How can the online environment support a firm’s marketing efforts? Marketing is an aspect of business that has responded to changes in business technology by redefining itself. In today’s world, a marketing department must consider the Internet as a tool for both collecting information about its customers and distributing information about its products and services. Companies such as Constant Contact can organize and control mass e-mail campaigns by providing templates for e-mail newsletters or advice on how to create e-mail surveys. They also provide services that generate reports to track the number of people who read the e-mail message, how many followed the links inside, and how many forwarded the e-mail to another contact.

How does having an online presence change a firm’s marketing strategies? For marketing experts, taking advantage of new advertising outlets offers many new opportunities. Online advertising refers to any form of advertising that uses the Internet to market its message to customers. This includes everything from banner ads to Facebook campaigns to spam e-mails and messages sent on Twitter. The insurance company Esurance exploited this shift toward online-based advertising during the 2014 Super Bowl. A single television ad run during the Super Bowl costs a whopping $5 million. Esurance instead ran a short ad after the game letting viewers know they could enter a $1.5 million drawing by sending a tweet to #EsuranceSave30. The hashtag was used more than 3.8 million times and increased the company’s profile significantly.

As the number of households with high-speed broadband Internet access and mobile devices has increased, online advertising has become much more sophisticated. QR codes that can be scanned with mobile devices take consumers from magazine ads and counter displays directly to a company’s web content. HTML5 and Java technologies allow advertisers to embed animated ads and full-motion video. Apple’s iPhone apps can use a feature called iAds which fade up, interact with the user, and then fade away—all while the user is still in the original app.

More often than not, an online ad is linked to another website and software tracks how many “clicks” are registered. The ability to track how many eyes have viewed an ad is, in fact, one of the great allures of Internet advertising. Programs such as Google’s AdWords service are successfully generating revenues for companies with pay-per-click (PPC) advertising. With PPC advertising, advertisers pay only for the number of times a web surfer clicks on their ads. PPC ads are effective because they are associated with key words and are highly relevant to what potential consumers are searching for.

Google’s popular AdSense network takes PPC ads to the next level. By placing PPC ads on third-party sites, such as blogs and web forums, they reach readers depending on the content of a particular page instead of search results. Also known as contextual advertising, these ads are automatically generated by the content on a specific site. This way, readers of a popular snowboarding blog might see ads with Shaun White promoting Red Bull. Moreover, the AdSense network also allows individual bloggers to generate revenue by hosting these ads on their site. Blogs with a significant readership can earn a great deal of money by giving such ads visibility.

Are there any drawbacks to online advertising? Click fraud is one drawback. It occurs when a competing company clicks on ads to run up the cost of its competitor’s advertising. Poorly designed e-mail campaigns can backfire, annoying people as e-mails fill up their inboxes. Web surfers also complain about pop-up ads, which open their ads in new browser windows, and interstitials, pages that appear before a viewer can get to their desired content. People grow so used to seeing web ads, the ads may not have much impact. Table 10.1 summarizes the pros and cons of online advertising.

Table 10.1

Pros and Cons of Online Advertising

How does technology change marketing in a global marketplace? Internet technology allows every company with a website to advertise to anyone in the world with Internet access (see Figure 10.1). In the modern world any site must support multiple languages and, more importantly, make sure its content is customized to those different cultures. Every marketing campaign can now be global.

Figure 10.1

The Global Web

What is viral marketing? To get people to notice their advertisements, many marketers are turning to a technique known as viral marketing. This practice involves using social networks, e-mail, and websites to spread the awareness of a particular brand. Rather than being an overt advertising campaign that relies on airwaves with commercials, a viral campaign is more subtle and dependent on the user to be an active participant in spreading a message. It’s designed to appeal to consumers who may be resistant to traditional advertising. Essentially, viral marketing is a Web 2.0 version of old-fashioned word of mouth —that is, a more consumer-engaged, interactive, and collaborative type.

Viral marketing gives a company more than the opportunity to promote a product or brand; it allows potential consumers to feel a personal connection to the brand by becoming a part of a communal experience. Hollywood movie studios have been on the forefront of this kind of viral advertising. Consider the marketing campaign for the science fiction film District 9. Before the film’s release, public service announcements began to appear in the 15 largest U.S. markets. Bus benches were plastered with signs reading “Bus bench for humans only” followed by a note, “Report nonhumans,” and a phone number as well as a website address that took visitors to information about the movie.2 In two weeks there were more than 33,000 phone calls as people on the street agreed to play along with the premise that alien beings were residing in their community. The site had language support for both human and nonhuman visitors as well as games and simulations. By generating interest about the extensive campaign, the film boosted its box office.

This dedication to using advertising as a means to develop content and create an entertainment experience is one way the Internet and viral marketing are shifting the paradigm of advertising’s capabilities.

What types of business transactions occur online? Interaction between business and the consumer has also changed radically since the introduction of the Internet. The most common modes of transactions are business to business (B2B), business to consumer (B2C), and consumer to consumer (C2C).

What is the focus of B2B transactions? Business-to-business (B2B) transactions involve the exchange of products, services, and information between businesses on the Internet. B2B websites can be classified as follows:

• Company websites target other companies and their employees. These websites are designed to sell goods or services to business clients rather than household consumers. For example, UPS has a B2B site for business owners looking for shipping solutions, which is different than the website consumers use for their personal shipping needs.

• E-procurement, or electronic procurement, refers to the online purchase and sale of products and services between businesses. For example, most states have e-procurement websites companies can use to bid on state projects. The companies can register, examine current bidding opportunities, and enter online bids for contracts through the site.

• Procurement exchanges are marketplaces where companies can buy and sell goods or services at lower prices. Sometimes they are run by a group of companies and sometimes by third parties. Alibaba.com, a Chinese site that’s similar to eBay, has a B2B section on its website. It was launched to help Chinese manufacturers sell products to overseas business buyers.

• Specialized industry portals are online gateways to major sources of information, discussion forums, and product listings. To see an example, view the portal page for CEOs at www.ceoExpress.com. These are also known as niche portals or vertical portals because they provide expanded information on a specific product or market.

• Brokering sites are third-party sites that act as liaisons between providers and potential buyers of goods or services. Brokering sites can be found for a variety of rental goods that businesses may need, from projectors and video equipment to backhoes and excavators.

• Information sites provide information about a particular industry. Also called an infomediary, an information site gives businesses information about current standards and developments. For example, TheMedica.com is an infomediary that posts news about the health care and medical industries. It also includes information about trade shows, links to medical publications, and a directory of healthcare businesses and products. Infomediaries help facilitate and originate B2B traffic.

What is the focus of B2C transactions? Business-to-consumer (B2C) transactions refer to e-commerce that takes place directly between businesses and consumers. It’s becoming essential for almost all businesses to sell or at least promote their products to customers online. “Click and mortar” refers to B2C businesses that have both an online presence and brick-and-mortar stores. This combination is ideal for customers who like the convenience of online shopping but who want to be able to look at products before buying them as well as return products purchased online without incurring shipping costs.

To stay in business, B2C companies use different approaches to network with their customers and to distribute and advertise products. Some models that have accelerated B2C e-commerce include the following:

• Online intermediaries are businesses such as Travelocity and Amazon.com that are not direct producers of products but instead buy goods or services and sell them to customers.

• Advertising-based models rely on banner ads on other websites to attract customers. The two main approaches that advertisers use are high traffic and niche. The high-traffic approach is designed to reach a wide audience, with ads placed on popular sites, such as Yahoo!. The niche approach best serves companies that target a small, specific audience.

• Community-based models allow users with similar interests to interact with each other worldwide. Steam is an example of a community-based gaming website where users can purchase and play online games produced by both small, independent video game makers as well as large ones. With more than 65 million active accounts, Steam members always have someone to play with—and someone to encourage them to buy a new game!

• Fee-based models require users to pay a subscription fee to view their content. In these systems, website content is restricted until a user registers and pays either a flat monthly rate or a pay-as-you-go fee. Netflix.com and Internet dating sites, such as Match and eHarmony, and online journals, such as Consumer Reports, are examples of fee-based B2C sites.

What is the focus of C2C transactions? Transactions that take place between individual consumers, sometimes with the involvement of third parties, are called consumer-to-consumer (C2C) transactions. In this e-commerce model, consumers sell goods and services to other consumers, sometimes with the involvement of a third party. The artsy storefront Etsy is an example of a business based on C2C transactions. A popular C2C marketplace with an intermediary is eBay. File and music sharing are types of C2C exchanges, sometimes referred to as P2P, or peer-to-peer. Social networking sites, including Facebook and LinkedIn, can fill this role as well. The wide variety of business transactions happening online is summarized in Table 10.2.

Table 10.2

Types of Online Business Transactions

How are taxes applied to e-commerce sales? Most Internet sales are tax free, which causes major problems for states that rely on sales taxes to fund their public institutions. The laws regarding e-commerce taxation have been debated since Congress passed the Internet Tax Freedom Act (ITFA) in 1998. This law expired in 2003. The Internet Tax Freedom Forever Act has been introduced in the Senate but as of this writing has not yet passed.3

Online sales tax requirements also vary depending on the business. For example, if an e-business also has a physical presence, such as a store, office, or warehouse in a state, the state might require it to impose a sales tax on customers. Target, for example, has some stores in Maryland, so a customer living in Maryland must pay sales tax on a purchase from Target’s website. However, if a customer in Georgia orders a bouquet from the 1800Flowers website, he or she does not have to pay sales tax because 1-800-Flowers doesn’t have a brick-and-mortar store in Georgia.

Because consumers like tax-free shopping, being able to offer it can give a firm a competitive advantage. For this reason, some large companies have created online stores that are separate legal entities from their brick-and-mortar stores. This allows customers to purchase from their online stores without paying sales taxes. However, the practice has outraged many retailers that must collect taxes from their customers. Some state governments have instituted a “use tax.” For example, in Pennsylvania, you have one month to pay the 6 percent use tax on anything you purchase over the Internet if the seller did not collect state taxes.

Who has legal jurisdiction over an online business? Jurisdiction is the authority of a government to legislate and enforce its many laws. It is usually territorial, but because the Internet has a geographic territory that is too broad to define, it is difficult to address legal jurisdiction issues for online-only businesses. Disputes over the legal jurisdiction of e-commerce have been occurring since the dawn of the Internet. A large corporation might have offices or stores in several different countries, and it becomes difficult to comply with the laws of all those countries. In addition, to protect the rights of buyers and sellers and protect copyrighted material, the Digital Millennium Copyright Act, passed in 1998, must be followed. In 2000, the World Intellectual Property Organization assured e-businesses that they would have to comply with laws only where the companies are based.