Cannibalization of Products or Services via Internet Markets
by Kurt Rodenhizer, MS, MBA, June, 2007 |
Online marketing and retail refers the use of the Internet to expose customers to a company's products and to create opportunities to sell products electronically from the consumer’s personal computers. The change in buying behavior is characterized by the terms “online” vs. “bricks-and-mortar” retailing. Retailers did not immediately extend their business to the Internet due to the uncertainty of its effectiveness, the initial cost, lack of understanding, slow initial broadband speed and the loss of face to face sales to name just a few reasons. Since the proliferation of DSL and cable modems, there has been a large surge in online retail activities. Most businesses today are either selling products online or are moving in that direction.
The term electronic commerce is used synonymously with online retail and includes the concepts associated to B2B or B2C activity. In general, online shopping is popular because of its convenience, speed and ease of use. Some advantage of shopping online is being able to use the internet to research prices and make feature comparisons. For example, if one is buying a digital camera he/she can enter "digital camera" into a search engine and find prices, features, benefits, reviews and ratings.
Significance
Retailers did not immediately extend their business to the Internet and aside from the reasons previously mentioned, there was some fear that those online activities could have an adverse impact on off-line sales. reviewed the topic in a 2003 publication called “Clicks and Mortar: The Effects of Online Activities on Off-Line Sales.” |
The authors developed and analysis tool that allows retailers to measure the effects of online marketing and its impact on off-line sales. The results suggest that online sales do not significantly cannibalize retail sales, and that in fact a firm's Web activities actually build long-term online equity.
Companies with concerns about online marketing and sales appear to be affected by factors related to competition and general consumer marketing/sales channel confusion. One of the presumptions was that online sales would deprive the retailers of the benefits associated with traditional sales. Biyalogorsky and Naik discovered conversely, that information on consumer behavior derived from online activity could actually help with off-line sales. Furthermore, the results indicate that online equity now accounts for 38% of online sales. In general, companies must appreciate that the Internet has become an accepted format for the sales of nearly any company's products.
References
Eyal Biyalogorsky and Prasad Naik. Clicks and mortar: the effects of online activities on off-line sales. Marketing Letters, 14:1, 22-32, 2003.
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