Adoption of the Internet by consumers and businesses Part 1
Introduction
Rumours of the death of Internet marketing are circulating, fuelled by some evidence of declining usage. In this article we take stock of the adoption of the Internet in the post dot-com world – we investigate the numbers behind this rumour. How many businesses and consumers are actually now using the Internet to make purchase decisions and buy? The aim is to highlight data sources that can be used to help build demand estimates for e-commerce services which inform decisions on resourcing e-marketing.
The key ratio - access : use : purchase
Marketers involved in assessing the relevance of e-marketing to their organisation, or explaining to colleagues the level of investment required in e-commerce, need to answer three key questions about how their customers in different segments and different markets are using the Internet. These are: How many can access the Internet? How many actively use it for different purposes and finally how many use it to purchase. We will now attempt to answer these questions for business-to-consumer (B2C) and business-to-business (B2B) marketplaces using published data.
I have added a link to statistics pages for the Internet to the foot of the article.
How many customers access the Internet?
At the global-level, despite the rapid growth from the mid-1990s to about 445 million users by the end of 2001, this only represents less than 10% of the world population, but current forecasts suggest one billion by 2005. But don’t you think it’s amazing that the Internet media has reached this many people so rapidly? No other media has grown this fast. Furthermore, no other medium has ever replaced another - radio never replaced print, TV never replaced radio and likewise the Internet will complement traditional media. But the Internet has already slightly reduced consumption of other media.
If we look at individual countries, the proportion of consumers and businesses accessing the Internet is startling. Take the United Kingdom, the quarterly government Internet reports (www.statistics.gov.uk) show that 51% of consumers have accessed the Internet with 41% having accessed it in the last month, twice as many accessing from home rather than work. For younger age groups such as 16-24 year olds, the access figure stands at 88%. As this cohort ages, clearly the proportion accessing the Internet will increase. There is evidence, however, that growth will plateau in most countries since there is a significant majority of the population who do not wish to or cannot afford to access the Internet. Interactive TV, which we will describe next month, may be used by this group on non-Internet users.
In the business-to-business market, Internet access levels are higher still. The DTI International benchmarking study for 2001 (formerly published at www.ukonlineforbusiness.gov.uk) shows that with Sweden, the UK has the highest proportion of businesses (87%) that are connected. This is just ahead of Germany (86%), the USA (84%) and Canada (82%). However this figure masks lower levels of access for SMEs. Understanding access for different members of the organisational buying unit amongst their customers is also important for marketers.
How many customers use the Internet?
…and what do they use it for? Again, taking the UK Internet quarterly reports we can see that the top two online activities are:
1. Finding information about goods services (74% in July 2001) and
2. Using e-mail (71%)
These figures are key to assessing the significance of using the Internet as a marketing tool. First, many of the reports of the death of the Internet are based on disappointing online sales. Where the Internet is important however, is in influencing purchases, particularly for high involvement products. For example, it is now estimated that over half of consumers purchasing a new car online will research it using the Internet, although the numbers actually purchasing online is very small. Clearly investment in Internet marketing is very important for the car manufacturers in order to persuade consumers of the features and benefits of their brands. Second, reading and writing e-mail is becoming a key activity for many households. While much of this activity will be social, e-mail marketing success stories show that there is a major role for permission-based e-mail marketing with some early adopters showing that when the offer, creative, targeting and timing are right, response rates of over 20% can be achieved.
The amount of usage also appears to increase with familiarity. BMRB International (www.bmrb.co.uk) report in their Internet monitor for November 2001, that those using the internet for more than 2 years spent an average of 20 hours online per month. This compares to 14 hours for those who had been using the internet for less than 2 years. Although usage is increasing, less has been published on the impact of the Internet on interaction with FMCG brands – to what extent does the Internet increase the frequency and depth of brand experience and what impact does this have on brand equity?
Turning to B2B, there is less use of the Internet to identify suppliers and gather pre-purchase information – in Europe this figure lies between 24% and 39%, but with a higher proportion of businesses in the USA and Canada (53%). These figures are lower than for B2C users. We can speculate that this is since Internet access is still not universal amongst managers in many companies.
How many customers buy using the Internet?
The UK Consumers Association (www.which.net) estimate that almost 1 in 6 British adults (almost 8 million people) have now made an online purchase while NOP reported that, 5.4 million adults bought online in the UK in the four weeks leading up to Christmas 2001 - 12 percent higher than the previous year. This picture is repeated across Europe with Forrester reporting (www.forrester.com) that Europeans spent EUR2.9 billion during the run-up to Christmas, up 71 percent on 2000.
For B2B the picture is again less positive. The DTI International benchmarking survey revealed that while there has been an increase between 2000 and 2001 in the proportion of businesses that enable their customers to order (from 27% to 29%) or pay (from 13% to 16%) online, this is offset by a drop in the proportion that actually use these facilities to order (from 45% to 31%) or pay for (from 28% to 15%) goods or services from their suppliers. A reduction in those using online marketplaces for purchase is also apparent. This data suggests that many businesses have experimented with using the Internet for procurement, but seem not to have been convinced by the benefits or have not enjoyed a positive experience. However, those businesses that do seem convinced by the benefits and experience are ordering more online. The same survey showed that all countries have seen significant growth in the proportion of businesses that use online ordering to order more than 20% of the total value of their purchases; in the UK, Italy and France, the proportion tripled.
In addition to the research indicating active use of the Internet by both consumers and businesses, the success stories also indicate the health of e-marketing. Two often quoted examples are easyJet in B2C (www.easyjet.com) and Cisco in B2B (www.cisco.com). Both companies generate over 90% of their revenue directly through the Internet. While it can be argued that their products and business models have assisted them in achieving this, it still highlights what is possible if an effective e-marketing strategy is devised and executed efficiently. A further success story is the motor industry online trading exchange Covisint (www.covisint.net). Through 2001 there were over 512 online auction bidding events processed for DaimlerChrysler amounting to approximately EUR10 billion. That is a third of their total procurement volume. In May 2001, DaimlerChrysler staged the largest online bidding event ever, with an order volume of EUR3.5 billion in just four days. As well as savings in material purchasing prices, DaimlerChrysler also reduced throughput times in purchasing by 80 percent.
Two smaller companies, also illustrate the potential of e-marketing. Cookson Tools (www.cooksons.com), a builders’ merchants in Cheshire has moved from serving customers in a seven mile radius to serving customers worldwide. In the first year of Internet operation, sales double every 2.5 months with no cannibalisation of its existing business – less than 1 per cent of orders on the web site are from existing customers. Meanwhile, Skyes Cottages (www.skyescottages.co.uk) now estimates that 70% of its business derives from customers who have visited the web site during the selection and booking of their holiday cottages.
Finally, the e-marketing imperative is also indicated by recent research in financial services, media and entertainment, consumer goods and retail organisations with a turnover of £25 million conducted for E-marketing (www.e-marketing.com). This showed that the vast majority of your competitors are likely finding e-marketing effective and are increasing their online marketing spending to an average of around 8% of total marketing budget. Eighty per cent of respondents had increased the amount they spend on online marketing during the last year and 75% expect to increase their spend again over the next year.
Summary
So to conclude, the results from e-marketing may not have met the hype-driven expectations, but is far from dead. We are still seeing significant increases in the numbers of consumers accessing the Internet, using it to inform their purchase decisions and buying through e-commerce services. The Internet has a particularly key role in influencing purchases of high-ticket items. For B2B, there have been recent reductions in the number of businesses searching for suppliers online and making purchases, but the overall volume of trade has increased. Investing in e-marketing to remain competitive is still required and this is indicated by the increase in e-marketing budgets.