008. . Scaria, V. "Cyber-Pharmacies and Emerging Concerns on Marketing Drugs Online." Online Journal Health Applied Science (2003): 2(2): 1 - 3. Thompson, Bill. "Forward the Online Revolution." [Online] 24 November 2006. BBC News. 8 February 2008. . Twist, Jo. "Peer-to-Peer Nets Here to Stay." [Online] 21 January 2005. BBC News. 8 February 2008. . Wang, Huaiqing, Matthew K.O. Lee and Chen Wang. "Consumer Privacy Concerns About Internet Marketing." Communications of the ACM (1998): 41(3): 63 - 70. Wijnholds, Heiko de B. and Michael W. Little. "Regulatory Issues for Global E-Tailers: Marketing Implications." 2001. Academy of Marketing Science Review. 8 February 2008. . Read More