My recent background has been in further and higher education management with specific expertise in the supply chain and logistics. Prior to this I held several management positions as a retail buyer for a leading fashion department store. I hold a Master's Degree in Business Administration and the Chartered Institute of Marketing professional qualifications. Currently, I am a full-time management consultant; whilst I have extensive experience in general management, I have a great interest in the learning organisation and relationship marketing. My areas of academic interest are organisational behaviour, strategic and general management (including managing change), operations management, HRM, marketing, e-commerce, supply chain management and logistics.

Identify the different levels of household penetration by the World Wide Web in each of the following continents – Asia, Africa, North America, South America and Australia. Explore the reasons for this variation.

The countries with the highest internet penetration are predominately those western economies with strong economies and high levels of affluence. Out of the top 10 countries, European countries feature six times, with Sweden having the highest penetration at 73.6% of the population having the internet. Other high-ranking countries include Hong Kong (70.7%), The United States of America (USA) (68.5%), Australia (67.2%), Canada (63.8%), Korea (63.3%), Japan (60.9%), Taiwan (60.5%), Singapore (60.2%) and New Zealand (56.8%). The United Kingdom compares well at 60%. (Appendix 2 Internet world stats, 2005)

Worldwide, these 25 countries dominate over 64% of their total population; the internet penetration in the rest of the world is just 7.8% of the remaining population.

However, percentages can be misleading; whilst they give a good indication of levels of literacy, affluence and behaviour, the percentage of penetration would not give an indication of size of possible market; the USA has the largest market at 202,888,307; the next largest being Japan at 78,050,000 and then the UK and German markets at 35,807,929 and 47,127,725 respectively.

Whilst we have seen then that internet penetration is very strong in these affluent societies, there are some interesting developments in the emerging economies.

Those countries in Asia that have traditionally had underdeveloped economies, such as China and India, have very different levels of internet penetration; despite both countries attempting to develop their economic wealth. China, with a population of 1,306,313,812 has 94 million internet users (Appendix 1); this, however, translates to only 7.2% of the population. The Chinese middle class is only 4% of the population, i.e. those who have household incomes of more than $20,000 but that translates into a market of 50 million people (Khanna, T) – a huge market for prospective investors in the country. This compares very favourably with internet penetration in India – where the population is very similar to China's - 1,080,264,388.00 but there are only 18, 481,000 internet users, a penetration of 1.71% of the population. This may be due to Government intervention in China; in a recent report “it has been found that China has nurtured and directed the economy” (Khanna, T 2005). In addition there is a difference in the GDP per capita – in China, the GDP per capita is $5,600, whereas in India it is only $3,100. However, in both countries there is a huge gap between the wealthiest and poorest people, both in India and China, over 30% of household consumption is carried out by the 10% wealthiest people. (World Fact Book, 2004)

Internet penetration in Africa shows a similar picture – where the economies are good, there is high internet penetration, such as in the United Arab Emirates (UAE), the percentage of internet users is very high – over 43%. The UAE has a very successful and open economy with a very high GDP per capita ($25,200). This contrasts dramatically with the sub-Saharan countries such as Malawi. Malawi is one of the least developed countries in the world; the internet penetration is 0.3% of the population; in South Africa where over 50% of the population is below the poverty line internet penetration) is still only 0.7%, despite there being some very wealthy people. (Appendix 1 World fact book 2004)

The other area of the world where there is little internet penetration is in South America, although there are country-wide differences relating to the economic success of individual countries. Much of the South American countries have troubled economies and large numbers of the population below the poverty line. There are some variations, for example, the internet penetration in Chile is 22%; they have a GDP per capita at $10,700, in Ecuador the internet penetration is 4.26%; here the GDP per capita is only $3,700.

Discuss the implications this has for international marketing for companies with global reach. You may choose to illustrate your answers by reference to a single company.

‘The Internet provides a more direct route to customers and provides a means of reaching huge new audiences and enabling the provision of vast amounts of information.' (Fill p. 438)

He goes on to explain the benefits of an internet presence – reduced transaction costs, opportunities for growth and innovation, improved competitive position, encouragement of cooperative behaviour, enhanced communication with customers, improved information about customers, enhanced reputation and image, enhanced measurement and evaluation of customer interaction, and improved customer service. Thus it can be seen then that the implications of increased internet penetration for firms with a global reach are enormous in terms of increased competitive position, an opportunity for increased market share and increased service that can be offered to the customer.

The internet is especially advantageous for small firms wanting to market internationally; the net is open for 24 hours per day and can be accessed from anywhere. Blythe has found that “small firms do not need to establish a presence in the country to which they hope to export, nor do they have to employ international sales staff nor worry about the exchange rates” (p. 227). Hamil and Gregory, (1997) found that smaller organisations view the internet as a tool to enable them to develop network communications, sales promotion and market intelligence activities.

Luk et al. (2002) suggest that the internet can be used to create awareness of the firm and its products, build general publicity and contribute to corporate image building programmes. In addition, they have found that the internet can play a large part in helping to market products by showing on-line catalogues and by providing detailed product information. This view has been echoed by Berthon et al. (1998); they suggest that the website is something of a mix between direct selling and advertising. They compare the web to a trade show – a large exhibition hall where potential buyers can enter at will and visit exhibitions. It is acknowledged then that the web has an important role for those companies wishing to extend their global reach, in terms of creating awareness of their offer.

In addition to the benefits that having an internet presence may bring to a firm, having an understanding of the penetration of the internet gives firms an understanding of the size of the market for on-line transactions in foreign countries. For those “click” firms (those with no other sales/distribution channel such as www. Amazon.com) this will be a very important consideration. Amazon currently operates seven country-based websites in the USA, Canada, the UK, France, Germany, China and Japan. (taken from Mintel company profile, 2005)

An understanding of the size of the market combined with other environmental factors such as the GDP and the GDP per capita will enable a firm to make a more informed decision about foreign investment.

An analysis of consumer behaviour in the firm's home market may assist firms in making assumptions about consumer behaviour in foreign markets, e.g. those countries with similar penetration to the UK may have similar characteristics to consumers in the UK. Research carried out in the UK by Mintel, has found that use of the internet tends to be biased towards the young and affluent. These findings are echoed in the USA. (Taylor, H 2002) Firms wishing to move into those markets with high penetration may find it easier to communicate to consumers of known characteristics.

In addition to being a promotional tool, the internet is also a huge distribution channel; Amazon.com was founded in 1995 when its founder, Jeff Bezos, discovered that the internet was growing at 2300% and realised that this was a tremendous medium through which to sell products to consumers. He compares e-tailing to traditional bricks and mortar retailing in this way: “real estate is the key cost for physical retailers, real estate gets more and more expensive every year and technology gets cheaper every year and it gets cheaper fast” (cited in Krishnamurthy 1998). Mintel has reported that “On-line purchasing of gifts increased significantly in 2004. Some 26% of the sample shopped on-line before Christmas 2004, compared to 12% in the previous year.”

It can be seen then that an understanding of the penetration of the internet is very important for international marketing purposes for those companies with global reach, especially in terms of creating awareness of the firm's offer. The degree of penetration of the internet also has implications in terms of market share, an indication of the affluence of the population and the firm's ability to reach the market.

Critically evaluate the role and limitations of the internet as a distribution and promotional channel. What are the operational implications of selling through the internet?

“The internet provides marketers and consumers with opportunities for much greater interaction and individualisation.” (Kotler, 2005, p. 612)

“The internet provides a wide variety of activities that are helping to transform the way we think about marketing communications but it is also impacting on business strategy, marketing channel structure, inter-organisational relationships and the configuration of the marketing communications mix. The internet impacts upon marketing in two ways, distribution and communications.' (Fill, p. 437). The ability of the internet to dramatically change the way organisations can do business is quite apparent. Chaston and Mangles (2002) have found that a feature of the internet that is of critical interest to marketers is the interactivity of the medium. They have also found that the internet provides both a promotional medium and an alternative channel through which to sell and deliver the product.

In terms of a promotional channel, Fill maintains that the “pace at which technology has advanced over the past decade has had a tremendous impact upon advertisers, media owners, marketing research, advertising and newly born agencies. The principal effect has been to fragment the audience in such a way that targets can be more easily defined and reached with pinpoint accuracy.” (p. 225) As a result of this fragmentation there is much more emphasis being placed on sales promotion at the expense of mass advertising. Many firms are developing integrated marketing communications which are based on a more “personalised, customer-orientated and technology-driven approach”. (Fill, p. 458)

As a distribution channel, many new companies have come into existence, e.g. Amazon.com, Dab.com; Expedia.com; google.com to name a few; most traditional retailers now have a presence on the internet in addition to manufacturers and direct marketers. Moreover, traditional markets such as the CD retail market have almost disappeared; traditional retailers have had to make the retail experience much more exciting as more consumers purchase their everyday goods on line. However, Mintel has found that, “It is much harder for niche high street retailers to achieve critical mass on-line. So it is unsurprising that the non-food store retailers that have started to build genuine on-line scale are larger mixed goods retailers such as John Lewis, M&S, Debenhams, Argos, and Woolworths, as well as Dixons and Comet in the electrical sector.” (2005 )

Blythe has identified four characteristics of the internet as a marketing tool:

• Communication style – the style is interactive and synchronous (happens immediately) or asynchronous (there are significant time delays between message and response, such as when you are invited to e-mail for more information and there are insufficient resources to reply immediately)
• Social presence – the feeling that communications are taking place at a personal level; this is particularly so if the communications are synchronous
• Consumer control of contact – because consumers control the time and place of contact, they are more willing to participate in the process of getting information from the machine. They may be more likely to give out information about themselves, a useful way of gathering market information
• Consumer control of content – if consumers can control the message, the communication becomes truly interactive. A consumer can skip links and move onto another page; or an e-mail address allows consumers to ask specific questions and tailor the communications even more (p. 229)

Amazon has found that “in the on-line world, businesses have the opportunity to develop very deep relationships with customers, both through accepting preferences of customers and then observing their purchase behaviour over time….if you can do that, then the customers are going to feel a deep loyalty to us, because we know them so well.” It is this change in power of customers and higher expectations that pose limitations for some on-line retailers.

Schulz and Schulz (1998) refer to this two-way conversation and the change to the customer having the power in the relationship as opposed to the retailer, as the third phase in marketing; initially the manufacturers held the power; in the 20th century it has been the retailer; they maintain that in the 21st century, there will be consumer domination in the marketplace brought about by the increasing use of technology, especially the internet.

Internet-based marketing is usually based around a website; the challenge for firms wanting to use the internet as a sales channel is to attract them to the website and then keep them coming back. The design of the website and its ease of use are very important considerations; badly designed websites will do more damage than no website at all. Ecommerce for Dummies (2001) suggests that some of the following strategies will be successful when entering into the world of e-commerce – “Hook ‘em – make sure your website works when you very first go on-line; make your business a household name; be prepared for success (i.e. be able to distribute more than you expected), calculate internet time – things change much more rapidly on the internet and get to know your neighbours – i.e. your suppliers and all those in the supply chain. It is vital that they can they all meet your customers’ demands.” ( www.dummies.com )

News travels much faster on the internet; internet users visit chat rooms, compare notes on products and services and have developed “blogs” – (internet journals or logbooks, which can do great harm to a firm which does not meet the visitor's satisfaction criteria).

Kotler has identified that the internet has given consumers increased buying power (the ability to easily compare prices and goods), a great variety and availability of goods and services, a greater amount of information and an expectation of ease with interacting, placing and receiving orders in addition to this ability to compare notes. (p. 11 ). This puts tremendous pressure on distributors both on- and off-line.

There are four stages of internet utilisation – low involvement which just has a website presence and then encourages visitors to visit the shop; medium involvement where visitors can interrogate via e-mail and register for more information. High interaction – buy on-line and we will deliver; this is where a strong two-way communication is established allowing interaction with the customer; the most involved utilisation is where all business processes are embedded in the web.

This process is very important; it is situations where the processes are not embedded in the web where opportunities for customer dissatisfaction can occur. Guido (2005) describes an incident where, although he had paid his subscription for insurance on-line, the business processes did not identify that and he was sent a final demand. Guido advises firms to do four things – think customer service; think lifestyle communications, e-mail should always be relevant, personalised and timely; build strategic lifecycle e-mail communications with customers and build value. Finally he advises that firms should build integrated communications and messaging across the customer profile; “connect your CRM communications so you have a universal view of how your customer touches your brand”.

Mintel's consumer research shows that 22% of consumers would shop more from home (including the internet) if the offer came from a retailer they could trust. This suggests to us that there is real scope for store-based retailers to use their loyal customer base to build a distance selling business (Mintel, Home Shopping 2005). It can be seen then that one of the operational tasks is how to reassure customers that their financial details are safe. Morrison and Firmstone (2000) found that those firms who had facilities that customers could trust and who deliberately managed to reduce risk will be differentiated as a superior offering.

Many websites inform customers that they are about to go into a secure site; once a purchase is made, they ask customers to repeat their password; on the Amazon site, only the last four digits of the credit card are shown and only shown when they are convinced it is the correct customer visiting their personalised page. eBay and Amazon rate their sellers for reliability and integrity and follow up any transactions for evaluation purposes.

Another operational implication is in ensuring that the expectation that the order will be fulfilled. Fill has found that due to the ease with which customers can order and pay for goods, their expectations for quick delivery are higher than normal, “unless the whole fulfilment process is compatible, the whole of the investment at the front end will be wasted” (p. 450). Fill suggests that one way to reassure customers is to confirm their order by e-mail and to e-mail the delivery arrangements. Dell telephones or e-mails customers to arrange a time when they will be at home to take delivery of their computers and will arrange for delivery to be in the evening if that is most convenient. Where distribution and warehousing has been outsourced, it is imperative that the firm can rely on the service.

It has been identified that most users of the internet are well educated and in SEG groups AB and C1 (Mintel) Those shoppers are very demanding, well informed and articulate; seekers on the internet are normally there for a reason, i.e. they “generally exhibit goal-directed behaviour“ (Fill, p. 448). If this is satisfied, people are more likely to return, if not they are likely to tell many people.

The problem described earlier, where the insurance form had not connected an on-line payment with a due date, would be resolved if the company had ensured that “the management of all networked communities is effective to ensure optimum usage and the development of suitable relationships.” (Bickerton et al.).

Since its establishment, Amazon has focused its strategy on customer satisfaction rather than on maximising profits like most pure on-line retailers. The “dot com bust” which saw numerous newly created e-commerce retailers go out of business since the second half of 2000, led many on-line companies to try to break-even as soon as possible, in an attempt to prove that they had a viable business plan. Amazon has consistently run a customer-centric business model over the years, investing heavily in storage and distribution, as well as improving the customer experience by introducing innovative features such as the 1-click ordering system, customer product reviews and operating a “no-questions asked” 30-day return policy. The group's investment in customer satisfaction seems to have paid off and despite suffering heavy losses in its first seven years of operation it managed to break even in 2002, while it tripled its profit margins in 2003.' (Mintel, 2005).

The internet has brought about dramatic changes to the way business is carried out; moreover penetration is increasing rapidly, especially in the emerging economies. As a promotional tool, marketers have had to consider different tactics in attracting and maintaining visitors and thereby increasing their ability to meet their customers' needs. The internet offers a cheaper channel for the distribution of goods, particularly those that are easy to transport, have little purchase involvement or risk, or services such as travel where there are price benefits to the consumer. However, the internet has shifted the power from the supplier to the buyer, which will have an increasingly far-reaching impact for traditional suppliers. There have been several casualties since the inception of the internet; in order to succeed firms have had to consider several operational tasks, namely fraud security, delivery reliability and speed, and stringent processes that ensure connectivity of all communications and transactions with the customers.

References
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Bezos, J A 1998 A Bookstore by any other name , cited in Krishnamurthy, 2001E-commerce management accessed 08.08.05

Berthon, P., Lane, N., Pitt, L. & Watson, R.T., (1998), "The World Wide Web as an Industrial Marketing Communication Tool", Journal of Marketing Management, 14, pp 691-704

Blythe, J. 2000 Marketing Communications . Prentice Hall

Brondmo, H, The Web's Third Wave July 2005 taken from www.clickz.com , accessed 07.08.05

Dye , R The Buzz on Buzz , Harvard Business Review , January 29, 2001 ,

Fill, C 2002 Marketing Communications; Contexts, Strategies and Applications 3 rd Edition Prentice Hall

Hamill, J. & Gregory, K. 1997, Internet marketing in the internationalisation of UK SME , Journal of Marketing Management , 13, pp9-28

Khanna, T. 2005 China and India: The race to growth . McKinsey Quarterley

Kotler, P. Marketing Management 11 th Edition 2003 Prentice Hall

Kotler P. and Lane, K. Marketing Management 12 th Edition 2005 Prentice Hall

Krishnamurthy, S Amazon.com – a business history 2001 E-commerce management: text and cases accessed 08.08.05

Luk, S, Chan, W. & Li, E. 2002 The Content of Internet Advertisements and Its Impact on Awareness and Selling Performance, Journal of Marketing Management , Vol. 18, pp 693-719

Schulz, D. and Schulz, H 1998 Transitioning marketing communication into the 21 st century Journal of Marketing Communications cited in Blythe, pp237

Taylor, H The Harris Poll, 2002 taken from www.harrisinteractive.com accessed 06.08.05

Mintel Report a Home Shopping UK March 2005-08-11 Accessed 09.08.05

MIntel Report b Christmas Shopping Habits UK February 2005 Accessed 09.08.05

MIntel Report c Computer Retailing November 2003 Accessed 09.08.05