Global Marketing 6

digital medium and global marketing

Venkatesh Shankar

INTRODUCTION

The digital revolution is transforming the business landscape and profoundly influencing marketing in an increasingly global environ- ment. From a demand perspective, the digital medium or the Internet (e.g., World Wide Web, email) has offered firms access to new customers, markets, and business models across the globe. From a supply standpoint, the digital medium has enabled firms to cut costs of marketing and operations by coordinating their value chains around the globe. In this article, we focus on the role of the digital medium or the Internet on the global marketplace and global marketing.

The role of digital medium or the Internet in global marketing decisions and the impact of the Internet on firm performance in global markets can be analyzed through an organizing framework (Shankar and Meyer, 2009). This framework addresses the following important questions. How does the Internet affect a firm’s global marketing decisions? What are the direct and indirect effects of the Internet and Internet marketing strategy on firm performance in global markets?

Companies use the Internet in the global marketing context in different ways. Firms can use the Internet for gathering information, providing customer support, and improving customer relationships. Some firms use the Internet as a primary information source and information dissemination vehicle to perform global market research and to identify customer segments that span different countries. Others use it as a medium for communicating a brand’s value proposition or position to its target audience across countries. Broadly speaking, companies use the Internet to formulate and implement global marketing mix decisions.

Shankar and Meyer’s (2009) organizing framework relating to the Internet, global marketing decisions and firm performance is shown in Figure1. The global/international marketing mix decisions include those on product, brand, price, communication, promo- tion, and distribution channels. The Internet

and Internet marketing strategy directly influ- ence both the global marketing mix decisions and the firm’s performance. The Internet and the Internet marketing strategy of a firm also have moderating effects on the impacts of each global marketing mix decision on firm performance. Because firm performance is critical to firms, we focus on the direct and moderating effects of the Internet and Internet marketing strategy on firm performance.

In formulating their global digital marketing strategy, firms can compare different countries on dimensions such as infrastructure, geograph- ical distance, language, buyer behavior, buyer demographics, country image, payment systems, and currency using a framework based on two dimensions: global integration and local respon- siveness (Guillen, 2002). Depending on the combination of these dimensions, he recom- mends four global Internet marketing strategies: pure local adaptation, global cost leadership, nationally differentiated, and transnational cost adaptation strategies. According to him, each strategy is appropriate for specific product cate- gories. According to him, for example, products whose features are most amenable to direct inspection, such as clothing, cars, and collectibles should follow a nationally differentiated strategy because these categories need high local respon- siveness in website design, language, return policy, and customer service, but low integra- tion across countries. The framework is useful for classifying different categories but offers few guidelines on leveraging the digital medium in the global marketing context.

DIGITAL MEDIUM AND GLOBAL PRODUCT DEVELOPMENT

The Internet is increasingly used in global product development. Companies can use real time collaboration software for product design so that product developers across the globe can connect and simultaneously work on the same product idea. A driving factor for using the Internet in global product development is shorter design cycles fueled by the opportunity to develop products on a 24 × 7 basis globally. Companies use global Web-based design plat- forms to develop products through collaborative teams across the world. The primary benefits

Wiley International Encyclopedia of Marketing, edited by Jagdish N. Sheth and Naresh K. Malhotra. Copyright © 2010 John Wiley & Sons Ltd

2 digital medium and global marketing

Internet & Internet marketing

International distribution decision

International communication &

promotion decisions

International price decision

International product & brand decisions

Company performance (sales, market share, profits,

shareholder value)

Figure 1 An organizing framework for Internet and international marketing. (Bold lines represent direct effects. Dashed lines represent moderating effects.) Source: Shankar and Meyer (2009).

of Web-based global product development are reduced product development time, greater ideas and inputs from design engineers around the world, and better time-leveraging of talent located at different time zones. Some companies also use these Web-based systems to work across the globe with ‘‘offshoring’’ partners.

The Internet also plays an important part in the diffusion of a new product within and across countries. For products such as pharma- ceutical drugs and movies, the Internet serves as a powerful medium to inform potential users and customers across countries. On the one hand, firms can leverage this information dissemination ability of the Internet to accelerate the diffusion of their products across countries. On the other hand, if customers in the initial markets had adverse experiences with their products, firms may be hampered by the Internet in new global markets. Therefore, firms need to more care- fully plan the design and management of product launches in the initial markets.

To sum up, the Internet has an important role to play in product development across coun- tries. Managed appropriately, the Internet can result in better new product ideas, more effec- tive collaboration, shorter development cycle

time, and better use of talent across multiple time zones. The Internet can play both positive and negative roles in the diffusion of new prod- ucts across cultures and countries. Hence firms will have to more carefully plan their product introductions in the initial countries.

Digital medium and global communication. The Internet plays a key role in companies’ communi- cation and promotion efforts and in their effectiveness in the global marketplace. Commu- nication efforts can be of two types: company- generated and user-generated. Company-gener- ated communication efforts are typically cente- red on company websites. User-generated communication efforts relate to activities such as the creation and management of social media, community sites, blogging, and file sharing by customers.

Company-generated communication. Culture affects customer attitudes toward company websites, and hence has a strong effect on website effectiveness. Most companies have country-specific websites. For example, Procter & Gamble created regional sites during the 2006 World Cup soccer championship to promote its Gillette, Braun, Duracell, and Oral B brands

digital medium and global marketing 3

and to raise awareness of its status as an official sponsor (Shankar and Meyer, 2009). Users from several countries first selected one of the four geographical regions on its website and then had the option to choose the language in which the website appeared. Research suggests that local language and local adaptation are keys to the success of global marketing on the Internet.

An important strategic issue related to the Internet in the global context is the globalization versus localization of products and websites. Globalization refers to the standardization of products and sites across countries and cultures, while localization refers to the adaptation of products and sites to different countries (Shankar and Donato 2003). While companies should naturally adapt their websites to local languages, the extent to which they should adapt the website content to the individual countries would depend on the product development and marketing costs, culture-specificity of products, importance of brand equity, and the degree of country-specific customer needs.

User-generated communication. The Internet enables users to share information and create global communities focused on specific topics. User-generated communication in the global context can be classified into different forms: posting on social media such as Facebook, MySpace, Twitter, and LinkedIn; blogging on own as well as community global sites; podcasting; posting videos on video sites such as YouTube and Flickr; and posting product reviews in global communities. By measuring and monitoring such communication about the firm and its products, a firm can use the information to better manage its relationship with its customers and improve its products and customer service. For example, before the launch of PlayStation 2, a global brand community that allowed consumers to discuss and anticipate attributes of the new product had emerged. However, because the Internet also allowed ‘‘brand terrorists’’ (users who can control a brand in ways detrimental to the firm owning the brand), Sony decided to launch its own global brand community so that it could monitor and proactively listen to the conversations among consumers. Another example is Stormhoek winery in South Africa.

Through the use of various online marketing activities, including blogging, Stormhoek increased its shipments to the United Kingdom from 50 000 cases in 2005 to 350 000 cases in 2007 (Business Day, 2007).

Another example of a global online brand community is NikePlus, designed with music collaboration from Apple, that offers an array of useful tools for running enthusiasts. These tools include managing own runs, issuing running challenge to friends, socializing with other community members across the world, obtaining music through Apple, and sharing information through blogs.

To summarize, the Internet moderates the effect of communication and promotion on firm performance in the global context. By better understanding customer needs across different countries and cultures, firms can develop appropriate content on their websites in different markets. They could also measure and monitor user-generated communication and proactively use the information for improving products, enhancing customer service, and deepening customer relationships.

DIGITAL MEDIUM AND GLOBAL PRICING

The Internet affects prices and their disper- sion across sellers. The Internet has allowed different segments to become aware of prices offered to one another, regardless of where the segments are physically located. For example, the pricing of pharmaceuticals in Europe is changing such that price differentials across countries are narrower because consumers know that the price of a drug in Spain is different from that in Belgium. Sometimes, online price dispersion across countries may be influenced by regulatory authorities. Consider the case of pricing of Apple’s iTunes in Europe (Sweeny, 2008). Until 2008, the prices for downloading a song or album through iTunes were higher in the United Kingdom than in 16 other Euro- pean countries. For example, in France and Germany, music buyers were charged ¤0.99 (74p) per track, while British music fans were charged 79p. Following consumer complaints, the European Commission investigated Apple for unfair pricing. In early 2008, Apple agreed to reduce the price it charges UK users to buy

4 digital medium and global marketing

tracks from iTunes by almost 10% within six months to bring them in line with the rest of Europe. Although Apple finally made the decision to follow a harmonized pan-European pricing policy, its ability to do so also depends on the willingness of the major record labels to adopt a pan-European standardized view of pricing.

These examples highlight the role of price transparency in firms’ pricing strategy across global markets. Although the Internet has brought increased transparency on costs and prices, it has also allowed firms to highlight and differentiate on nonprice attributes (Shankar, Rangaswamy and Pusateri, 2001). It is possible for firms to tailor their offerings to the needs of consumers in different countries or offer branded variants across countries, thus reducing the inclination or ability of customers to directly compare prices of the same item across countries.

Owing to such possibilities, there are differences among prices and dispersion of prices among retailers across different countries. Ancarani et al. (2008) argue that on the one hand retailer price levels and dispersion may be similar across countries because channel competition and the roles of channels are increasingly similar across countries and the borderless nature and transparency of the Internet can have a positive influence on the similarity of retailer pricing across countries. However, on the other hand, they suggest that retailer price levels and dispersion may be different across countries because of differences in the adoption rate of the Internet, consumer attitudes toward the Internet, price sensitivities, and competitive landscape across countries.

Ancarani et al. (2008) present an empirical analysis of retailer price levels and dispersion using data collected for different product cate- gories (e.g., books, CDs) in three European countries, namely, France, Germany, and Italy. Their results show that, in general, price levels, including shipping costs, are higher online than offline in each of these three countries and that price dispersion is persistent across these coun- tries. Multichannel retailers have the highest price levels in each of these countries, but they do not exhibit the highest price dispersion. Their results suggest that the opportunities for price differentiation for a given type of retailer may

be different in different countries. Their data, however, are restricted to two product categories in three Group 7 (G7) countries and may not be generalizable across developing economies.

Thus, consumer and company use of the digital medium have important influences on firm prices and on the effect of pricing on firm performance. The Internet enhances price trans- parency and allows customers to compare prices across countries. However, empirical analysis of price levels and price dispersion suggests that price dispersion is persistent, and the opportu- nities for price differentiation do exist and may be different across countries.

DIGITAL MEDIUM AND GLOBAL CHANNELS

The Internet serves as a distribution channel for many firms for several products. It often acts as a direct distribution channel for marketers of items ranging from apparel to computer hardware and software to books to CDs and DVDs to electronic equipment. In some cases, the Internet serves as a substitute channel for other distribution chan- nels such as physical stores and catalogs. In other cases, it acts as a complementary channel. The use of the Internet as an important distribution channel in the emerging practice of multichannel marketing is growing.

In the global context, the use of the Internet as a distribution channel is significant because it allows many firms to reach a wide global audi- ence without substantially increasing the cost of channel development. However, the prac- tice of multichannel marketing in the global context depends on the degree of substitute or complementary effects of the Internet relative to other channels in each country. In countries where the complementarity of the Internet with other channels is high, firms will practice greater multichannel marketing than in countries where the Internet is perceived as a substitute to other channels.

A firm’s extent of use of the Internet as a distribution channel in each country may depend on the country, customer, company, and competition factors. The country factors include regulatory issues, taxes, transportation modes, geographical proximity of the country to fulfillment center, Internet penetration level, and logistical infrastructure. Customer factors

digital medium and global marketing 5

include desired delivery speed, willingness to pay, the extent of physical inspection desired, and the influence of consumer-generated digital media. Company factors comprise market reach goals, distribution competency, fulfillment capa- bility, shipping costs, and the like. Competition factors include the number and intensity of competitors in that country, the distribution channels of competitors in the country, channel expertise of competitors, and anticipated channel moves of competitors (Shankar, Rangaswamy and Pusateri, 2010a, 2010b). Depending on the combination of these factors, a firm may tailor the extent of the use of the Internet as a distribution channel for different countries.

The evidence for the use and success of the Internet as a distribution channel in the global context, however, is mixed. While many firms use their websites as store fronts to customers in multiple countries and fulfill orders that they receive through their sites, because of the level of investment required by the clients, physical market presence and personal contact may be more important for sales. However, informa- tion designed for and placed on the Internet can improve a firm’s reputation and credibility, making personal selling easier in global markets.

The example of Stormhoek wines in South Africa illustrates how Internet can help global distribution for some types of products. By leveraging UK bloggers to sell directly to UK consumers, Stormhoek became ‘‘the wine of the blogging world.’’ Stormhoek’s shipments to the United Kingdom increased from 50 000 cases in 2005 to 350 000 in 2007 (Business Day, 2007). A well-designed channel strategy involving the Web across global markets will likely improve firm performance. However, apart from anec- dotal evidence, there is sparse research on the effects of the Web as a distribution channel on firm performance across global markets.

In summary, there is mixed evidence on the use of the Internet as a distribution channel in global markets. The use of the Web as a channel depends on factors relating to country, customer, company, and competition. Although the use of the Web as a channel is likely to have a positive effect on firm performance in global markets, there is not enough evidence on this topic for us to make a strong conclusion.

FUTURE OPPORTUNITIES AND CONCLUSION

As Internet penetration in different countries continues to grow, the role of the Internet in global marketing will keep rising. The impact will be more significant and often more dramatic in countries where Internet penetration is still low and has enormous potential for improvement. In some countries, the ability of the Internet as a viable new medium of communication and channel of distribution can significantly impact economic growth.

A major development related to the Internet is the spread and rise of mobile media and tech- nology across the world. Mobile devices such as cell phones, personal digital assistants, digital music players (e.g., iPod), and hybrid devices (e.g., iPhone, iPad) now provide more perva- sive connectivity to websites and users through mobile Internet than ever before. Many devel- oping countries are leapfrogging others in the use of the mobile Internet and email (through short-messaging service or SMS). For example, two emerging economic superpowers, China and India, are major beneficiaries of the surge of mobile Internet. China has the biggest user base of mobile phone subscribers, while India has the fastest growing mobile subscriber base (Shankar and Balasubramanian, 2009). Such rapid pene- tration of mobile Internet and connectivity will accelerate the impact of Internet marketing activ- ities on firm performance across the world.

The rise in importance of the Internet and the mobile media in the global context offers several opportunities for future research on global marketing issues. Important questions in this regard are how does customer behavior with regard to the use of the Internet vary across countries? How do customers differ in mobile media usage across countries? How does the mobile Internet affect firm’s marketing mix decisions? What impact does mobile Internet have on firm performance? What is the impact of user-generated communication among customers across diverse cultures on the diffusion of products across countries?

With regard to measures of firm performance, research on the Internet and global marketing has at best focused on company sales. Future research should examine measures such as profits and shareholder value. The availability of data on

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Internet marketing activities in the global context will continue to be a challenge. In particular, because company data on costs and profits by country are confidential, it would be difficult to collect such data. Nevertheless, more empirical research in these areas will offer deeper insights into Internet and global marketing.

Not much is known on the differences between goods and services with regard to the role of the Internet in global marketing. Are the effects of the Internet on global marketing mix decisions and on the relationships between these decisions and firm performance the same for goods and services? In particular, are there differences between digitizable goods and digitizable services? Digitizable products (e.g., books, music, video, software) are those that can be easily distributed over the Internet to customers. In the global context, these products assume significance as they can be downloaded by customers in multiple countries any time. The iTunes is an example of such a digitizable product. With the launch and high initial sales of e-readers such as Amazon’s Kindle, Barnes and Noble’s Nook, and Apple’s iPad, which offer advanced reading benefits, how should firms approach global marketing of print content? Future research could address these interesting questions and topics.

In conclusion, the explosive growth in the use of the digital medium continues to alter global marketplace and global marketing in important ways. The digital medium and global Internet marketing strategy have both a direct effect and moderating effects on the impact of marketing mix decisions on firm performance. With regard to global product development, the Internet has significant influences on the effectiveness and speed of new product development and its impact on firm performance. The Internet also has an important role in the effects of both company- and user-generated communica- tion efforts on firm performance. On the global pricing dimension, the Web allows more pricing transparency, but also permits opportunities for differentiation across countries. With regard to global distribution, the Web may serve as either a substitute or a complementary channel in different global markets and by coordinating the Internet with other channels, firms can improve performance in global markets.

In the future, continued Internet penetration and the surging growth of mobile media may change global marketing further. Research on the digital medium and global marketing is still growing and many important questions remain largely underexplored. More research is needed to better understand the relationships among the Internet, mobile Internet, marketing mix decisions, and firm performance in the global context.

See also competitor analysis; competitive analysis; marketing strategy; marketing strategy models

Bibliography

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