12 R. Varadarajan, M.S. Yadav / Journal of Interactive Marketing 23 (2009) 11–22Marketing strategy in an Internet-enabled environment: to compete is an issue central to corporate strategy). At thean organizing framework business unit level, “how to compete” is generally used to refer to how a business should deploy resources at its disposal inInteractive marketing order to achieve and maintain defensible competitive positional advantages (e.g., cost and/or differentiation advantage) in the A cursory examination of the literature suggests that the marketplace. At the marketing function level, “how to compete”terms interactive marketing, Internet marketing, e-commerce, encompasses a businesss actions and deployment of marketingdigital marketing, and online marketing are often used resources at its disposal to facilitate the achievement andinterchangeably. Similarly, in reference to marketing strategy, maintenance of competitive positional advantages in the mar-the terms interactive marketing strategy, Internet marketing ketplace. A businesss marketing strategy related actions andstrategy, e-commerce strategy, digital marketing strategy, and resource deployments manifest as competitive marketingonline marketing strategy are used interchangeably. While the behavior in the marketplace. Marketing resources includeterms e-commerce and e-commerce strategy are generally used asset stocks that reside in the marketing function (e.g.,in a more restrictive sense in reference to marketing, the terms market-based relational assets such as brand equity, channele-business, e-business model and e-business strategy are used equity and customer equity) and financial resources invested inin a broader context encompassing multiple functional areas in or expended toward various marketing activities such asan organization. The term e-business model is used to refer to advertising, consumer and trade sales promotion, distribution,fundamentally new ways of competing by leveraging the poten- personal selling, and product development.tial of the Internet. Although terms such as e-commerce and The multiplicity of marketing strategy decisions that anInternet marketing are deeply entrenched in the business established business is faced with when competing in anlexicon, the phenomenon that is actually being referred to is Internet-enabled environment occupy different positions alongInternet-enabled marketing. In fact, in a growing number of a continuum. One end of the continuum represents decisionsorganizations worldwide, much if not all of marketing seems to concerning augmentation of a businesss current marketingbe evolving to Internet-enabled marketing. strategy by leveraging the potential of the Internet. The other For purposes of this paper, building on the American Market- end represents decisions that entail radical departures from theing Associations definition of marketing (Marketing News current marketing strategy (i.e., competing in fundamentally2007), we define interactive marketing as follows: “Interactive new and different ways by leveraging the potential of themarketing refers to the use of an information infrastructure Internet). Illustrative of marketing strategy decisions that entailnetwork and devices connected to the network for mediating augmentation of the current strategy, to varying degrees, byinteractions between an organization and its customers in the leveraging of the potential of the Internet are the following:context of activities and processes employed by the organizationfor creating, communicating, and delivering products that offer 1. Relative emphasis on traditional channels versus the Internetvalue to customers in an exchange.” (For an alternative defi- for providing product-related information to customers,nition of interactive marketing, see Shankar and Malthouse communicating with customers, promoting to customers,2006). A few clarifications regarding the proposed definition and transacting with customers.may be useful. First, since the growth of the Internet has been 2. Relative emphasis on marketing direct to customers via theinstrumental in peer-to-peer marketing becoming increasingly Internet versus through intermediaries (traditional, electro-pervasive, we use the term “organization” to also refer to nic, and/or hybrid intermediaries).individuals. Second, the definition does not limit the scope of 3. Leveraging the potential of the Internet to innovate, custo-interactive marketing to any specific technological platform that mize and personalize in the realms of product, price, pro-is used for mediating interactions. Third, the term “interactions” motion, distribution and customer relationship managementis used broadly to encompass all communication and transac- (e.g., product innovations, product customization, and pro-tion-related contacts between an organization and its customers duct personalization).(including both end customers and intermediate customers, andexchange partners such as “clients” in certain professional An organizing frameworkservice contexts). A businesss marketing strategy decisions are influenced byMarketing strategy in an Internet-enabled environment a multiplicity of factors. Fig. 1 presents a conceptual framework delineating the following five broad sets of factors as principal Two issues are central to competitive business strategy drivers a businesss marketing strategy in an Internet-enabled(strategy at the business unit level encompassing and integrating market environment (see Varadarajan and Yadav 2002):strategy across multiple organizational functions such as mar-keting, manufacturing, and finance), and competitive marketing • Firm characteristics (Link 2 → 1)strategy (strategy at the marketing function level): (1) a busi- • Industry structure characteristics (Link 3 → 1)nesss choice of “where to compete” (i.e., product-markets in • Product characteristics (Link 4 → 1)which to compete), and (2) “how to compete in the chosen • Buyer characteristics (Link 5 → 1)product-markets.” (A firms choice of business arenas in which • Macro environment characteristics (Link 6 → 1).
R. Varadarajan, M.S. Yadav / Journal of Interactive Marketing 23 (2009) 11–22 13Fig. 1. Marketing strategy in an Internet-enabled market environment. Characteristics highlighted in Boxes 2, 3, 4, 5, and 6 are representative of those that assumeadded relevance for competing in an Internet-enabled market environment. Aspects of marketing strategy highlighted in Box 1 are illustrative of new ways ofcompeting that are available to firms as a result of the emergence of the Internet and Internet-related infrastrucutre. See text for clarification regarding linkages notdepicted in the figure. Marketplace performance and financial performance are shown in the figure. Also not shown in the figure are linkagesshown as the outcomes of marketing strategy. As shown in Box denoting feedback effects of marketplace performance and6 of Fig. 1, of specific interest in the broader context of the financial performance on marketing strategy. In the next section,macro environment are those characteristics pertaining to the we review, synthesize and critique prior research on marketingInternet and Internet-related technological infrastructure. Simi- strategy in an Internet-enabled environment in the context of thelarly, the characteristics highlighted in Boxes 2 to 5 are repre- proposed framework.sentative of those that assume added relevance in the context of Table 1 presents two types of representative research oncompeting in an Internet-enabled environment (e.g., informa- marketing strategy in an Internet-enabled environment exploredtion resources and information processing skills in Box 2; in the past issues of the Journal of Interactive Marketing thatmarket thinness in Box 3; information products in digital versus lend support for the face validity of the proposed framework: (1)non-digital form in Box 4; better informed buyers due to lower research exploring broad issues (within boxes), and (2) researchinformation search costs in Box 5). Viewed along a continuum, exploring relationships (linkages between boxes) delineated inthe marketing strategy related issues highlighted in Box 1 are Fig. 1. Although the studies enumerated in Table 1 do not coverrepresentative of issues pertinent to competing in an Internet- all of the boxes and linkages delineated in Fig. 1 they never-enabled environment ranging from augmentation of a busi- theless provide support for the face validity of the proposednesss present marketing strategy by leveraging the potential of framework. The less studied boxes and linkages are suggestivethe Internet to competing in fundamentally new ways by of future research opportunities. A more extensive list of studiesleveraging the potential of the Internet. is presented in Table 2. However, given that a number of these In the interest of simplicity, only direct linkages are shown in studies span multiple boxes and linkages delineated in Fig. 1, weFig. 1. For instance, although changes in the technological refrain from classifying them along lines similar to Table 1.component of the macro environment (the market environment Using the organizing framework presented in Fig. 1 as a lensbecoming increasingly Internet-enabled) can impact on market- to review and synthesize research with a marketing strategying strategy, both directly (i.e., link 6 → 1) as well as indirectly focus published in the first ten volumes of the Journal of(e.g., link 6 → 4 → 1 and link 6 → 5 → 1), the latter are not Interactive Marketing, certain areas of emphases become evi-shown in Fig. 1. Similarly, plausible linkages in the opposite dent. In general, we find evidence of considerable research ondirection (e.g., link 1 → 2 denoting the effect of a businesss buyer characteristics (Box 5), and the link between marketingmarketing strategy on resources such as brand equity and strategy and marketplace performance (link 1 → 7). Firm char-customer equity that it might accumulate over time) are not acteristics (Box 2) and the increasing importance of information
14 R. Varadarajan, M.S. Yadav / Journal of Interactive Marketing 23 (2009) 11–22Table 1Representative research on marketing strategy in an Internet-enabled market environment: Broad issues (within box) and relationships (linkages) illustrated in Fig. 1and explored in the Journal of Interactive MarketingBox 1: Marketing strategyOnline price and price dispersion between multichannel retailers and pure Internet retailers (Xing, Yang, and Tang 2006)Box 5: Buyer characteristicsConsumers Internet experience and preference for online versus online channel across stages of the buying process (Frambach, Roest, and Krishnan 2007)Box 6: Internet and Internet-related infrastructureWord-of-mouth communication within online communities (Brown, Broderick, and Lee 2007)Link 2 → 1: Firm characteristics → Marketing strategy aAdaptive learning about evolving needs and preferences of individual customers → proactive customer relationship management (next product to market, to which customer, when to contact, how to contact) (Sun, Li, and Zhou 2006)Profiling of e-customer clusters → interactive personalization (mass customization, one-to-one personalization, co-creation) (Miceli, Ricotta, and Costabile 2007)Use of the Internet as a platform for customer engagement in product innovation (Sawhney, Verona, and Prandelli 2005)Link 4 → 1: Product characteristics → Marketing strategyOptimal product line strategy and optimal pricing for an information product transitioning from offline in analog form to online in digital form (Venkatesh and Chatterjee 2006)Link 1 → 7: Marketing strategy → Marketplace performanceQuality of web-based services → marketplace performance (customer satisfaction, customer loyalty, trust, perceived value, willingness to pay more, cross-buying) (Fassnacht and Köse 2007)Interactive marketing intensity (e-marketing penetration) → marketplace performance (new customers gained, sales growth, market share) (Brodie, Winklhofer, Coviello, and Johnston 2007)Relative emphasis on pre-sale and post-sale services by e-retailers →marketplace outcomes (repurchase intention and overall service rating) (Posselt and Gerstner 2005)Use of anthropomorphic information agents in online stores → marketplace outcomes (consumers attitude toward the website, product and purchase intention) (Sivaramakrishnan, Wan, and Tang 2007)Price partitioning in an Internet retailing environment (types of surcharges, relative amount of surcharges, and method of presentation of surcharges → consumers purchase intentions (Xia and Monroe 2004)Provision of smart versus knowledgeable online recommendation agent to aid consumer decision making → consumer decision making process → marketplace outcomes (perceived product fit, satisfaction with search) (Punj and Moore 2007)The scope of some of these research studies extends well beyond the context in which they are cited here. They include investigation of other linkages, mediatingeffects, and moderating effects. a It should be noted that adaptive learning about the evolving needs of customers, developing profiles of clusters of e-customers, and use of the Internet as aplatform for engaging customers in co-creation of innovations are not explicitly discussed in the articles cited under the rubric of firm characteristics—distinctiveskills and resources. Our intent in listing them as representative of link 2 → 1 is to highlight the kinds of skills and resources that firms may be required to develop inorder to effectively compete in an Internet-enabled market environment.technology resources and information processing skills are interaction between firms and their customers; (2) communica-implicit in some articles (as noted in footnote a Table 1). tion and interaction between firms; and (3) augmentation of theHowever, the specific role that such factors play in marketing marketing mix decisions. While making a distinction betweenstrategy in an Internet-enabled market environment are explored these three areas is useful for exposition purposes, it isin considerable length only in some of the published works (e.g. important to note that they can be related. Indeed, changesSawhney, Verona and Prandelli 2005). Research focusing on the observed in the marketing mix decisions of firms (research areadigitization of selected products and/or specific characteristics of 3) are driven in large measure by changes related to com-products and marketing strategy conducive to superior perfor- munication processes in the marketplace (research areas 1 andmance for such products in an Internet-enabled environment 2). Given the scope of our article, we focus primarily on those(Box 4 and link 4 → 1) is another theme that one encounters in issues where a critical mass of articles has emerged in thethe literature. In contrast, issues related to industry structure and literature. Thus, our review is designed to be selective ratherits implications for marketing strategy in an Internet-enabled than comprehensive. A more detailed discussion follows.environment (Box 3 and link 3 → 1) are largely absent from theliterature. Communication and interaction between firms and customers With this broad assessment of relative emphases as abackdrop, the next section presents a more detailed discussion Human–computer interactionof selected issues and themes in the literature. Guided by our Rayport, Jaworski, and Kyung (2005, p. 67) note that howprior conceptual work in this area (Kalaignanam, Kushwaha, firms manage their interfaces with customers and other entitiesand Varadarajan 2008; Varadarajan and Yadav 2002; Varadar- represents “the next frontier of competitive advantage for manyajan, Yadav, and Shankar 2008; Yadav and Varadarajan 2005a, businesses.” A number of research efforts have focused on how2005b), we view extant work as focusing on three broad areas specific elements of the online interface impact online navi-related to the deployment of resources for leveraging the gation behavior. Image interactivity, a component of the overallpotential of the Internet (see Table 2): (1) communication and perceived interactivity of an online interface, favorably impacts
R. Varadarajan, M.S. Yadav / Journal of Interactive Marketing 23 (2009) 11–22 15Table 2Selected marketing strategy themes and issues addressed in the Journal of Interactive Marketing (1998–2007)Research focusing on deployment of Selected issues explored Representative articlesResources resources to leverage thePotential potential of the Internet for:Communication and interaction betweenfirms and customers Human–computer interaction Image interactivity Rayport, Jaworski, and Kyung (2005); Fiore, Jihyun, and Animation Hyun-Hwa (2005); Chan Yun and Kihan (2005); Waiting time Dellaert and Kahn (1999); Weinberg (2000); Time planning style Cotte et al. (2006) Online communities Consumer-generated content Hagel; Hennig-Thurau et al. (2004); Bickart and Schindler (2001) Motivation to participate Smith, Menon, and Sivakumar (2005); Chiou and Cheng (2003) Trust in electronic environments Effects of temporal/spatial separation Biswas and Biswas (2004); Yoon (2002); Wang, Beatty, and Signals of trust Foxx (2004); Milne and Culnan (2004); Sheehan (1999) Personalization Intelligent agents Thorbjørnsen et al. (2002); Dholakia (2005); Moe and Fader (2004); Decision making Redmond (2002); Sivaramakrishnan, Wan, and Tang (2007); Jank and Kannan (2006); Miceli, Ricotta, and Costabile (2007); Grewal, Hardesty, and Iyer (2004); Vesanen and Raulas (2006); Iacobucci and Arabie (2000); Forsythe, Chualan, Shannon, and Gardner (2006)Communication and interaction Web-enabling organizational processes Anderson (1999) between firms Supply chain management Quinn (1999) Business-to-business interfaces Chakraborty, Lala, and Warren (2002)Augmentation of marketing mix decisions Product decisions Digitization Bellman et al. (2006); Sawhney, Verona, and Prandelli (2005) Product digitizability Wind and Rangaswamy (2001); Weathers and Makienko (2006) Marketplaces of the artificial Pricing decisions Pricing mechanisms Dolan and Moon (2000); Jensen et al. (2003) Price search Heyman, Orhun, and Ariely (2004); Xia and Monroe (2004) Online auctions Xing, Yang, and Tang (2006) Price dispersion Baye, Morgan, and Scholten (2004); Cao and Gruca (2004); Pan, Ratchford, and Shankar (2004) Advertising and promotion Banner ad processing Drèze and Hussherr (2003); Lam, Chau, and Wong (2007) decisions Pop-up ad processing Moe (2006): Briggs, Krishnan, and Borin (2005) Online visibility Drèze and Zufryden (2004) Optimization Distribution channel decisions Multi-channel marketing Balasubramanian, Raghunathan, and Mahajan (2005) Product and process utility Dholakia, Zhao, and Dholakia (2005); Verhoef and Donkers (2005) Retention rates Kumar and Venkatesan (2005) Profitabilityoutcomes such as buyers attitude toward the seller and purchase accurately judge how long they had waited during an onlineintentions (Fiore, Jihyun, and Hyun-Hwa 2005). These effects browsing session. Finally, research by Cotte, Chowdhury,are mediated through perceptions of telepresence (i.e., a realistic Ratneshwar, and Ricci (2006) suggests that there could beexperience facilitated by computer-mediated technology) and substantial heterogeneity in terms of the time planning stylesinstrumental value (i.e., perceived utilitarian benefits). Chan Yun that customers bring to an online session. While some cus-and Kihan (2005) report that increasing levels of animation in tomers can be analytical (i.e., they seek primarily utilitarianonline environments may not always have favorable outcomes. benefits), others may be spontaneous (i.e., they seek primarilyThey find evidence for an inverted-U relationship between the hedonic benefits). Results show that time planning style impactslevel of animation and measures of advertising effectiveness how individuals conduct online browsing, search for informa-(recognition and attitude toward the ad). tion, and engage in online shopping. Research has also examined perceptions of waiting timeduring online navigation, which can have significant implica- Online communitiestions for an individuals likelihood of continuing an online Hagel (1999) notes that online or virtual communities—interaction. Dellaert and Kahn (1999) manipulate waiting time Internet-enabled aggregations of consumers who may share ain an experiment and find that delays encountered during online common interest or characteristic—can facilitate not only newnavigation are generally associated with negative outcomes, but forms of communication but also new types of business models.the severity of these outcomes can be reduced by managing the A wide range of considerations motivate consumers to partic-delay (e.g., by providing some indication of how much waiting pate in online communities (e.g., social interaction, economictime can be expected). The delay-related perceptions of indi- incentives, and a concern for other consumers; see Hennig-viduals also are likely to be subject to a variety of biases. For Thurau, Gwiner, Walsh, and Gremler 2004). Bickart andinstance, Weinberg (2000) shows that individuals are unable to Schindler (2001) find that consumers exhibit a preference for
16 R. Varadarajan, M.S. Yadav / Journal of Interactive Marketing 23 (2009) 11–22consumer-generated content in online communities relative to established cluster analysis techniques can be used to exploreother online sources that are viewed as being directly controlled such differences and develop specific personalization strategiesby a firm (e.g., a firms website providing product-related for different customer segments. For additional details on thisinformation). The extent to which consumers rely on recom- issue, see Murray and Häubl (accepted for publication) andmendations provided in online communities can vary across Montgomery and Smith (accepted for publication).consumers depending upon whether their shopping goals are Going beyond the issue of personalization, there is growingutilitarian or hedonic (Smith, Menon, and Sivakumar 2005); recognition of the need to look more closely at how theexpertise of the recommender has a significant influence only electronic environment can facilitate (or, in some cases, evenwhen a consumers shopping goal is utilitarian. The increasing impede) decision making. An analysis of two national samplesstrategic significance of online communities is highlighted by by Forsythe, Chualan, Shannon, and Gardner (2006) indicatesresearch showing that they can impact perceptions of firms that consumers perceive a number of benefits to be associated(Chiou and Cheng 2003). Firms with a poor pre-existing brand with online shopping (e.g., convenience, selection, ease ofimage appear especially vulnerable to unfavorable consumer- shopping, and entertainment). Consumers also report severalgenerated content in online communities. risks and impediments (e.g., financial risk considerations, inability to evaluate tangible products, and inconvenience ofTrust in electronic environments certain electronic shopping interfaces). Several research efforts Due to the characteristic of electronic purchase transactions listed in Table 2 focus either directly or indirectly on how these(e.g., spatial and temporal separation of purchase and delivery), benefits can be enhanced while simultaneously eliminating orcombined with concerns such as privacy, the issue of online trust alleviating risk perceptions associated with online shopping.has emerged as an important topic in the literature (e.g., Bart etal. 2005). Consumers inability to fully evaluate tangible Summaryproducts can accentuate such trust-related concerns. However, The studies reviewed in this section highlight the increasingsignals such as brand reputation and investments in advertising significance of online interfaces that connect firms with theircan alleviate such concerns (Biswas and Biswas 2004; Yoon customers. An important theme that is reflected frequently in the2002). Signals aimed at trust development are particularly emerging evidence relates to the substantial heterogeneity thatimportant for small online retailers (Wang, Beatty, and Foxx appears to exist in customers responses to such interfaces.2004). As firms develop strategies to enhance trust, the im- Identical features of an online interface can often elicit a wideportance of taking note of differences that exist among con- range of customer responses, although the underlying beha-sumers is highlighted by the following representative research vioral reasons for those differences are not understood veryfindings. While most consumers report being concerned about well. This complicates the task of designing, managing, andprivacy issues in electronic environments (Milne and Culnan optimizing online interfaces that link firms and customers.2004), these concerns are more pronounced among women(Sheehan 1999). Communication and interaction between firmsPersonalization Using Porters (1988) value-chain framework, researchers Personalization of consumers online shopping experience have sought to understand the impact of the Internet on inter-has attracted considerable research attention. Thorbjørnsen et al. and intra-organizational activities related to marketing and how(2002) show that personalized websites are more effective for these activities ought to be redesigned and reconfigured in lightenhancing brand relationships with customers compared to of the changing marketplace environment. The focus of thisonline communities. Data for personalizing website and the relatively under-developed area of research is generally ononline shopping experience can be acquired from post-purchase issues such as web-enabling organizational processes, supplysurveys (Dholakia 2005) or click-stream data pertaining to chain management, and online business-to-business interfaces.navigation behavior (Moe and Fader 2004). These data can also Anderson (1999) discusses opportunities for “web-enabling”be utilized to develop intelligent agents to facilitate consumers a wide range of activities pertaining to procurement and supplydecision making in electronic environments (Redmond 2002; chain management. Building on a similar theme, Quinn (1999)Sivaramakrishnan, Wan, and Tang 2007), or targeted promotions views business-to-business relationships as an ecosystem that(Jank and Kannan 2006), resulting in longer-term and mutually- must be carefully examined and managed. He argues thatbeneficial relationships. Different consumers prefer different Internet-related technologies provide opportunities to create alevels and types of personalization (Miceli, Ricotta, and higher level of visibility of on-going internal operations andCostabile 2007) and some consumers may even react unfavor- interactions with external business partners. Enhancing thisably to certain types of personalization strategies (see Grewal, visibility has the potential of increasing the efficiency ofHardesty, and Iyers (2004) study that presents different prices to activities performed in complex business-to-business settings.different customer groups). Therefore, firms must carefully As these activities are coordinated and conducted throughexamine such differences, and their implications for organiza- websites, it is important to understand factors that impact thetional processes (Vesanen and Raulas 2006), when developing a perceived effectiveness of such online interfaces. Chakraborty,personalization strategy for managing their online interactions Lala, and Warren (2002) find four significant drivers of per-with customers. Iacobucci and Arabie (2000) argue that well- ceived website effectiveness in business-to-business contexts:
R. Varadarajan, M.S. Yadav / Journal of Interactive Marketing 23 (2009) 11–22 17informativeness, organization, transaction-related interactivity, wider and easier availability of price information increasesand personalization. It is worth noting that several character- consumer power in the marketplace and creates a tendency ofistics of the online interface had no significant impact: non- price levels to decrease.transaction-related interactivity, privacy/security, accessibility, A number of research efforts have focused on the behavioraland entertainment. The finding with respect to privacy/security, aspects of pricing. Jensen, Kees, Burton, and Turnipseed (2003)in particular, is surprising given its frequent mention in the find that the potentially biasing impact of seller-providedpopular press and the confidential, high-dollar nature of many advertised reference prices is reduced in online environments.business-to-business transactions. However, there is also evidence that some psychological biases still persist. For instance, in the case of partitioned prices (e.g.,Summary shipping costs showed separately), consumers tend to make In contrast with consumer-centered research reviewed in the price-related judgments that do not adequately adjust for theprevious section, empirical research in JIM on issues related to add-on pricing component in a transaction (Xia and Monroecommunicating and interacting with businesses remains limited. 2004). In online auction settings, Heyman, Orhun, and ArielyHowever, a number of articles in the journal have recognized (2004) show that consumers may provide higher bids due to twothe need to look more closely at the potential of the Internet to psychological effects: the quasi endowment effect (i.e.,transform business-to-business communication and interaction consumers develop a sense of product ownership during theprocesses. We speculate that the failure of hundreds of new bidding process) and the opponent effect (i.e., increase in theonline business-to-business enterprises during the early 2000s subjective value of a product when the behavior of other biddersmay have raised questions about the viability of this research is perceived as competitive).area, dampening researchers interest. Furthermore, getting A second stream of research has focused on the pricingaccess to data in this online research context (compared to the behavior of firms in the electronic marketplace. In particular, theonline business-to-consumer context) may be more challenging, issue of price dispersion (i.e., the magnitude of price variation forthus impeding efforts to develop an active research program. a given product across firms) has attracted much attention. Xing, Yang, and Tang (2006) find that prices (of DVDs) in onlineAugmentation of the marketing mix decisions branches of multi-channel retailers tend to be higher compared to the prices of pure-play firms that do not have a physical presence.Product issues They also find that prices tend to converge over time, thus Digitization allows firms to create what Bellman, Johnson, reducing price dispersion. Baye, Morgan, and Scholten (2004)Lohse, and Mandel (2006, p. 22) refer to as “marketplaces of the argue that the observed pricing behavior of firms in onlineartificial.” One characteristic of these marketplaces is that, in the environments appears consistent with a “clearinghouse model”context of tangible products, product information can be readily in which firms change price levels randomly to createunbundled from the physical product. Bellman et al. (2006) note uncertainty for other competitors. Price dispersion can alsothat this characteristic allows firms to present an expanded stem from differences in service levels across firms (Cao andassortment of products and more customized design options. Gruca 2004). Pan, Ratchford, and Shankar (2004) review extantDigitization also has significant implications for how new pro- research on price dispersion and conclude that price dispersion isducts are created, produced, and marketed (Sawhney, Verona, affected by firm, market, and product characteristics.and Prandelli 2005; Wind and Rangaswamy 2001). In the case ofdigitizable products (e.g., music), offering direct electronic Advertising and promotion issuesdelivery is an important additional benefit for both consumers Research efforts in this area have focused on how consumers(i.e., immediate consummation of the purchase process) and process commercial messages in online settings and how firmsfirms (i.e., no need for costly physical fulfillment activities). can make their online advertising strategies more effective.Direct and immediate delivery of digitizable products has also Using an eye-tracking methodology, Drèze and Hussherr (2003)created new opportunities related to wireless services (e.g., investigate the processing of banner ads. Their results suggestmaps, bill payment, and other information services). Weathers that consumers tend to direct attention on a computer screen in aand Makienko (2006) highlight another important product- manner that pushes banner ads to the periphery of their visualrelated characteristic that can play an important role in online field (see also Lam, Chau, and Wong (2007) for an eye-trackingshopping environments: the extent to which a product can be study of how consumers process an array of thumbnail imagesevaluated prior to purchase and consumption. They report that from left to right). Therefore, as the processing of certain banneronline retailers selling products that cannot be evaluated ade- ads is likely to be at pre-attention levels, brand awareness and adquately prior to purchase have a higher failure rate. recall are more appropriate measures of advertising effectiveness compared to the traditional measures based on click-throughPricing issues rates (CTR). Moes (2006) study of pop-up ads suggests that Dolan and Moon (2000) review the characteristics of the contextual factors (e.g., when and where an ad is placed duringemerging electronic marketplace and discuss several implica- an online session) can significantly impact advertising effec-tions for three different pricing mechanisms: price set by a firm; tiveness. In light of such findings, it is evident that firms mustprice that is negotiated; and price that is established via a devote considerable efforts to develop and implement an onlinecompetitive bidding process. They conclude that, overall, the advertising and promotion strategy. Briggs, Krishnan, and
18 R. Varadarajan, M.S. Yadav / Journal of Interactive Marketing 23 (2009) 11–22Borins (2005) detailed case study indicates that firms can expect and their customers; (2) communication and interaction bet-a good return on efforts aimed at carefully coordinating online ween firms; and (3) augmentation of marketing mix decisions.advertising with other channels such as television, radio, and These research efforts have significantly enhanced our under-print. Such efforts, collectively, determine a firms online standing of how customers behave in networked, electronicvisibility (Drèze and Zufreyden 2004), an important determinant environments and the marketing strategy implications of theirof traffic levels at the websites of firms. behavior. Research area 1 has focused on issues such as human– computer interaction, online communities, trust formation, andDistribution channel issues personalization. There is evidence of significant heterogeneity Although multi-channel marketing is a topic that preceded across consumers in terms of how they interact with andthe Internet, the emergence of the electronic marketplace has respond to the online interfaces of firms. In general, much lessspurred renewed research interest in this area. Balasubramanian, has been learned about Internet-enabled communication andRaghunathan, and Mahajan (2005) present a conceptual frame- interaction activities within and between firms (research area 2).work in which consumers channel choices are explained by Research efforts in this area remain limited, although theremaking a distinction between two different types of utilities: appear to be numerous opportunities stemming from the need toproduct utility (which depends of product characteristics), and redesign inter- and intra-organizational processes. Finally,process utility (which focuses on how the product is acquired). research area 3 (augmentation of marketing mix decisions)Process utility can consist of both instrumental components has generated substantial interest. Digitization of products, and(e.g., getting a lower price in a specific channel) and non- the impact of the market environment becoming Internet-instrumental elements (e.g., enjoyment from the social aspects enabled on consumers’ pre- and post-purchase activities, areof a specific channel). While having different channel options important drivers of research endeavors in this area.presents many benefits for consumers, they do have to incurlearning costs as they switch from one channel to another Future research directions(Dholakia, Zhao, and Dholakia 2005). From the perspective of firms, the retention rate of a customer Looking back a couple of years prior to the emergence of thecan vary significantly depending upon the specific channel in Internet, it is debatable as to whether anyone had the presciencewhich that customer was initially acquired (Verhoef and to predict the nature, scope and extent of impact that the InternetDonkers 2005). Compared to radio, television, and direct mail, and Internet related infrastructure would have on marketinginitial acquisition via a website is associated with higher practice, marketing education and research in marketing.retention rates. Kumar and Venkatesan (2005) report numerous Bearing this caveat in mind, we discuss in brief some broadbenefits for firms that implement multi-channel marketing directions for future research that seem to hold promise.strategies. Customers who shop across multiple channelsprovide higher revenues, higher share of wallet, and tend to be Success producers versus failure preventers in anmore active than single-channel customers. The likelihood that Internet-enabled environmentsingle-channel customers will become multi-channel customersdepends on many factors; the likelihood increases if customers In an exploratory study, Varadarajan (1985) suggests thatpurchase across multiple product categories, engage in more competitive strategy variables can be broadly classified asfrequent purchases, and/or communicate more frequently with success producers versus failure preventers. Under the scenariothe firm. of response functions for an array of competitive strategy variables being S-shaped, he posited that the response functionsSummary for success producers can be expected to differ from those for Taking a collective view of extant work on all four marketing failure preventers in the following respects. All else being equal:mix elements in electronic environments, considerable progresscan be noted on several fronts. Product digitization, and the • Success producers will evidence a positive relationshipchallenges and opportunities stemming from that change, between the level of effort and the associated outcome (e.g.,represent a driving force behind research efforts in this area. sales, market share) over a relatively wide range (i.e., theThat is, much of the existing work focusing on the pricing, range between the minimum threshold level of effort andadvertising, and distribution decisions of firms can be traced to saturation level of effort).product-related digitization. Even in the case of tangible • Failure preventers will evidence a positive relationship bet-products, the feasibility of digitization of many pre- and post- ween the level of effort and the associated outcome (e.g.,purchase activities highlights the need for marketers to rethink sales, market share) over a relatively narrow range. In order tomany marketing mix decisions. prevent failure of the overall effort spanning multiple competitive strategy variables, the level of effort expendedSummary on failure preventers must be above the minimum threshold for the effort to have a positive effect on the outcome variable Over the past decade, research focusing on the marketing of interest. However, unlike success producers, increasinglystrategy implications of the Internet has progressed along three higher levels of effort above the minimum threshold will notmain fronts: (1) communication and interaction between firms result in correspondingly higher levels of positive outcomes.
R. Varadarajan, M.S. Yadav / Journal of Interactive Marketing 23 (2009) 11–22 19 Relative to the physical marketplace, the Internet-enabled of software applications with greater potential to migrate to themarket environment offers an even richer empirical setting (i.e., Internet and delivered as a service, the economics of thea broader array of contextual and competitive strategy variables) competing business models, and capabilities that firms shouldfor reexamining this issue. Research efforts building on this nurture in order to be able to compete effectively in anframework have the potential to provide a delineation of success environment in which the marketing of software as a serviceproducers and failure preventers in the context of the Internet- grows in importance (Dubey and Wagle 2007) points to theenabled environment. While some researchers have focused on potential and need for further research in this area.the relationship between e-retailer performance and factors suchas web site atmospherics (e.g., ease of navigation) and features Duration of first-mover advantages in an Internet-enabled(e.g., availability of interactive decision aids), a question that market environmentmerits careful consideration is whether these are intrinsicallyfailure preventers. In a recent article, Varadarajan, Yadav, and Shankar (2008) present a conceptual framework and propositions distinguishingDeterminants of performance of platform firms versus user between potential sources of first-mover advantage that can befirms expected to have a greater effect versus a lesser effect in the Internet-enabled market environment (IME) relative to the A broad distinction can be made between platform firms in physical market environment (PME). Along similar lines, anthe electronic marketplace that provide software as infrastruc- issue that merits exploration in future research is whether theture service (e.g., infrastructure service provided by eBay which duration of specific sources of first-mover advantage will beenables interested buyers and sellers to participate in auctions in shorter or longer in the IME relative to the PME.the electronic marketplace; infrastructure service provided byGoogle which enables advertisers to reach customers more Online behavior, targeted advertising and public policyefficiently and effectively in the electronic marketplace) versususer firms that use such infrastructure services to conduct The ability to track the online behavior of individuals hasbusiness in the electronic marketplace. Still other firms such as enabled firms competing in an Internet-enabled environment toAmazon seem to be engaged in both. By leveraging the supply achieve a greater degree of granularity in targeting individualchain and logistics systems that it uses to run its own business, customers. Computer-aided personalization of product offeringsAmazon has introduced a number of services including rack and promotions guided by a customers past purchases and/orspace in its warehouses, spare computing capacity on its online behavior at a specific website (e.g., Google, Yahoo,servers, data storage on its disk drives, and software code that Amazon, Orbitz) has been in vogue for some years. However, inwas written to run its business operations. Through its service their attempts to achieve an even greater degree of granularity incalled Simple Storage Service, Amazon rents space on its disk targeting individual customers, advertisers have teamed up withdrives to programmers and businesses to store data. Through its Internet service providers to track the behaviors of individualsservice called Fulfillment by Amazon, it lets small and midsize across websites. This recent development has raised privacybusinesses rent space at Amazon warehouses to store their concerns, and calls by privacy advocates and lawmakers forinventory. When customers place orders with these businesses, regulations that set limits on web tracking across web sites byAmazon receives instructions to ship the items ordered from its Internet service providers. Some lawmakers have opined thatwarehouse (Hof 2006). These developments highlight the need tracking across websites should be governed by the same sort offor research that can shed insights into the determinants of “opt-in” rules that govern telephone and cable hookups (Johnsonmarketplace and financial performance of firms in the above 2008). Public policy issues such as whether firms should becategories. allowed to track the online behavior of individuals across websites only with their consent, and the implications for onlineEmerging business models—software as a service utility advertising and promotion of proposed regulations governing such practices, constitute potential avenues for future research. Paralleling the growth of the Internet and its potential to serveas a distribution channel for information products in digital form, Social media and interactive marketingthere has been a heightened interest among businesses in issuesrelating to marketing of information products at the aggregate In 2005, Business Week published a cover story titled,level, as well as in reference to specific types of information “Blogs Will Change Your Business” (Baker and Green 2005).products such as marketing of software, movies and video The following are among the questions highlighted in Dwyergames. Case in point is the recent trend toward marketing and Varadarajan (2008) in regard to competing in an envi-software as a service (service utility). Unlike the traditional ronment in which the Internet has evolved into a host forbusiness model of companies purchasing software and installing millions of conversations about products and ideas: What moti-it on their equipment, a relatively recent business model that has vates consumers to be participants in blogs generally andmade significant inroads in certain software application corporate blogs specifically? What can firms do to be heard bycategories is the selling of software as a subscription service key constituencies in the blogosphere? What role can corporateaccessed over the Internet. Recent research on the characteristics blogs (firm level, business unit level, brand level, etc.) play in a
20 R. Varadarajan, M.S. Yadav / Journal of Interactive Marketing 23 (2009) 11–22businesss marketing strategy and customer relationship 8. Streams of inquiry based on some distinctive characteristicmanagement programs? Given that consumers are limited in of marketing: Cause-related marketing, green marketing, etc.the time they can spend in the blogosphere, how important will 9. Streams of inquiry based on the principal marketing objec-it be for firms to attract customers to interact in their corporate tive: Defensive marketing (focused on the retention ofblogs in the broader context of competition between rivals? present customers), etc. In 2008, Business Week published a follow-up cover storytitled, “Beyond Blogs: What Business Needs to Know” (Baker In the same vein, an examination of articles published inand Green 2008). In addition to blogs, the evolving social previous volumes of the Journal of Interactive Marketing re-media, the focus of the 2008 article, encompasses social veals reference to the following: convergence marketing, data-networks such as Facebook and MySpace, video sites such as base marketing, direct marketing, e-marketing, interactionYouTube, and mini blogs such as Twitter. One can expect that marketing, interactive marketing, network marketing, permis-questions pertaining to the implications of the evolving social sion marketing, reverse marketing, and viral marketing. Someonline media for marketing practice will be the focus of a of these terms are used interchangeably and others in referenceconsiderable body of future research in marketing. to specific marketing practices. Against this backdrop, reflecting on the future outlook forThe future of interactive marketing interactive marketing within the broader context of marketing raises some interesting issues. On the one hand, the emergence Over the years, marketing as a field of study has evolved into of specialized fields of study in a discipline is generally a sign ofa number of specialized streams and sub-streams of inquiry the growth and maturation of the discipline. On the other hand, inincluding the following: the absence of compelling justification for a specialized inquiry, proliferation of increasingly specialized streams of inquiry in a1. Streams of inquiry based on the object that is being marketed: field is unlikely to either yield new insights or meaningfully Marketing of goods, services, experiences, people, places, contribute toward advancing knowledge in the field. ideas, high-technology products, information products, etc. In the broader context of the above caveat, we view the2. Sub-streams of inquiry based on the object that is being emergence of interactive marketing as a specialized field of marketed: Marketing of a specific class of services (e.g., study as a reflection of the maturation of the field. health care services marketing), a specific type of experience Nevertheless, we also believe that it might be beneficial to (e.g., sports marketing), a particular type of information initiate a conversation on the future of interactive marketing as product (e.g., software products marketing), etc. a specialized field of inquiry and its place within the broader3. Streams of inquiry based on specific types or groups of field of marketing. The need for such a conversation is that the customers being targeted: Marketing to individual consumers distinctive characteristic of interactive marketing—the media- or households (business-to-consumer marketing), businesses tion of interaction between an organization and its customers (business-to-business marketing), government institutions, by an information infrastructure network (e.g., the Internet) specific ethnic groups (ethnic marketing, multicultural and information and communication devices connected to the marketing), consumers residing in specific geographic areas network (e.g., computers, mobile phones)—is increasingly (e.g., rural marketing), specific demographic groups (the becoming an integral element of marketing for most products children, the elderly, the poor, and the affluent), etc. in most market contexts. As the overlap in the substantive4. Streams of inquiry based on the geographical scope of scopes of marketing and interactive marketing increases, the marketing: Export marketing, international marketing, greater will be the need for and challenge of delineating the global marketing, marketing in developing countries, etc. essential building blocks (e.g., concepts, theories, and substan-5. Streams of inquiry based on the devices and infrastructure tive issues) of interactive marketing as a specialized field of facilitating marketing: Interactive marketing/e-commerce inquiry. (enabled by a networked information infrastructure and The prospect that interactive marketing, over time, will be an devices connected to the network), telemarketing (enabled integral part of practically all of marketing poses some questions by the telephone and telecommunications infrastructure), that merit further reflection: direct marketing/mail order marketing (enabled by the postal system and parcel delivery infrastructure), etc. • If interactive marketing were to be an integral element of6. Streams of inquiry based on the type of organization that is practically all of marketing in practice, how and on what engaged in marketing: Marketing by for-profit organiza- basis should the substantive scopes of these two fields of tions, marketing by not-for-profit organizations (social inquiry be disentangled? marketing), etc. • What criteria would constitute a valid basis for distinguish-7. Streams of inquiry based on the orientation of the organization ing and clarifying the connections between marketing and that is engaged in marketing: Marketing with a transactional interactive marketing? orientation, marketing with a relational orientation (relation- • What would constitute the major components of a research ship marketing), governed by an overarching organizational agenda focused on interactive marketing? philosophy (customer-centric/customer-focused marketing), • What concepts, theories, and substantive topics are be unique etc. to the emerging field of interactive marketing?
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