E-marketing strategy - Situation analysis

Introduction to E-marketing strategy

The importance of developing an effective e-marketing strategy is indicated by Michael Porter (2001) who has said:

‘The key question is not whether to deploy Internet technology – companies have no choice if they want to stay competitive – but how to deploy it.’

An e-marketing strategy is needed to provide consistent direction for an organisation’s e-marketing activities that integrates with its other marketing activities and supports the overall objectives of the business.

For many companies, the first forays into e-marketing or Internet marketing are not the result of a well-defined, integrated Internet strategy; rather, they are a response to competitors activities or customers demand.

After a site has been in existence for a year or so, marketing staff and senior managers in a company will naturally question its effectiveness. This is often the point at which the need for a coherent Internet marketing strategy becomes apparent. As a result, the starting point used in this summary of approaches to e-marketing strategy, is when a company that has an existing site and it is reviewing the current site and its effectiveness with a view to future improvements.
The e-marketing strategy process

There is no evidence to suggest that the approach to developing and implementing a strategy should be significantly different for e-marketing. Established frameworks for corporate strategy development or strategic marketing planning should still be followed. These frameworks provided a logical sequence to follow which ensures inclusion of all key activities of strategy development. It can be argued, however, that with e-marketing there is an even greater need for a highly responsive strategy process model where rapid reaction can occur to events in the marketplace. The use of Soviet-style 5 year planning does not seem appropriate, a preferable approach is an emergent e-marketing strategy process that is part of a continuous improvement.

Chaffey (2002) notes that e-business or e-marketing strategy process models tend to share the following characteristics:

• Continuous internal and external environment scanning or analysis are required.
• Clear statement of vision and objectives is required.
• Strategy development can be broken down into formulation and selection.
• After strategy development, enactment of the strategy occurs as strategy implementation.
• Control is required to detect problems and adjust the strategy accordingly.
• They must be responsive to changes in the marketplace.

In this article, we will use a four stage model for e-marketing strategy development. The four stages are:

1. Strategic analysis. Continuous scanning of the micro and macro-environment of an organization are required with particular emphasis on the changing needs of customers, actions and business models of competitor and opportunities afforded by new technologies. Techniques include resource analysis, demand analysis and competitor analysis, applications portfolio analysis, SWOT analysis and competitive environment analysis.

2. Strategic objectives. Organisations must have a clear vision on whether digital media will complement or replace other media and their capacity for change. Clear objectives must be defined and in particular goals for the online revenue contribution should be set.

3. Strategy definition. We will discuss strategy definition by asking eight questions. These will be considered in next month’s article:

• Decision 1. Target market strategies.
• Decision 2. Positioning and differentiation strategies.
• Decision 3. Resourcing - Internet marketing priorities – significance to organization.
• Decision 4. CRM focus and financial control
• Decision 5. Market and product development strategies.
• Decision 6. Business and revenue models including product development and pricing strategies.
• Decision 7 Organisational restructuring required.
• Decision 8. Channel structure modifications.

4. Strategy implementation

Includes devising and executing the tactics needed to achieve strategic objectives. This includes relaunching a web site, campaigns associated with promoting the site and monitoring the effectiveness of the site. These issues have been dealt with in other articles.

We will now examine specific issues of strategic analysis and objective setting that are related to e-marketing.

1. Strategic analysis.

In common with traditional marketing strategy, strategic analysis or situation analysis for e-marketing involves review of the:

- internal resources and processes of the company and a review of its activity in the marketplace;
- immediate competitive environment (micro-environment) including customer demand and behaviour, competitor activity, marketplace structure and relationships with suppliers and partners.
- wider environment (macro-environment) in which a company operates including the social, legal, economic, political and technological factors.

In this section we will highlight the key aspects of the internal and external environment that need to be assessed when developing an e-marketing strategy.
Internal resources

These are of particular importance for e-marketing:

- Portfolio analysis and stage models – Considers the sophistication of online services offered to prospects and customers. From basic ‘brochureware’ sites with no interaction through those offering online catalogues to fully transactional sites offering full support for all stages of the customer lifecycle from acquisition, retention to extension and all stages of the buying process.

- E-marketing effectiveness – How effective is the organisation at converting browsers to visitors and visitors to prospects and buyers? Analysis of web logs using diagnostics such as those available from www.marketing-insights.co.uk is important here.

- Financial resources and cost/benefit – in particular the breakdown for costs of running the online presence between site development, promotion and maintenance. Many organisations still do not have good visibility of these costs and the benefits such as those described in the objective setting section.

- Service quality – human resources and software assistance for answering customer queries and dispatching goods.

- Technology infrastructure resources – availability and performance (speed) of web site and service level agreements with the ISP.

- Structure – what are the responsibilities and control mechanisms used to co-ordinate Internet marketing across different departments and business units. We return to this topic next month.

- Strengths and Weaknesses – SWOT analysis can be readily applied to e-marketing specific issues.

The Internet micro-environment

Pertinent factors for the Internet include demand analysis, competitor analysis intermediary analysis, channel structure. Porter (2001) has written extensively about how the Internet has changed the dynamic of the marketplace and has reinterpreted his often-quoted five forces model in the Internet era.

Demand analysis or online customer activity is a key factor driving e-marketing and e-business strategy objectives. It assesses the current level and future projections of customer demand for e-commerce services in different market segments. In a B2B context customer activity can be determined by asking for each market:

- What % of customer businesses have access to the Internet?

- What % of members of the buying decision in these businesses have access to the Internet?

- What % of customers are prepared to purchase your particular product online?

- What % of customers with access to the Internet are not prepared to purchase online, but choose or are influenced by web-based information to buy products offline?

- What are the barriers to adoption and the facilitators amongst customers and how can we encourage adoption?

Qualitative research is important to informing strategy since it identifies the differences in psychographics between current online customers and those that are not offline.

Resources for assessing the ratio of ‘Access : Choose : Buy’ online have been reviewed in WNIM 5 and 6.

Competitor analysis or the monitoring of competitor use of e-commerce to acquire and retain customers is especially important in the e-marketplace due to the dynamic nature of the Internet medium. Chaffey (2002) suggests comparing the activity of an organisation and its competitors for their different channels by trying to answer these questions:

1. Business contribution

How does Internet marketing contribute to the bottom line? What is the online revenue contribution (direct and indirect), costs and profitability?

2. Marketing outcomes

How many marketing outcomes are achieved online? For example, what proportion of leads, sales, service contacts occur online? How effective is online marketing at acquiring, converting and retaining customers?

3. Customer satisfaction

What are the customers’ opinions of the online experience and how does this affect their loyalty?

4. Customer behaviour (Web analytics)

This assesses how different customer segments interact with web site content and assesses how the actions they take are influenced by usability, design, content, promotions and services.

5. Site promotion

How effective are the different promotional tools such as search engines, e-mail, direct marketing and advertising at driving quality traffic to the web site? Measures include attraction efficiency, referrer efficiency, cost of acquisition, reach and the integration between tools. Analysis of the use of intermediaries to build and service business is also important here.

The Internet macro-environment

It can be suggested that of the different Social, Legal, Economic, Political and Technological characteristics of the macro-environment, the three most significant factors described in more depth in chapter 3 are legal constraints – What are the legal limitations to online promotion and trade such as data protection and taxation, ethical constraints such as privacy and technological constraints – what is the current availability and usage of technology to access the Internet and offer distinctive services and how is this likely to vary in the future?

2. Strategic objectives.

Smith and Chaffey (2001) suggest there are five broad benefits, reasons or objectives of e-marketing. This framework is useful since it presents a comprehensive range of objectives. Marketers will decide whether all or only some will drive e-marketing:

• Sell – Grow sales (through wider distribution to customers you can’t service offline or perhaps through a wider product range than in-store, or better prices)
• Serve – Add value (give customers extra benefits online: or inform product development through online dialogue and feedback)
• Speak – Get closer to customers by tracking them, asking them questions, conducting online interviews, creating a dialogue, monitoring chat rooms, learning about them
• Save – Save costs - of service, sales transactions and administration, print and post. Can you reduce transaction costs and therefore either make online sales more profitable? Or use cost-savings to enable you to cut prices, which in turn could enable you to generate greater market share?
• Sizzle – Extend the brand online. Reinforce brand values in a totally new medium. The Web scores very highly as a medium for creating brand awareness, recognition and involvement.

Specific objectives should be created for each of the 5Ss. Consider Sales – a typical objective might be:

‘To grow the business with online sales e.g. to generate at least 10% of sales online. Within 6 months.’

or

‘To generate an extra £100,000 worth of sales online by December’.

These objectives can be further broken down according to CRM objectives of acquisition, conversion and retention, e.g. to achieve £100,000 of online sales means you have to generate 1,000 online customers spending on average £100 in the time period. If, say, your conversion rate of visitors to customers was 1% then this means you have to generate 100,000 visitors to your site. Achieving repeat visits and sales would form further objectives.
The online revenue contribution

The key objective for e-marketing is the online revenue contribution. This is a measure of the extent to which a companies online presence directly impacts the sales revenue of an organisation. Online revenue contribution objectives can be specified for different types of products, customer segments and geographic markets.

Companies that can set a high online revenue contribution objective of say 25% for 2 years time will need to provide more resource allocation to the Internet than those companies who anticipate a contribution of 2.5%. Cisco Systems Inc (www.cisco.com) maker of computer networking gear, is now selling around 90% of its 20 billion dollars sales online. This was achieved since senior executives at Cisco identified the significance of the medium, setting aggressive targets for the online revenue contribution and resourcing the e-commerce initiative accordingly.

A further example is provided by Sandvik Steel. The Financial Times reported in June 2001 that around 20 per cent of all orders from Denmark are online and 31 per cent of those from Sweden. The proportion in the US, however, is only 3 per cent, since most business goes through distributors and is conducted by EDI (electronic data interchange), the pre-internet means of e-commerce. Over the next six months, the company hopes to raise the US figure to 40 per cent. Mr Fredriksson hopes that in two years, between 40 and 50 per cent of total orders will come via the web.

However, for some companies such as an FMCG manufacturer, it is unrealistic to expect a high direct online revenue contribution. In this case, an indirect online contribution can be stated. This considers the Internet as part of the promotional mix and its role in reaching and influencing a proportion of customers to purchase the product or in building the brand. In this case a company could set an online promotion contribution of 5% of its target market visiting the web site and interacting with the brand. Where sales achieved offline are a consequence of online selection of products this is referred to as the indirect revenue contribution.

Summary - E-marketing strategy

We have looked at the first two parts of a strategy process, key issues for these are:

1. Situation analysis. Internal audit including review of services/portfolio analysis, cost/benefit analysis, e-marketing effectiveness analysis. External audit of which the macro-economic factors of demand analysis and competitor analysis are arguably most important.

2. Objectives setting. The 5 S s of Sell, Speak, Serve, Save and Sizzle. The direct and indirect online revenue contribution.

References

Chaffey, D. (2002) E-business and e-commerce management. Financial Times/Prentice Hall. Harlow, UK.

Smith, P.R. and Chaffey, D. (2001) eMarketing eXcellence: at the heart of eBusiness. Butterworth Heinemann, Oxford, UK.

Porter, M. (2001) Strategy and the Internet. Harvard Business Review. March 2001, 62-78.

Note: This article is one of a series originally written between 2000 and 2003 for The Chartered Institute of Marketing What's New in Marketing Newsletter. Many of the concepts remain valid, but some more recent concepts such as Web 2.0 and social networks aren't referenced.

For the latest on these concepts search my DaveChaffey.com blog site for E-marketing strategy articles.