CHAPTER 15
GLOBAL MARKETING AND THE DIGITAL REVOLUTION
SUMMARY
The digital revolution has created a global electronic marketplace. The revolution has
gained momentum over the course of 70-plus years, during which time technological
breakthroughs included the digital mainframe computer; the transistor; the integrated
circuit; the personal computer; the spreadsheet, the PC operating system; and the
Internet, which originated as an initiative of the Defense Advanced Research Projects
Agency (DARPA). Three key innovations by Tim Berners-Lee, the URL, http, and
html, led to the creation in the early 1990s of the World Wide Web.
The digital revolution has resulted in a process known as convergence, meaning that
previously separate industries and markets are coming together. In this environment, the
innovator’s dilemma means that company management must decide whether to invest in
current technologies or try to develop new technologies. Although leading firms in an
industry often develop sustaining technologies that result in improved product
performance, the revolution has also unleashed a wave of disruptive technologies that
are creating new markets and reshaping industries and value networks.
E-commerce is growing in importance for both consumer and industrial goods
marketers. Generally, commercial Web sites can have a domestic or global focus; in
addition, they can be classified as promotion sites, content sites, and transaction sites. .
Global marketers must take care when designing Web sites. Country-specific domain
names must be registered and local-language sites developed. In addition to addressing
issues of technology and functionality, content must reflect local culture, customs, and
aesthetic preferences. Cybersquatting can hinder a company’s effort to register its
corporate name as an Internet destination.
The Internet is a powerful tool for advertisers; click-through rates are one measure of
effectiveness. Another trend is paid search advertising. New products and services
spawned by the digital revolution include: broadband, which permits transmission of
streaming media over the Internet; mobile commerce (m-commerce), which is made
possible by Wi-Fi, Bluetooth, WiMax, and other forms of wireless connectivity;
telematics, and global positioning systems (GPS); and short message service (SMS).
Smart cell phones are creating new markets for mobile music downloads, including
ringtones, truetones, and full-track music files; they can also be used for mobile gaming
and Internet phone service using VoIP.
OVERVIEW
What do Chris Anderson, Sir Richard Branson, George Colony, and Tony Hsieh have in
common? Besides being influential and successful business leaders, thinkers, and public
figures, they all use the micro-blogging Web site known as Twitter. Twitter is one of
many social media Web sites that have burst onto the scene and quickly gone
global within the span of just a few short years. Other popular social networking Web
sites include Facebook, MySpace, and YouTube; LinkedIn is a social network for
professionals. These sites, which are sometimes collectively referred to as Web 2.0,
enable individuals and companies to interact using the Internet. Twitter users post short
messages (“tweets”) of 140 characters or less from computers and mobile devices such as
cell phones, BlackBerries, and iPods.
The digital revolution is driving the creation of new companies, industries, and markets
in all parts of the world; the same process is also contributing to the destruction of
companies, industries, and markets.
This chapter appears after the five-chapter sequence devoted to the marketing mix. Why?
Because all the elements of the marketing mix—the 4Ps—converge in the world of
Internet connectivity and commerce. For example, the product “P” includes Google,
Twitter, Wikipedia, and the myriad other Web sites that can be accessed worldwide. The
Web also functions as a distribution channel, and a very efficient one at that. Case in
point: Apple’s iTunes, the digital-only entertainment retailer that has rewritten the rules
of music and film distribution. The Internet is also a communication channel. Today,
virtually every company and organization has a presence in the online space. The Internet
can be used as an advertising channel, as a PR tool, as a means for running a contest or
sales promotion, and as support for the personal selling effort. Finally, there is price.
Comparison-shopping Web sites make it easy to check and compare prices for products
and services. Moreover, the marginal cost of warehousing and distributing digitized
products—music files, for example—is practically nothing. This has led to some
interesting pricing strategy experiments. For example, Radiohead, the innovative rock
band from Oxford, England, harnessed the efficiency of the Web to offer downloads of In
Rainbows for free.
ANNOTATED LECTURE/OUTLINE
THE DIGITAL REVOLUTION: A BRIEF HISTORY
The digital revolution is a paradigm shift resulting from technological advances that
allow for the digitization of analogue sources of information, sounds, and images.
The origins of the digital revolution can be traced back to the mid-twentieth century.
Over a 5-year period between 1937 and 1942, John Vincent Atanasoff and Clifford Berry
developed the world's first electro-mechanical digital computer at Iowa State University.
In 1947, William Shockley and two colleagues at AT&T's Bell Laboratories invented a
"solid state amplifier," or transistor, as it became known.
This was a critical innovation because the vacuum tubes that were used in computers and
electronics products at that time were large, consumed a large amount of power, and
generated a great deal of heat.
During the 1950s, Robert Noyce and Jack Kilby independently invented the silicon chip
(also known as the integrated circuit or IC). The IC and the concept of binary code
permitted the development of the personal computer.
IBM brought its first PC to market in 1981.
Bill Gates initially declined an offer to create an operating system—the software code
that provides basic instructions—for IBM’s new machine. Gates later changed his mind
and developed the Microsoft Disk Operating System (MS-DOS).
In 1984, Apple introduced the revolutionary Macintosh.
The Internet's origins can be traced back to an initiative by the Defense Advanced
Research Projects Agency (DARPA) that created a computer network that could
maintain lines of communication in the event of a war.
In 1990, the uniform resource locator (URL), an Internet site’s address on the World
Wide Web; hypertext markup language (HTML), a format language that controls the
appearance of Web pages; and hypertext transfer protocol (http), which enables
hypertext files to be transferred across the Internet, were all invented.
Berners-Lee is the father of the World Wide Web.
In the mid-1990s, a computer scientist at the University of Illinois named Marc Andersen
developed a Web browser; called Mosaic, later changed to Netscape.
Within 5 years of the Web's debut, the number of users increased from 600,000 to 40
million.
Today, more than 1.5 billion people – one quarter of the world’s population – are using
the Internet.
The Internet’s powerful capabilities and increasing importance have resulted in a
backlash that manifests itself in various ways.
For example, the Chinese government, alarmed by the free flow of information across the
Internet, closely monitors the content on Web sites that its citizens access.
CONVERGENCE

How did the digital revolution cause changes in industry structure?
The digital revolution is causing dramatic in industry structure.
Convergence is a term that refers to the coming together of previously separate
industries and product categories (see Figure 15-1)
For example, Sony was a consumer electronics company and then acquired a record
company and a motion picture studio; these acquisitions did not represent convergence.
Today, Sony’s core businesses use digital technology and involve digitizing and
distributing sound, images, and data; competitors include Dell, Kodak, and Nokia.
Convergence presents challenges (e.g., Kodak, the leader in photography-related products
for more than a century faces competitors such as Sony because of convergence).
VALUE NETWORKS AND DISRUPTIVE TECHNOLOGIES

How does the digital revolution provide both opportunities and threats?
As noted in the chapter introductions, the digital revolution creates both opportunitites
and threats.
In an era when environmental scanning, strategic planning, and other conceptual tools are
widely known, some managers have failed to respond to change in a timely manner.

What is the “innovator’s dilemma”?
According to Christensen, executives are so committed to a current, profitable technology
that they fail to provide adequate investment in new, riskier technologies.
Companies listen to and respond to the needs of established customers; Christensen calls
this situation the innovator’s dilemma.
Companies have a value network, which has a cost structure that dictates the margins
needed for profitability; the boundaries are defined by order of importance of product
performance attributes.
Parallel value networks, each built around a different definition of what makes a product
valuable, may exist within the same broadly-defined industry.
For example, buyers of portable computers paid a premium for smaller size; mainframe
buyers do not value this attribute; value networks for mainframes and portable computers
are different.
As firms gain experience, they develop capabilities, organizational structures, and
cultures tailored to the requirements of their respective value networks.
Dominant firms lead in developing and/or adopting sustaining technologies, incremental
or radical innovations that improve product performance.
Most new technologies developed by established companies are sustaining in nature; new
entrants lead in developing disruptive technologies that redefine performance.
Disruptive technologies go beyond enhancing product performance; they enable
something to be done that was deemed impossible and enable new markets to emerge.
To develop responses to environmental change, Christensen developed principles of
disruptive innovations:
 Companies depend on customers and investors for resources. The best
innovations are user-driven; however, listening to established customers may lead
to missing opportunities for disruptive innovation.
 Small markets don't solve the growth needs of large companies. Small
organizations can respond to the opportunities for growth in a small market. This
fact may require large organizations to create independent units for new
technologies.
 Markets that don't exist can't be analyzed. Companies should embrace agnostic
marketing, the assumption that no one knows if a disruptive product can be used
before using it.
 An organization's capabilities define its disabilities.
 Technology supply may not equal market demand. Some products offer more
sophistication than required. Complex accounting software created an opportunity
for Quicken.
GLOBAL E-COMMERCE
The term e-commerce refers to the general exchange of goods and services using the
Internet as a marketing channel.
The U.S. Census Bureau estimates that 2008 e-commerce revenues totaled $133 billion, a
figure that represents about 3.5 percent of the total U.S. retail sales.
Internet penetration in the United States is currently at 75 percent of the population;
Consider the following:
 Every 48 hours, Yahoo records more than 24 terabytes of data about its users’
online activities. That is the equivalent of all the information contained in all the
books in the Library of Congress.
 Between 2003 and 2008, the number of Internet users in China increased from 68
million to 300 million. This makes China the world’s largest e-commerce market.
Local companies such as Dangdang.com are proving to be formidable competitors
against global rivals such as Yahoo, Google, and eBay.
 According to Forrester Research, online retail and travel sales in Western Europe
will grow at a compound annual rate of 8 percent between 2008 and 2014. In
2008, 37 percent of European adults – 136 million people – shopped online.
E-commerce activities can be divided into three broad categories:
1. Business-to-consumer (B2C or b-to-c)
2. Business-to-business (B2B or b-to-b)
3. Consumer-to-consumer (or peer-to-peer or P2P).
Overall B2B commerce constitutes the biggest share of the Internet economy and will
likely do do for the foreseeable future.
Web sites can be classified by purpose:
 Promotion sites provide marketing communications about a company’s goods or
services
 Content sites provide news and entertainment and support a company's public
relations efforts
 Transaction sites are cyberspace retail operations that allow customers to
purchase goods and services.
In many instances, Web sites combine the three functions (see Figure 15-2).
In Quadrant 1, the focus is on providing information and service to domestic or localcountry customers.
In Quadrant 2, companies maintain transaction-oriented e-commerce sites with a
domestic focus.
Companies that initially fall into quadrants 1 and 2 can transition into quadrants 3 and 4.
In Quadrant 3, the audience focus is global. Companies such as Federal Express and
Gucci are already global in scope, and the Internet constitutes a powerful, cost-effective
communication tool.
Pampers.com represents a new conceptualization of the brand. Previously, brand
managers viewed Pampers as a way of keeping babies happy; the new view is that the
Pampers brand is a child development aid.
In Quadrant 4, companies seek e-commerce transactions with customers on a worldwide
basis. Amazon.com is the most successful example of the global audience-transaction
business model.
In some instances, global marketers make the strategic decision to establish a presence on
the Web without offering transaction opportunities even though the product could be sold
that way.
As noted earlier, online retail in the United States totaled $133 billion in 2008.
This figure includes orders from abroad; Abercrombie & Fitch, Timberland, Coach, and
Saks Fifth Avenue are just some of the U.S. retailers targeting foreign buyers. The trend
has been fueled by a variety of factors, including the slowdown in U.S. consumer
spending and a weak dollar that translates into savings for shoppers paying in euros or
other currencies.
In some instances, global marketers make the strategic decision to establish a presence on
the Web without offering transaction opportunities even though the product could be sold
that way.
Rather, such companies limit their Web activities to promotion and information in
support of offline retail distribution channels.
There are several reasons for this. First, many companies lack the infrastructure necessary
to process orders from individual customers.
Second, it can cost anywhere from $20 million to $30 million to establish a fully
functioning e-commerce site. There may be other, product-specific reasons.
The Web site for Godin Guitars, for example, provides a great deal of product
information and a directory of the company’s worldwide dealer network.
Company founder Robert Godin believes that the best way for a person to select a guitar
is to play one, and that requires a visit to a music store.
As the Internet has developed into a crucial global communication tool, decision makers
in virtually all organizations are realizing that they must include this new medium in their
communications planning.
Many companies purchase banner ads on popular Web sites; the ads are linked to the
company’s home page or product- or brand-related sites. Advertisers pay when users
click on the link.
Although creative possibilities are limited with banner ads and clickthrough rates—the
percentage of users who click on an advertisement that has been presented—
are typically low, the number of companies that use the Web as a medium for global
advertising is expected to increase dramatically over the next few years.
An important trend is paid search advertising, whereby companies pay to have their ads
appear when users type certain search terms. Yahoo! recently paid $1.6 billion to acquire
Overture, a company specializing in paid search advertising.
WEB SITE DESIGN and IMPLEMENTATION
To fully exploit the Internet's potential, company executives must be willing to integrate
interactive media into their marketing mixes.
A critical first step is registering a country-specific domain name.

What is cybersquatting and why has it become such a big problem?
Cybersquatting—the practice of registering a particular domain name for the express
purpose of reselling it to the company that should rightfully use it—is a problem.
Payment can be another problem.
In some countries, including China, credit card use is low.
Another issue is credit card fraud.
Ideally, each country-specific site should reflect local culture, language usage, customs,
and aesthetic preferences.
Logos and other elements of brand identity should be included on the site, with
adjustments for color preferences and meaning differences when necessary.
A note of caution is in order: It is not enough to simply translate a Web site from the
home country language into other languages (see Table 15-4).
Thus, another basic step is localizing a Web site in the native language and business
nomenclature of the target country.
Another critical global e-commerce issue is privacy.
The European Union’s regulations are among the world’s strictest, regarding privacy.
A number of issues are related to physical distribution decisions.
NEW PRODUCTS AND SERVICES
The digital revolution has spurred innovation in many different industries. Companies in
all parts of the world are developing a new generation of products, services, and
technologies. These include broadband networks, mobile commerce, wireless
connectivity, and smart phones.
Broadband
A broadband communication system is one that has sufficient capacity to carry multiple
voice, data, or video channels simultaneously.
Bandwidth determines the range of frequencies that can pass over a given transmission
channel.

What opportunities does broadband offer to companies outside the
telecommunications industry?
Broadband offers a variety of marketing opportunities to companies in a variety of
industries.
Broadband Internet allows users to access streaming audio, streaming video and
streaming media.
Streaming audio allows users to listen to Internet radio stations.
Streaming video is a sequence of moving images that are sent in compressed form over
the Internet and displayed by the viewer as they arrive.
Streaming media combines streaming video with sound.
Streaming media represents huge market opportunity for the video game industry, which
includes electronics companies (e.g., Microsoft and Sony), game publishers (e.g.,
Electronic Arts), and Internet portals (e.g., Yahoo!).
Another trend in online gaming: Gamers in different locations, even different countries,
compete against each other using PCs, Xbox, or Play- Station consoles. These are
sometimes known as massively multiplayer online games (MMOG); the most popular
title is World of Warcraft.
However, the promise of broadband goes far beyond entertainment. It is a key
productivity tool that allows employees to save time by tapping online resources and by
sharing electronic documents on desktop PCs in real time. Broadband provides
opportunities for online education, medical diagnosis and treatment, and, of course, ecommerce.
Mobile Commerce and Wireless Connectivity
Mobile commerce (m-commerce) is the term for conducting commercial transactions
using wireless handheld devices such as personal digital assistants (PDAs) and cell
phones.
Wi-fi (wireless fidelity) permits laptop and PDA users to establish high-speed wireless
connections to the Internet and corporate intranets via "hot spots."
Wi-Fi networks have a limited range; an improved technology known as World
Interoperability for MicroWave Access (WiMax) is being deployed in many parts of
the world.
A WiMax network can have a range of several miles, making it superior to traditional
Wi-Fi.
Fixed WiMax doesn’t work with mobile devices; an improved technology called mobile
WiMax does.
Because mobile WiMax offers greater capacity and faster speeds than current mobile data
networks, it is well suited for streaming music or video.
Wi-Fi connections require a subscription to a service provider; one problem is getting a
connection in a hotspot supported by a different provider than the one to which a user
subscribes.
Another mobile communication technology, Bluetooth, has the advantage of consuming
less power than Wi-Fi. This makes Bluetooth well-suited to use with cell phones. As
such, it is gaining popularity in Europe.
Wireless technology is being used in other ways. In the automotive world, there is a trend
toward telematics, which is a car’s ability to exchange information about the vehicle’s
location or mechanical performance.
Cars are also being equipped with online access; BMW Assist, BMW Online, and BMW
TeleServices illustrate some of telematics’ potential.
The system provides access to a wide range of information and services, including the
availability of parking spaces. The service also assists users who wish to book hotel
rooms or make restaurant reservations.
Similarly, Microsoft’s SYNC is a voice-activated communication system that is available
on Ford and Mercury vehicles. It can be used in conjunction with Bluetooth-equipped cell
phones.
Smart Cell Phones
Cell phones have been one of the biggest new product success stories of the digital
revolution.
Worldwide, 1 billion cellular handsets are sold each year. The popularity of cell phone
handsets has boosted the fortunes of manufacturers such as Nokia, Motorola, Samsung,
and Ericsson as well as service providers such as Deutsche Telekom, U.S. Cellular,
Verizon, and others. features such as color displays and cameras give consumers a reason
to upgrade their handsets on a regular basis; a new generation of smart phones gives
phones some of the capabilities of computers.
Case in point: Apple’s wildly successful iPhone comes equipped with a full-blown Web
browser. The marketing possibilities of cell phone–based e-commerce are suggested by
the following:
While these and other new mobile services are in development, individuals are already
using their cell phones for a variety of tasks besides calling.
For example, text messaging has exploded in popularity. Now, advertisers are taking
advantage of this capability by using short message service (SMS), a globally accepted
wireless standard for sending alphanumeric messages of up to 160 characters. SMS is the
technology that is the basis for Twitter’s micro-blogging service (see Case 15-1).
Industry experts expect marketers to integrate SMS with communication via other digital
channels such as interactive digital TV, the Internet, and e-mail.
Some smart phones are equipped with a global positioning system (GPS) that allows
users to determine their exact geographic position.
This capability is also opening new opportunities for location-based advertising.
For example, Alcatel-Lucent, the French telecommunications equipment manufacturer,
has just launched a service that sends tailored text messages when cell phone users are
near a specific location such as a store, hotel, or restaurant.
The service provides addresses and telephone numbers of the businesses and can also
provide links to coupons or other types of sales
Mobile Music: Ring Tones, Ring Tunes, and Full-Track Downloads
Because of rampant illegal sharing of music files, record companies are searching for
new
sources of revenue. Thanks to technology convergence, a new generation of cell phones
is leading to changes in the mobile music industry.
Mobile music is music that is purchased and played on a cell phone.
Ring tunes, also known as music tones, song tunes, TruTones, and master tones, are
digitized clips of original songs by the original recording artists. The market for paid,
legal, full-track music downloads is dominated by Apple’s iTunes Store. Music
purchased from iTunes can be played back on computers and mobile devices such
as the Apple iPod and iPhone
These online music services use a variety of pricing strategies. Rhapsody is primarily a
subscription service, with rates starting at $12.99 per month. Napster charges $9.99 per
month, and also has a “Napster to Go” plan for $5. By contrast, iTunes uses “al a carte”
pricing, charging for each song track or album download.
Mobile Gaming
There is a growing trend toward mobile gaming; eMarketer estimates that nearly 300
million cell phone subscribers play games that they have downloaded on their handsets.
Revenues from mobile games totaled $1.7 billion in 2007; eMarketer predicts that figure
will increase to $7 billion by 2012. Popular categories include puzzles such as Sudoku;
solitaire, blackjack, and other card and casino games; and board games such as
Monopoly. Some games are available for free; others sell for the equivalent of a few
dollars. However, the word “free” can be misleading, as network operators typically
charge fees for downloading games.
Because cell phones have small screens and limited storage space and computing power,
mobile gaming originally appealed more to occasional users such as commuters rather
than hardcore gamers. Currently, the economics of mobile gaming do not favor game
developers; cell phone service providers keep 10 to 70 percent of the selling price of each
game downloaded.
Internet Phone Service
For the telecommunications industry, Internet telephone service is the “next big thing.”
Voice over Internet protocol (VoIP), the human voice can be digitized and broken into
data packets that can be transmitted over the Internet and converted back into normal
speech.
Currently, VoIP accounts for only 3 percent of global calling; however, the promise of a
global growth market has resulted in soaring stock values for start-up companies.
Skype has become a global phenomenon. In 2005, eBay acquired Skype for $2.6 billion.
Digital Books and Electronic Reading Devices
The digital revolution has had a dramatic impact on traditional print media properties
such as newspapers and magazines. Publishers are experiencing dramatic downturns in
readership as people spend more time online.
Amazon sold the first Kindle for $359; the new, larger Kindle DX costs $489, holds
3,500 books, and has a 9.7-inch display screen.
Industry observers also believe colleges and universities may be instrumental in building
awareness and encouraging adoption of electronic readers. The reason is simple:
electronic versions of textbooks represent a huge market opportunity. As is the case with
music and movies, digital piracy is a growing problem with electronic editions of books.
A number of Web sites and file-sharing services distribute unauthorized copies of popular
copyrighted material. What do the authors themselves think of the problem? Some view
digital piracy as a way to gain new readers. Others say that they simply want fair
compensation for their work.
DISCUSSION QUESTIONS
1. Briefly review the key innovations that culminated in the digital revolution. What is
the basic technological process that made the revolution possible?
The origins of the digital revolution can be traced back to the mid-twentieth
century; between 1937 and 1942, Atanasoff and Berry developed the electronic
digital computer. In 1947, William Shockley and two colleagues at AT&T's Bell
Laboratories invented a "solid state amplifier," or the transistor. This was a
critical innovation because the vacuum tubes used in computers and electronics
products were large, consumed a large amount of power, and generated heat. In
the mid-1950s, Sony licensed the transistor from Bell Labs; Sony engineers
boosted the yield of the transistor and created the market for transistor radios.
During the 1950s, Noyce and Kilby invented the silicon chip, the integrated
circuit or IC, the transistor’s modern form which harnessed power in a reliable,
low-cost way. The IC permitted the development of the personal computer, whose
appearance marked the next phase of the digital revolution.
The basic technological processes that made the computer revolution possible
were innovations including binary arithmetic, regenerative memory, parallel
processing, and separation of memory and computing functions. The silicon chip,
the integrated circuit permitted the development of the personal computer.
2. What is convergence? How is convergence affecting Sony? Kodak? Nokia?
Convergence refers to the coming together of previously separate industries and
product categories; new technologies affect the business sector(s) in which a
company competes. Sony’s core businesses use digital technology and involve
digitizing and distributing sound, images, and data; this is an example of
convergence. Sony’s competitors include Dell, Kodak, and Nokia.
Convergence presents challenges (e.g., Kodak, the leader in photographyproducts for more than a century faces competitors such as Gateway because of
convergence).
3. What is the innovator's dilemma? What is the difference between sustaining
technology and disruptive technology? Briefly review Christensen's five principles of
disruptive innovation.
According to Christensen, executives are so committed to a current, profitable
technology that they fail to provide adequate investment in new, riskier
technologies. Companies listen to and respond to the needs of established
customers; Christensen calls this situation the innovator’s dilemma.
Dominant firms—"well managed" firms—lead in developing and/or adopting
sustaining technologies, incremental or radical innovations that improve product
performance. Most new technologies developed by established companies are
sustaining in nature; new entrants lead in developing disruptive technologies that
redefine performance.
Christensen’s five principles of disruptive innovation include:
 Companies depend on customers and investors for resources. The best
innovations are user-driven; however, listening to established customers
may lead to missed opportunities for disruptive innovation.
 Small markets don't solve the growth needs of large companies. Small
organizations can respond to the opportunities for growth in a small
market; large organizations should create independent units for new
technologies.
 Markets that don't exist can't be analyzed. Companies should embrace
agnostic marketing, the assumption that no one knows if a disruptive
product can be used before using it.
 An organization's capabilities define its disabilities.
 Technology supply may not equal market demand. Some products offer
more sophistication than required.
4. What key issues must be addressed by global companies that engage in e-commerce?
Some products are not suitable for sale via the Internet (McDonald’s hamburgers),
yet some global marketers establish a Web site for promotion and information.
Many companies lack the infrastructure necessary to process orders from
individual customers; it can cost $20 million to $30 million to establish an ecommerce site.
Also, top design houses strive to create an overall retail shopping experience that
enhances the brand; this objective is basically at odds with the e-commerce.
Decision makers in all organizations realize that they must include this new
medium in their communications planning; many companies purchase banner ads.
The importance of Internet global marketing is seen in the number and variety of
alliances that advertisers establish with Web sites (e.g., Unilever sponsors the
Microsoft Network (MSN)).
5. What is the Long Tail? What implications does this have for market segmentation?
“One of the most interesting aspects of the digital revolution has been noted by
Chris
Anderson, the editor of Wired magazine and author of The Long Tail. The book’s
title refers to the use of the efficient economics of online retail to aggregate a
large number of relatively slow selling products. The Long Tail helps explain the
success of eBay, Amazon.com, and iTunes, all of which offer far more variety
and choice than traditional retailers can. As Anderson explains, “The story of the
Long Tail is really about the economics of abundance—what happens when the
bottlenecks that stand between supply and demand in our culture start to disappear
and everything becomes available to everyone.” Anderson notes that “below-the–
radar” products—for example, obscure books, movies, and music—are driving
revenues at e-commerce merchants such as Amazon.com, Netflix, and iTunes. He
says, “These millions of fringe sales are an efficient, cost-effective business. . . .
For the first time in history, hits and niches are on equal economic footing.”
Assuming you “buy into” this theory, the implications for market segmentation
are quite profound – marketers can create products to suit niches of any size and
not have to worry about quantities to support their marketing channel providers.
It also means that a producer will have a rough time discontinuing a product in the
future.
6. Briefly outline Web design issues as they pertain to global marketing.
A critical first step is registering a country-specific domain name; Amazon.com
has a family of different domain names, including one for each country in which
it operates. Research suggests that visitors spend more time at sites that are in
their own language; they also tend to view more pages and make more purchases.
People seek information about sites on local versions of well-known search
engines; local search engines and directories recognize sites intended for a
particular country audience.
7. Review the key products and services that have emerged during the digital revolution.
What are some products and services that are not mentioned in the chapter?
As a result of the digital revolution, a new generation of products, services, and
technologies is being developed by a variety of companies in all parts of the
world. These include broadband networks, mobile commerce, wireless
connectivity, and “smart” cell phones.
A product not mentioned in the chapter is biometrics – the identification of an
individual based on personal characteristics like fingerprints, facial features, or
iris patterns. While the technology is not new, having seen use for years to restrict
access in corporate and military settings, it is only now creeping into everyday
life. Over the next few years, people currently unfamiliar with the technology will
be asked to use it in everything from travel settings to financial transactions. For
example, Piggly Wiggly Co. grocery stores in the South launched a pay-byfingerprint system. At the Statue of Liberty, to rent, close, and reopen lockers,
visitors touch an electronic reader that scans fingerprints.
Source: Odessa American, August 12, 2004, p. 8B.
8. You have the option of purchasing an electronic edition of Global Marketing and other
textbooks. Is this something that you are interested in doing?
Student answers will vary.
9. Which pricing model do you think is the best for music downloads, iTunes Store’s
“pay-per-track” or Rhapsody’s subscription service? Why?
Student answers will vary, but the most “popular” answer might be the “no
charge” or free download subscription service!
CASES
Case 15-1: Global Marketers Use Social Media: The Assignment
Overview: In the chapter opening, you were introduced to several prominent individuals
who use the Twitter social media Web site. For example, Sir Richard Branson is the
charismatic founder and chairman of the Virgin Group. Two of his companies, Virgin
Atlantic and Virgin America, have their own presence on Twitter (@virginatlantic
and @virginamerica, respectively). As Sir Richard told Business Week, “With more than
200 Virgin companies worldwide, my days and nights are filled with exciting service
launches, product announcements, parties, events, and consumer opportunities.
I’m regularly asked what a day in the life of Richard Branson looks like, and Twitter
helps me answer that. It also enables communication no matter where I am.”
Twitter’s success has been accompanied by some major challenges. So far, the company
has raised $55 million in venture capital and is attracting millions of new users. Even so,
it is unclear whether Twitter will achieve the levels of global popularity enjoyed by
YouTube and Facebook. One issue is the number of users who quit using the service after
trying it. Then there is the issue of making money.
1. Twitter seems to have a polarizing effect on people; some are excited by it, others
seem angry or even scared. What is the explanation for this?
Twitter is complicated and not intuitive to use. As stated in the case “users must
master some new terms and symbols. Members of Twitter’s online community are
known as “tweeps.” “Tweet” can be both a noun and a verb; when users update
their pages, they are “tweeting,” so each individual entry is a “tweet.” It is
possible to “retweet” (“RT”); that is, forward someone else’s tweet. Each Twitter
user can choose other users to follow. Twitter is searchable; entries marked with a
“#” symbol (“hashtag”) are a group of tweets about a particular subject. The “@”
symbol is used to link a tweet to another user.
2. You have just been hired as director of social media at a global company. This is a
newly created position. What will you do during your first week on the job?
Marketing research and more marketing research – who is using the various
“social media” services, why are they using these services, what “benefits” to
these users do these services provide, how can I generate interest in my
company’s products using these social media outlets and hundreds of other
questions!
My basic objective would be to understand how I can use these forms of
communications to get our company’s message out.
3. In the long run, how will Twitter generate revenues? Will it be through advertising,
subscriptions, or some other source?
One’s guess is as good as another’s but if one was to “guess” Twitter would / will
be generating revenue by streaming “commercial tweets” to their followers in
some fashion for some trendy company / product in the near future.
Case 15-2: eBay in Asia
Overview: EBay is an American e-commerce transaction site that helps customers sell
and buy products through the use of online auctions. The attempt of eBay to go global
was not successful in the Asian online markets. The competition of Yahoo!, which
combined forces with Ma, led to the great success of Yahoo! auctions and to the closing
of eBay in China. EBay promises to open a new e-commerce business in China in 2007,
by uniting its forces with Tom Online.
1. Why has eBay struggled in Japan, China, and other Asian markets?
EBay was not able to adjust its web site to local customers’ tastes. It didn’t fully
understand the difference between American and Asian markets. EBay didn’t
have needed essential knowledge of e-commerce in Japan and China. The
company started with a wrong product at first and didn’t provide the necessary
variety of items.
2. EBay is making a strategic shift by giving control of its main China operation to Tom
Online. What does this shift signify?
Tom Online is local e-commerce web site already familiar with the tastes of Asian
culture. This shift shows that eBay realizes the potential of the Asian market and
is not going to leave it alone. The lesson of Yahoo! and Ma was probably the
force that motivated eBay to use the same strategy: to combine forces with people
(in this case Tom Online) who know the peculiarities of local market.
Case 15-3: Barry Diller and IAC/InterActiveCorp
Overview: Barry Diller is a successful businessman who created his own e-commerce
enterprise, IAC/InterActiveCorp, which is now the largest worldwide. His last investment
was AskJeeves, a search engine site which has since been renamed simple ask.com.
1. Why did Barry Diller divest Expedia.com and acquire AskJeeves?
Barry Diller has been paying more attention to Internet search. That is why he
acquired AskJeeves, one of the online search engines that is supposed to be fast
and reliable in finding requested information. I believe he divested Expedia.com
because it is used worldwide as many search engines are; Expedia is more
concentrated on the American market, while AskJeeves is global.
2. Which search engine do you use most frequently? Why?
I use Yahoo.com. The reason for it is that I like the start page more than
Google.com and that I have a mailbox on it. Yahoo! is my start page when I open
the internet. I listen to music on it and read news. I’m just more familiar with
Yahoo! I go to Google only when I need to make an additional search.
3. What acquisition do you think Diller will make next?
I believe whatever he thinks would bring more profit. I’m sure it is going to be
something connected with an internet because it is the sphere of our life that is
becoming more and more important for all of us. Could be the site dealing with
auctions (like eBay).
SUGGESTED READINGS
Books
Kraemer, Kenneth L., Jason Dedrick, and Nigel P. Melville. Global e-commerce: Impacts
of National Environment and Policy. London: Cambridge University Press, 2006.
Dholakia, Nikhilesh, Wolfgang Fritz, Ruby Roy Dholakia, Norbert Mundorf. Global ECommerce and Online Marketing: Watching the Evolution. Westport, CT: Quorum
Books, 2002.
Articles
Anderson, Philip, and Erin Anderson. “The New E-Commerce Intermediaries.” MIT
Sloan Management Review 43, no. 4 (Summer 2002), pp. 53-63.
Dickie, Mure. “Amazon Buys into Growing Chinese Online Retail Market.” Financial
Times (London) (August 20, 2004), p. 20.
Lynch, Patrick, Robert J. Kent, and Srini S. Srinivasan. "The Global Internet Shopper:
Evidence from Shopping Tasks in Twelve Countries." Journal of Advertising Research
(May-June 2001), pp. 15-23.
Samiee, Saeed. "The Internet and International Marketing: Is There a Fit?" Journal of
Interactive Marketing 12, no. 4 (Autumn 1998), pp. 5-21.
Singh, Tanuja, and Mark E. Hill. “Consumer Privacy and the Internet in Europe: A View
from Germany.” Journal of Consumer Marketing 20, no. 7 (2003), pp. 634-652.
TEACHING TOOLS AND EXERCISES
Cases: “Air France Internet Marketing: Optimizing Google, Yahoo!, MSN, and Kayak
Sponsored Search”. Mark Jeffery; Lisa Egli; Andy Gieraltowski; Jessica Lambert; Jason
Miller; Liz Neely; Rakesh Sharma. HBS KET319.
“What is the Best Global Strategy for the Intenet?”. Mauro F. Guillen. HBS BH077.
Activity: Students should be preparing or presenting their Cultural-Economic Analysis
and Marketing Plan for their country and product as outlined in Chapter 1.
Movie: 1950s Global Economy, Commerce & World Trade Center Films DVD: Vintage
Business Economic Globalization, Foreign Commerce & WTC Footage. Available from
Quality Information Publishers.
This is a DVD compilation of three vintage world commerce and foreign trade films.
This is an absolutely wonderful short (25 minutes or so) piece that shows just how much
things have changed.
Out-of-Class Reading: Singh, Tanuja, and Mark E. Hill. “Consumer Privacy and the
Internet in Europe: A View from Germany.” Journal of Consumer Marketing 20, no. 7
(2003), pp. 634-652.
Internet Exercise: Take a look at some of the foreign websites of Amazon.com and
eBay. How do they differ from our “American” version?
Guest speaker: Invite someone from a company that designs websites and hear what is
involved in creating a website for domestic and/or global use.