Online environment analysis

The situation or context in which an activity takes place needs to be analysed in order to understand the full meaning of the actions which are taking place in a given trading situation. This is particularly relevant to the online trading environment. As suggested, it has unusual characteristics which can impact on the way an organisation defines its marketing strategy and the activities in which it engages online.

According to Finlay (2000) organisations operate in an environment that consists of a great many influences and a particularly important part of strategy development is being able to make sense of what is happening or likely to happen in the future in this environment (for further discussion of details of the micro- and macro-environment analysis see Chapters 2 and 3). There is much academic work focusing on various aspects of online trading situations and how characteristics of this environment potentially impact on organisational behaviour and influence strategy development. Three aspects of the trading environment are considered by focusing on academic literature in order to gain a better understanding of what is known about the B2B trading context and the online environment:

1 macro-environmental

2 micro-environmental

3 internal (organisation's operating environment).

1 Macro-environment

The macro-environment consists of various external factors which can affect a business's success. According to Finlay (2000), these factors may include: demographic, economic, environmental, political, legal, social and technological. Examples of how some of these analysis factors are affecting organisations operating online are as follows.

Demographic

Hoffman et al. (2000) identified the importance of demographic factors on individuals' uptake of Internet technologies and discussed in some detail the impact of how where people live will be affected by the technology infrastructure that supports their Internet access. For example, in the UK, Western Europe and North America there is a highly developed network infrastructure whereas in the Pacific Ring (excluding Japan) technological infrastructure is poor and as a result international data traffic links are very limited. Consumer demographics and the impact of inequities of Internet access have been discussed in some detail in Chapter 10. However, organisational dispersion has produced far fewer publications. The issue of dispersion of online businesses is discussed in the next key section of the chapter: Commercial exchanges in B2B markets.

Economic

Bakos (1991) examined the impact of online markets, and how internet-based electronic marketplaces affect pricing and competition. A major impact of these electronic markets is that they typically reduce the search costs buyers must pay to obtain information about the prices and product offerings available in the market. Economic theory suggests lower search costs play a key role in determining how technology can affect market efficiency and competitive behaviour. Reduced search costs deliver direct efficiency gains from reduced intermediation costs and indirect (but possibly larger) gains in allocational efficiency from better-informed buyers. Ultimately the result is increased efficiency of interorganisational transactions in the process affecting the market power of buyers and sellers.

Environmental

Do (physical) environmental issues impact on our digital marketing planning? Well for the first time many companies are developing corporate and social responsibility policies and statements. According to Dixon (2005):

You can have the greatest strategy in the world but if your vision of the future is wrong you just land up travelling even faster in the wrong direction. A prime example of this is the current revolution in corporate ethics and social responsibility, which is changing major board policies of many multinationals.

Dixon (2005), an acclaimed specialist in future marketing management, suggests that corporate and social responsibilty is an insurance policy against bad news and bad news can hit any corporation and shatter market confidence, or even worse scandalise customers and cause outrage in the general public. Furthermore, the impact of Internet technology is that global media are able to stimulate great interest in exposing corporate wrongdoing, the result of which can be complete business failure. Currently, trading environments have very sensitive climates and increasingly corporations are now feeling their way through the issue of corporate and social responsibility.

Political

From a political perspective, the online environment raises many issues, for instance borderless trading: how are import duties and taxes applied and controlled and the interest of individual nations maintained when trading in an environment where there is no central control able to authorise or establish globally applicable laws? Another issue is how the Internet might affect the democratic process per se. Shaw (2002), considers how 'the Internet will turn political campaigns upside down'. Political debates also focus on the extent to which the accessibility of information impacts on levels of individual and organisational privacy.

Legal

The macro-environment consists of bodies of laws that affect what organisations can do and provide frameworks of rules which are enforceable. However, as far as the online environment is concerned there is no international legislation system. Even within the USA where Internet usage is advanced compared to many other parts of the world, legal controls are limited. Central issues from a B2B perspective include: intellectual property rights, taxation and data protection (see Chapter 3 for further discussion of the macroenvironment and legal issues).

Social

The social environment is concerned with people's needs and wants (Finlay, 2000). From a digital marketing planning perspective, the cultural values of the society that an organisation wishes to trade with are of critical importance. Societies are constantly evolving; in economically well-developed nations, the quality of life has become a priority. Attitudes to work and leisure are evolving towards creating the work/life balance. Digital technology has had a wide impact on the social environment; the Internet has the potential to accentuate the differences within a single nation and between nations. There has been much discussion globally about Information haves and have nots, again primarily in B2C markets. The impact of organisational culture is generally considered within the literature as part of an internal analysis (see Internal analysis later in this section).

Technological

The major environmental influence of technology in the last decade has been the online trading arena created by the computer networks that form the Internet. This global trading environment has the impact of creating opportunities for organisations of all sizes to operate as multinational enterprises. Sambharya et al. (2005) state that innovative Internet and web-based technologies have the potential to affect the way businesses operate: 'The "new" rules include restructuring to foster a "glocal" outlook, nimbleness, empowerment of local managers / employees and the management of knowledge', thereby suggesting that technological changes not only impact at the macro-environmental level of analysis but also at the micro and internal level. For instance, trading becomes borderless, competition is intensified, procurement and production globalised, operations streamlined and made more cost effective, and lead times are reduced.

2 Micro-environmental analysis

The micro-environment consists of five key elements: competitors, customers, suppliers, intermediaries and other stakeholders. At this level, the organisation has much more direct control. In highly dynamic markets, competitors are constantly monitored in order to understand their next move. Relationship management with both the buy side and supply side of the exchange process is carefully controlled and managed. In addition, location of trading, virtual value chain, channel structures and trading relationships form an important part of the online trading context but are considered separately in Trading relationships in B2B markets later in this chapter (see also Chapter 2).

Arguably, competition is at the heart of any discussion about the micro-environmental trading environment. In 1980, Michael Porter published his classic model showing how these forces potentially shape the five main competitive forces that affect a company. In 2001, he revised this model to accommodate how the Internet influences industry structure. However, he is mindful to point out that in the dot-com boom and bust era the Internet was the cause of many distorted signals. New technologies trigger rampant experimentation that is often economically unsustainable (Porter, 2001). The value chain model has been revised to reflect experiences of how Internet and digital technologies can alter the model.

An important part of this level of analysis is to develop an understanding of customers and their behaviour in order to develop insight into how to get inside the minds of online customers and to understand the drivers and barriers which impact on how customers move through the buying process online. An important decision for digital marketing planners is which groups of customers are the most attractive targets and best match the organisation's capabilities. In business markets, purchasing decisions are almost exclusively goal-orientated. The decision-making unit (individuals involved in the purchasing decision) will vary according to the buy class, the product type and the importance of the purchase. The decision-making unit uses a range of choice criteria, mainly technical and economic, to evaluate purchasing options. Tzong-Ru and Jan-Mou (2005) argue that although the Internet has facilitated the connecting of markets across the globe it has not altered the general criteria for B2B trading. Therefore, it is perhaps reasonable to assume that choice criteria remain fairly constant whether an organisation is buying on- or offline. However, the online environment can enhance and potentially improve the efficiency of online trading by facilitating flow of logistics (leading to potential cost savings), business flow (developing and extending markets), enhanced cash flow (through streamlining and cost efficiencies in management and administration) and information flow (supporting decision making). It is important to remember that a fundamental part of the organisational buying process is customer relationship development and management. Trading via the Internet makes it possible to interact with large numbers of customers whilst still treating them as individuals due to the application of sophisticated e-CRM applications. However, it is important that such applications are supported by appropriate organisational structures (see Chapter 6 for further discussion of e-CRM).

Suppliers, intermediaries and other stakeholders are also considered as part of the macro-environmental analysis. Perhaps the most significant change to occur as a result of trading online is the nature of trading partnerships. New types of partnerships are being formed with new types of partners in electronic trading hubs (e.g. marketsites). Trading relationships are discussed again later in this chapter.

3 Internal analysis

Internet technologies are adopted in various ways to meet a range of business objectives. Organisations are responding differently to the opportunities and challenges created by the technology. General Electric Corporation was an early adopter of the technology and incorporated it into its transaction processing systems, which resulted in huge cost savings. Google was created through innovative use of carefully designed algorithms which enabled the company to be differentiated in the market by providing superior search services. But not all companies have been such proactive and innovative adopters of the technology. Many have taken cautious steps, say by introducing e-mail, developing a poster web site presenting company contact details and a view of the corporate headquarters, and then gradually moving towards e-commerce applications. However, increasingly, companies are looking for ways to get the best out of digital technologies: ips Intelligent Print Solutions is one such company. The company has won many industry awards for its use of digital solutions that both enhance levels of service and improve business efficiency (see Figure 11.1).

Figure 11.1 ips Intelligent

Source: www.ips/tv/

Figure 11.1 ips Intelligent

Source: www.ips/tv/

This raises the question; why are organisations adopting Internet technologies at different rates and for different purposes? An important influence on how an organisation behaves is its internal environment: the dominant culture is determined by the shared sets of values within an organisation. Some have a culture that stresses the customer is always right whereas others are more bureaucratic and stress the need for doing things in an administratively correct manner. Whatever form the dominant culture takes it will affect everything the organisation does. Two other aspects of the organisation that are likely to be important to uptake and development of Internet marketing are the workforce and the technological infrastructure.

Currently, a key problem facing the e-commerce industry is the recruitment, retention and ongoing skills development of the workforce responsible for the development and operation of e-commerce systems and digital marketing operations. There is a general shortage of suitably knowledgeable and skilled individuals who are innovative, strategically minded and technically qualified. The status of the employment market can have an effect on the benefits required to attract the best workers - a shortage of skilled workers can encourage companies to introduce a range of additional benefits to attract and retain suitably skilled workers. Mini Case Study 11.1 presents some examples from the Ivy League of high-tech employers.

Mini Case Study 11.1

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