Chapter 4 E-environment

Learning outcomes Identify the different elements of an organization macro-environment that impact on an organizations e-business and e-marketing strategy. Assess the impact of legal, privacy and ethical constraints or opportunities on a company. Assess the role of macro-economic factors such as governmental e-business policies, economics, taxation and legal constraints.

Management issues What are the constraints placed on developing and implementing an e-business strategy by the e-environment? How can trust and privacy be assured for the customer while seeking to achieve marketing objectives of customer acquisition and retention? Assessment of the business relevance of technological innovation.

Activity 4.1 Introduction to social, legal and ethical issues List all the social, legal and ethical issues that the manager of a sell-side e-commerce web site needs to consider to avoid damaging relationships with users of his or her site or which may leave the company facing prosecution. You can base your answer on issues which may concern you, your friends or family when you access a web site.

Activity answer – this lecture Cookies – laws and consumer perception on placing these are we limiting access to information from certain sections of society (social exclusion)? Privacy of personal information entered on a web site Sending unsolicited e-mail Replying promptly to e-mail Copyright Site content and promotional offers/adverts are in keeping with the different laws in different countries Providing text, graphics and personality in keeping with social mores of different countries.

Introduction In this chapter we concentrate on the role of the macro-environmental forces. Aspects of the micro-environment or e-marketplace such as competitors, suppliers and intermediaries are the focus of Chapters 2 and 4 and Part 2 of this book. We will review the macro-environmental factor using the widely used SLEPT framework. SLEPT stands for Social, Legal, Economic, Political and Technological factors. Often, these factors are known as the PEST factors, but we use SLEPT since it is useful to stress the importance of the law in influencing Internet marketing practices.

The SLEPT factors are: Social factors – these include the influence of consumer perceptions in determining usage of the Internet for different activities. Legal and ethical factors – determine the method by which products can be promoted and sold online. Governments, on behalf of society, seek to safeguard individuals’ rights to privacy. Economic factors – variations in the economic performance in different countries and regions affect spending patterns and international trade. Political – national governments and transnational organizations have an important role in determining the future adoption and control of the Internet and the rules by which it is governed. Technological factors – changes in technology offer new opportunities to the way products can be marketed. For each factor we look at new issues raised for managers responsible for e-commerce trading. For those actively involved in the implementation of e-business, and in particular sell-side e-commerce, factors associated with buyer behavior are also important when implementing e-commerce. These are covered separately in the section The online buying process (Chapter 9, p. 492).

Figure 4.1 ‘Waves of change’ – different timescales for change in the environment

Figure 4.1 ‘Waves of change’ – different timescales for change in the environment An indication of the challenge of assessing the macro-environment factors is presented in Figure 4.1. This figure of the ‘waves of change’ shows how fluctuations in the characteristics of different aspects of the environment vary at different rates through time. The manager has to constantly scan the environment and assess which changes are relevant to their sphere of influence. Changes in social culture and particularly pop culture (what’s hot and what’s not) tend to be very rapid. Introduction of new technologies and changes in their popularity tend to be frequent too and need to be assessed. Governmental and legal changes tend to happen over longer timescales although, since this is only a generalization, new laws can be introduced relatively fast. The trick for managers is to identify those factors which are important in the context of e-commerce which are critical to competitiveness and service delivery and monitor these. It is the technological and legal factors which are most important to managing e-commerce, so we focus on these.

Figure 4.2 Variation in broadband subscribers per 100 inhabitants, by technology, December 2007 Source: OECD (www.oecd.org/sti/ict/broadband)

Figure 4.2 Variation in broadband subscribers per 100 inhabitants, by technology, December 2007 Competition in the marketplace amongst broadband providers has caused a great increase in the broadband Internet access options available for consumers and small businesses. But it should be borne in mind that these vary significantly by country as shown by Figure 4.2. They show the web services should be tested for lower-speed Internet access.

Figure 4.3 Percentage by category who bought offline after researching online. Source: BrandNewWorld: AOL UK / Anne Molen (Cranfield School of Management) /Henley Centre, 2004

Figure 4.3 Percentage by category who bought offline after researching online Online information and experience (and modified opinions about a brand or product) also translates into offline purchase. This is an important but sometimes underestimated role of e-commerce (Figure 4.3).

Trust in different information sources الثقة في مصادر المعلومات المختلفة The role of social media and friends in influencing sales was highlighted by this research from EIAA (2008) which rated key sources for research indicating the level of trust amongst European consumers for different online and offline information sources: Search engines (76%) Personal recommendations (72%)

Trust in different information sources (Continued) Price comparison web sites (61%) Web sites of well-known brands (59%) Newspapers/magazines (58%) Customer web site reviews (58%) Expert web site reviews (57%) Retailer web sites (56%) Sales people in shops (50%) Content provided by ISPs (38%).

Figure 4.4 Development of experience in Internet usage

Figure 4.4 Development of experience in Internet usage. Figure 4.4 shows that initially Internet users may restrict themselves to searching for information or using e-mail. As their confidence grows their use of the Internet for purchase is likely to increase with a move to higher-value items and more-frequent purchases. This is often coupled with the use of broadband. For this reason, there is still good potential for e-retail sales, even if the percentage of the population with access to the Internet plateaus. You can see from Figure 4.4 that Internet users take longer to become confident to purchase more expensive and more complex products. Many of us will initially have purchased a book or DVD online, but today we buy more expensive electronic products or financial services.

Figure 4.5 Variation in purchase rates of online products and services in Europe Source: European Interactive Advertising Association (www.eiaa.net), Mediascope Eupore 2008

Figure 4.5 Variation in purchase rates of online products and services in Europe Figure 4.5 shows that the result is a dramatic difference in online consumer behavior for different products according to their price and complexity. For some products such as travel and cinema and theatre tickets, the majority buy online, while for many others such as clothes and insurance fewer people purchase online. However, consistent with the trend in Figure 4.5, there is now less difference between the products than there was two or three years ago. The figure suggests that the way companies should use digital technologies for marketing their products will vary markedly according to product type. In some, such as cars and complex financial products such as mortgages, the main role of online marketing will be to support research, while for other standardized products like books and CDs there will be a dual role for the web in supporting research and enabling purchase.

between SMEs and larger enterprises Source: European Commission (2007) Figure 4.6 Variation in use of e-commerce services between SMEs and larger enterprises Source: European Commission (2007)

Figure 4.6 Variation in use of e-commerce services between SMEs and larger enterprises The European Commission (2007) reviewed SME adoption of the Internet across Europe. The results are shown in Figure 4.6. The adoption for different e-commerce services is indexed, where 1 equates to equal access and figures less than 1 show lower levels of usage within SMEs. You can see that access and broadband usage levels are slightly lower for SMEs, but with online buying and selling significantly lower. Electronic integration of processes with other partners is very low.

Ethical issues and data protection Ethical issues concerned with personal information ownership have been usefully summarized by Mason (1986) into four areas: Privacy – what information is held about the individual? Accuracy – is it correct? Property – who owns it and how can ownership be transferred? Accessibility – who is allowed to access this information, and under which conditions?

Table 4.2 Significant laws which control digital marketing

Table 4.2 Significant laws which control digital marketing (Continued)

Table 4.6 Types of information collected online and related technologies

Table 4.6 Types of information collected online and related technologies (Continued)

Ethics – Fletcher’s view Fletcher (2001) provides an alternative perspective, raising these issues of concern for both the individual and the marketer: Transparency – who is collecting what information? Security – how is information protected once collected by a company? Liability – who is responsible if data is abused?

The eight principles for data protection Fairly and lawfully processed processed for limited purposes adequate, relevant and not excessive accurate not kept longer than necessary processed in accordance with the data subject's rights secure not transferred to countries without adequate protection www.dataprotection.gov.uk

Figure 4.7 Standard information collected about web site visitors from the DaveChaffey.com site Source: Feedjit

Figure 4.7 Standard information collected about web site visitors from the Dave Chaffey.com site Platform usage information. Through web analytics systems it is possible to collect information on type of computer, browser and screen resolution used by site users (see Chapter 7). For example, Figure 4.7 shows detail collected by a widget installed on Dave Chaffey. com. As well as the platform used, the search term referred from Google is shown. Many Internet users will not realize that their visits are tracked in this way on virtually all sites, but the important point to know is that it is not possible to identify an individual unless they have agreed to give information through a web form and their profile information is then collected which is the situation when someone subscribes to an e-newsletter or purchases a product online.

with data protection legislation Figure 4.8 Information flows that need to be understood for compliance with data protection legislation

How long the data will be kept for. Figure 4.8 Information flows that need to be understood for compliance with data protection legislation Figure 4.8 suggests some of the issues that should be considered when a data subject is informed of how the data will be used. Important issues are: Whether future communications will be sent to the individual (explicit consent is required for this in online channels, which is clarified by the related Privacy and Electronic Communications Regulation Act which is referred to below); Whether the data will be passed on to third parties (again explicit consent is required); How long the data will be kept for.

Figure 4.9 Comparison of number of blog postings for three consumer brands Source: Blogpulse (www.blogpulse.com), reprinted by permission of Nielsen Buzzmetrics

in Figure 4.9) and individual postings can be viewed Figure 4.9 Comparison of number of blog postings for three consumer brands Blog Pulse (www.blogpulse.com) gives trends and listings of any phrase (see example in Figure 4.9) and individual postings can be viewed

Figure 4.10 HSBC virtual forest Source: www.hsbc.co.uk

Figure 4.10 HSBC virtual forest Another aspect of HSBC green policy is its online banking service, where it encourages paperless billing. For example, in the UK in 2007, over 400,000 customers switched from paper statements to online delivery, creating a virtual tree each time (Figure 4.10), and for every 20 virtual trees, HSBC promised to plant a real one.

Localization Singh and Pereira (2005) provide an evaluation framework for the level of localization: Standardized web sites (not localized). A single site serves all customer segments (domestic and international) Semi-localized web sites. A single site serves all customers; however, there will be contact information about foreign subsidiaries available for international customers. Many sites fall into this category Localized web sites. Country-specific web sites with language translation for international customers, wherever relevant. 3M (www.3m.com) has adapted the web sites for many countries to local language versions. It initially focused on the major web sites

Localization (Continued) Highly localized web sites. Country-specific web sites with language translation; they also include other localization efforts in terms of time, date, postcode, currency formats, etc. Dell (www.dell.com) provides highly localized web sites Culturally customized web sites.Web sites reflecting complete ‘immersion’ in the culture of target customer segments; as such, targeting a particular country may mean providing multiple web sites for that country depending on the dominant cultures present. Durex (www.durex.com) is a good example of a culturally customized web site

Economic / political Ensuring companies competitiveness Funding for education and technology Promoting new technology for example, broadband 12% in UK, 70% Taiwan, South Korea Achieving government efficiencies E-government – all UK services online by 2005 Singapore ‘Intelligent Island’ Taxation regimes Legislation for offshore trading

Figure 4.11 A framework describing the e-economy Source: Booz Allen Hamilton (2002). International E-Economy: Benchmarking The World’s Most Effective Policy for the E-Economy. Report published 19 November, London. www.e-envoy.gov.uk/oee/oee/nsf/sections/summit_benchmarking/$file/indexpage.htm

Figure 4.11 A framework describing the e-economy The framework is based upon four layers of environment, readiness, uptake and use, and impact, and three major stakeholder groups: citizens, businesses and government, as shown n Figure 4.11. A review of how different governments have tried to improve the health of their e-economies is presented in the sections later in this chapter on political factors and e-government. Knowledge of different economic conditions is also part of budgeting for revenue from different countries. In China there is regulation of foreign ownership of Internet portals and ISPs which could hamper development. User access to certain content is also restricted. The trend towards globalization can arguably insulate a company to some extent from fluctuations in regional markets, but is, of course, no protection from a global recession. Managers can also study e-commerce in these leading countries to help predict future e-commerce trends in their own country.

Technological issues Rate of change Are our systems secure? Which new technologies should we adopt? Monitoring for new techniques Evaluation – are we early adopters? Re-skilling and training Are our systems secure?

Figure 4.12 Diffusion–adoption curve

Figure 4.12 Diffusion–adoption curve Figure 4.12 can be used in two main ways as an analytical tool to help managers. First, it can be used to understand the stage customers have reached in adoption of a technology, or any product. For example, the Internet is now a well established tool and in many developed countries we are into the late majority phase of adoption with larger numbers of users of services. This suggests it is essential to use this medium for marketing purposes.

Figure 4.13 Example of a Gartner hype cycle Source: Gartner (2005) Gartner’s Hype Cycle Special Report for 2005

Figure 4.13 Example of a Gartner hype cycle An alternative graphic representation of diffusion of innovation has been specifically developed by technology analyst Gartner for assessing the maturity, adoption and business application of specific technologies (Figure 4.13). Gartner (2005) recognizes the following stages within a hype cycle, an example of which is given in Figure 4.13 for trends current in 2005: 1. Technology Trigger – The first phase of a hype cycle is the ‘technology trigger’ or breakthrough, product launch or other event that generates significant press and interest. 2. Peak of Inflated Expectations – In the next phase, a frenzy of publicity typically generates over-enthusiasm and unrealistic expectations. There may be some successful applications of a technology, but there are typically more failures.

3. Trough of Disillusionment – Technologies enter the ‘trough of disillusionment’ because they fail to meet expectations and quickly become unfashionable. Consequently, the press usually abandons the topic and the technology. 4. Slope of Enlightenment – Although the press may have stopped covering the technology, some businesses continue through the ‘slope of enlightenment’ and experiment to understand the benefits and practical application of the technology. 5. Plateau of Productivity – A technology reaches the ‘plateau of productivity’ as the benefits of it become widely demonstrated and accepted. The technology becomes increasingly stable and evolves in second and third generations. The final height of the plateau varies according to whether the technology is broadly applicable or benefits only a niche market.

Figure 4.14 InnoCentive

Figure 4.14 InnoCentive InnoCentive (Figure 4.14) is one of the largest commercial examples of crowd sourcing. It is an online marketplace which connects and manages the relationship between ‘seekers’ and ‘solvers’. Seekers are the companies conducting research an development that are looking for new solutions to their business challenges and opportunities. Solvers are the 170,000 registered members of InnoCentive who can win cash prizes ranging from $5,000 to $1,000,000 for solving problems in a variety of domains including business and technology.

Figure 4.15 Alternative responses to changes in technology

Figure 4.15 Alternative responses to changes in technology Figure 4.15 summarizes the choices. The stepped curve I shows the variations in technology through time. Some may be small incremental changes such as a new operating system, others such as the introduction of personalization technology are more significant in delivering value to customers and so improving business performance. Line A is a company that is using innovative business techniques, that adopts technology early, or is even in advance of what the technology can currently deliver. Line C shows the conservative adopter whose use of technology lags behind the available potential. Line B, the middle ground, is probably the ideal situation where a company monitors new ideas as early adopters trial them and then adopts those that will have a positive impact on the business. Figure 4.15 Alternative responses to changes in technology Changes