Developing an e-commerce strategy for HC

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Developing an e-commerce strategy for HC

An online market and organizational analysis

Auteur: R.A.D Sulley Studentnumber : S1326511 E-mail : Rochesulley@hotmail.com

University of Groningen Faculty of Business and Economics

Master Business Development

First university supervisor : J.L Miedema Second university supervisor : J. Kratzer

Company supervisor : E. S.

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Preface

This report is not only the finalization of my study Business Development, but also marks the end of my study at the Rijksuniversiteit Groningen and my internship within Company X. During my time as a student I have learned a lot and have developed myself personally and academically.

The city of Groningen, my study at the university and all the people I have met during this period is something I will never forget and always treasure. The atmosphere at the faculty has always been very friendly and most professors have been very supportive.

My internship at Company X was a very positive experience where I have learned that doing business means that people need to work together and decisions need be based on both facts and vision. I cannot think of a better company to finalize the study of Business Development. The size of the company, enthusiasm of the employees and the products developed makes Company X the perfect place for a student to get a taste of real business.

I could not have developed myself in this way without the help of many people. Special thanks goes out to my parents who have always supported me. My mother who has always believed in me and never questioned my actions was the most important person during my time as student. My girlfriend Joyce has always been very supportive, giving me feedback and energy on both a personal and academic way. Erik S., my supervisor at Company X, who has given me the opportunity to write my thesis at Company X, for involving me in other business related to my thesis and giving me insight into the world of Company X. I would also like to thank my supervisors at the university, Joost Miedema and Jan Kratzer, for their time, guidance and support.

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Management Summary

In this report the performance of the HC department of Company X on the internet is analyzed. In traditional brick and mortar stores Company X is market leader with a market share of almost 20%, however on the internet Company Y is market leader with a market share of over 75%. Sales are however shifting from the offline market to the online market, thus jeopardizing the profitability and total market share of Company X HC.

The objective of this research is to answer the following management question:

How should the management of HC continue its online activities in order to drive sales and increase market share?

In order to develop an e-commerce strategy, a market analysis and an organizational analysis were carried out. In order to analyze the market, key drivers for online sales were identified. These drivers create awareness and attraction and are key for increasing sales online. The key drivers are ‘experts’, ‘marketing’, ‘distribution characteristics’ and ‘word-of-mouth’. Company X was benchmarked against Company Y on these key drivers and analysis showed that on almost every driver more awareness and attraction was created for Company Y remotes.

To determine the cause of this performance an organizational analysis was carried out, focusing on organizational behavior and assets. Interviews with experts and observations lead to the conclusion that Company X did not respond appropriately to the rise of the internet as a new market. Organizational development concerning this new technology lacked and gave Company Y the option becoming online market leader.

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1. Introduction

This research was carried out for the department A of Company X and in this section the company is introduced. After the introduction of the company the management question will be stated followed by the research question and sub questions.

1.1 Company profile

Company X is a electronics company and one of the largest electronics companies in the world with yearly revenue of €27 billion and over 125.000 employees. The company started with the fabrication of carbon-filament lamps. In 1914 it started a research laboratory to study physical and chemical phenomena. The 1920’s marked the beginning of the diversification of its product range. Throughout the 1960’s and 1970’s Company X introduced several major new products, i.e. the Product A, Product B and the first integrated circuits. In the 1970’s research in lighting contributed to the new PL and SL energy-saving lamps. Company X was also actively involved in the development of the Product C. 56% of revenue nowadays comes from products introduced over the last three years. The company has several spin-offs that are among the biggest companies in their branch, i.e. Company K and Company L. The company consists of three business units:

• Company X Division A

Company X operates in the medical sector with Imaging Systems, Home Healthcare Systems, Customer Services, Healthcare Informatics and Ultrasound & Monitoring Solutions. Healthcare employs around 33.000 people and is active in over 60 countries.

• Company X Division B

Division B operates in the same countries and is active in the following areas of business; Lamps; Professional Luminaires & Systems; Home Luminaires & systems, Lighting Electronics; Automotive, Solid State Modules, Lumileds and Special Lighting Applications

• Company X Division C

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Company X intends to transform itself into a market-driven and people-centered company. This involves a strategy that aims to further develop the company in the areas of Division A, Division B and Division C.

1.2 Problem statement

This research was based on a problem statement stated by the management of HC, part of department A of Company X. This is a rapidly growing department of the Division C business unit which gained market share via internal and external growth (acquisitions). Products of this department are sold through two distribution channels: online and via traditional brick and mortar stores. In the latter category Company X is market leader with an average share of almost 20% for most of the department A products, the opposite holds for online markets.

For example, as figure 1 shows, Company X is market leader in Europe with Universal Remote Controls (URC) with xx% market share, but in the online channel this market share is xx%. Company Y, the company’s largest competitor in this segment, has a share close to xx% in the online market (GFK, January 2008). These figures apply to almost every product group in the department A department.

Figure 1: Online and offline European market share URC's. Source: GFK

In order to increase its online market share, management of the HC invested heavily in banner marketing activities in November 2007 for a new product, the ‘Product X-1’ remote control. For a short time sales increased, but returned to a normal level after a few months.

The company has failed so far to cope with the relatively new online sales channel and wants to develop an e-commerce strategy for the URC products. Therefore, the management question is:

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In order to increase market share the key drivers for online sales need to be identified. When the key drivers are identified the company can undertake appropriate steps to increase their performance on these drivers and thus increasing market share. A second aspect that plays an important role is the organizational development related to a new technology such as the internet and how Company X has responded to it. Understanding the market and which steps the management should undertake is one part and does not highlight the importance of introducing a new discipline. Since 2007 there is a newly formed online team within the company that is responsible for all online activities. However, as the market share of Company X shows, the team has not yet been very successful. Therefore, the second aspect of this research focused on the organizational aspect of the e-commerce strategy development. Ownership of problems, communication flows and knowledge sharing are items that will be analyzed. Therefore, the research question is:

What are the key drivers for online sales and which steps does the management of the HC and the online team have to undertake in order to develop an effective and efficient e-commerce strategy?

In order to answer this question the following sub questions need to be answered:

• What are the key drivers for online sales in the Universal Remote Control market? • How does Company X perform online compared to its competitors?

• What is the current organizational approach towards e-commerce and the internet?

The objective of this research for the researcher was to gain insight in the online market and organizational structure of Company X, so that a successful e-commerce strategy could be developed for the management of HC. To accomplish this, this research was divided in two parts. First, a market analysis was carried out to identify the key drivers for online sales. Subsequently, Company X performance was evaluated by means of benchmarking. The second part analysed the organizational structure of Company X, so that communication flows are mapped, ownership of the key drivers is identified, and what can be improved to develop an efficient and effective e-commerce strategy.

1.2.1 Limitations

The research took place at the main office of Company X in Amsterdam and was carried out for the European management. There were several limitations:

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• Market information was only available for The Netherlands, France, United Kingdom, Germany, Italy and Spain.

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2. Theoretical framework

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Key drivers online sales

2.1 E-commerce

The market results from GFK, listed in the introduction, show that online consumers make different choices than consumers in traditional brick and mortar stores. However, it is important to clarify why e-commerce needs a different strategy compared to conventional marketing strategies that focus on retail stores and above the line marketing.

Terms that frequently fly by when it comes to business online are ‘e-commerce’ and ‘e-business’ and most people use them interchangeably. Since there are dozens of definitions of what commerce and e-business are, it is important to make clear which definition is used in this research. Chaffey (2004) views e-commerce as part of e-business, whereas e-business is the use of electronic technologies in all business activities and effects the whole organization with the aim of improving business efficiency or providing new business opportunities. For example, the use of electronic file sharing and internal instant messenger clients can greatly improve communications. E-business is about supporting the whole value chain whereas e-commerce is about supporting the exchange of goods/information part of the value chain to the end consumer. As figure 2 shows, e-commerce is an integral part of e-business.

Figure 2: How e-business and e-commerce relate. Source: Chaffey (2004)

The definition of e-commerce that will be used in this research is as follows: ‘E-commerce is the

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Internet sales are becoming more and more important for businesses and the total online revenue in 2007 in The Netherlands was approximately €3.9 billion (Thuiswinkel.org). This is a rise of 20% compared with 2006 (CBS, 2008) and shows how fast e-commerce is growing. The total share of internet sales for HC has increased 50% from 6% to 9% in less than a year.

A good e-commerce strategy can lead to more sales (Dann & Dann, 2004) and the model of Kiani (1998) shows how corporate promotional communication can be an effective way of generating more sales.

These five steps of the model will be further explained:

1. Awareness: It is essential that an organization informs consumers about the product existence; it must create a certain level of awareness. This is the first step in the model and forms the basis for all the following steps. Creating awareness is not only important for e-commerce, but forms the basis for all marketing activities (Dann & Dann, 2004).

2. Attraction: Once a consumer is aware of a product it is important that he feels attracted to it and is motivated to look for further information or visit the website of the product. Creating attraction is an important element of the marketing mix, because it changes the acknowledgement that a product exists to a need of the product. (Dann & Dann, 2004)

3. Visit/contact: When awareness is created and a consumer has some level of attraction to the product the next step will be a visit to a product’s website or other form of online contact, i.e. reviews of the product.

4. When visiting the website it is important that all the needs of the consumer are fulfilled so he will continue with the purchase of the product. These needs can vary from enough information, visual enrichment, technical aspects of the website (i.e. ease of ordering) and whether the product itself fits the needs of the consumer.

5. When consumers visit the website or product page again Dann & Dann (2004) mark that as

repurchase.

Company X must take all the necessary steps to ensure that awareness and attraction are created so that a consumer will visit a web store for purchasing the products of Company X. The last step in the model of Kiana, repurchase, will not be analyzed, the focus of this research is on the first four steps. These steps

Awareness Attraction Visit/contact Purchase Repurchase

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will be further outlined in this chapter, starting with creating awareness and attraction, followed by the purchase process on a website.

2.2 Creating awareness and attraction

Creating awareness is essential for every organization and forms the basis for all marketing campaigns. The more often people are reminded of your brand, the greater the chance that the name of the brand is on top of consumers’ minds. It is because of this that it is important to build and sustain awareness campaigns (Swerdlick, 2008). Creating awareness and attraction can be achieved with the following tools:

2.2.1 Banners

Marketers can use several tools to create awareness online, whereas the use of banners was one of the first tools on the internet. Banners are advertisement spaces on a website that one can lease/rent for a certain amount of time. Although clickthroughs (the number of people clicking on a banner) have decreased strongly the last past years (Dahlen, 2003), the use of banners is still a good tool for creating awareness. Research from Yahoo’s Strategic Data Solutions has shown that the use of banners can increase brand awareness by 7%, brand favorability by 32% and purchase intent by 15%. The use of online banners is especially useful when combined with contextual advertising and clicks on these advertisements increase by 249% on average during the campaign (Yahoo, 2006). Contextual advertisements are advertisements that are selected based upon the context the visitor of a site is reading, so that the advertisement matches with the interest of the visitor.

2.2.2 Promotional website

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2.2.3 Search engines

Consumers are focusing less on brand information and more on the attributes of their product-searching goal (Peterson & Merino, 2003). They are using search engines to find the products they are looking for and it is therefore important to be highly listed in search engines (Falkow, 2004). A majority of consumers, 68%, are introduced to an organization that they did not know before via a search engine (Checkit, 2008). Eighty percent of all traffic goes to the first three listings (Stander, 2004) and on average 80% of all visitors of websites come via search engines (Falkow, 2007). These figures show the importance of search engines and the need to be highly listed. Search engine marketing (SEM) is a form of marketing with the aim of bringing an increased number of consumers to your website. When an organization is highly listed, brand exposure and awareness will be greater. There are two different forms of SEM:

• Search Engine Optimization (SEO)

SEO is the most inexpensive form of search engine marketing and consists of optimizing the organization’s own website and modifying its code so that it can be more easily found by the search engines. By modifying the code the website will become more ‘search engine compatible’ (Rashtchy, 2004). Because of the changed code the search engine’s algorithm gives the page a higher score in comparison to other pages that qualify to be displayed in the search-results pages (Sen, 2005).

• Search Engine Advertising (SEA)

Search engines offer organizations the possibility to buy placements on the search results page. Although these placements are marked as ‘sponsored’ links, they have a prominent spot on the page.

2.2.4 Word-of-mouth

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upon the advice. Word-of-mouth on the internet becomes more and more important; 10% of all word-of-mouth takes place online and this figure is rapidly growing (Keller’s, 2007).

There are different forms of online word-of-mouth, but the most common form is a message that is created by a consumer, is archived online and indexed by search engines so other consumers can find it later. The fact that it can be archived makes online of-mouth different from traditional offline word-of-mouth. Sun et al (2006) created the following list of online word-of-mouth tools:

1. Email

E-mail was one of the first word-of-mouth tools online. Consumers can send each other messages via a mail program and delivery of that message can be very fast, most of the time just seconds after sending the message.

2. Weblogs

A weblog (blog) is an interactive website where one or multiple authors post opinionated and subjective news/stories in a chronological order, it is updated regularly and readers are most of the time encouraged to comment on the postings (van der Wolf, 2007). Research in the United States showed that 27% of Americans whom are online read blogs (Albryght, 2006). There are two forms of blogs; personal and corporate blogs. Corporate blogs are often used for marketing, branding and other PR activities.

3. Bulletin boards

A bulletin board on the internet is often referred to as a forum or message board and is a place where people can leave messages and react to them. Forums can form a valuable resource for consumers looking for product experiences; they can start a discussion and ask for opinions or look for existing discussions and read the messages that were posted by other consumers. The discussions started on forums and the messages left behind are in most cases public and archived so people can read them without being subscribed to the forum and visit it whenever they want. Forums are normally communities with a strong community feeling and can form around a specific topic like sports, politics, games and electronics. Online magazines usually have their own forum where visitors can start their own discussions.

4. Chat rooms and instant messenger clients

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for marketing activities is quite hard. Most internet users do not appreciate it when a marketer promotes a product in a chat room and tapping into a private conversation is often not possible.

5. Web 2.0 technologies

A new trend on the internet is the rise of social media where users interact with each other using interactive applications (O’Reilly, 2004). These can be for instant messaging software, bulletin boards, blogs, social networking sites and web 2.0 media sites such as Youtube. There has been a lot of discussion of what web 2.0 is and there is still no agreement about it. Chat software and bulletin boards have been around since the beginning of the internet, and because it is interactive it is not ‘the old internet’, or web 1.0. When defining what web 2.0 is the focus is more on the way people can generate content themselves. Figure 4 shows how web 2.0 is seen in this research:

Almost half of all internet users use some kind of social media tool (Forrester, 2007). Social media gives organizations a chance to go where consumers are and give them the possibility to be exposed to the brand voluntarily. This can have a big impact on brand awareness since consumers take the role of the marketer and spread ‘the message’. Also, it gives companies the possibility to brand themselves with potential consumers long before they are actual consumers. Building a social reputation online and so creating awareness will likely result in attraction and in a greater customer base (de Geyter, 2008). Marketers are using Web 2.0 technologies more and more for brand building and direct marketing. Figure 5 shows the most used technologies according to a 2008 study of Marketing Charts among 160 marketers:

Website

Blog

Activity stream Personal Publishing (web 1.0)

Social Media (web 2.0)

Visitor Publisher publish consume Visitor comment link Visitor post Publisher activities Visitor replies Variety volume

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Figure 5: Web 2.0 tools used by markets. Source: Marketing Charts (2008)

A study from the Direct Marketing association also underlined the importance of Web 2.0 to get in contact with consumers. Their findings are that:

• 84% of marketers use it to raise brand awareness. • 82% use Web 2.0 tools to increase brand preference. • 83% use Web 2.0 to generate sales.

• 80% use it to generate visits to the website.

• 85% of marketers use Web 2.0 to engage their customers and rate it as a highly effective mechanism for customer engagement.

• 84% of marketers use Web 2.0 to create a community of loyal customers, and they find it very effective for doing so.

2.2.5 Experts

Research showed that 85% of consumers research products and services on the Internet before they purchase a product (Falkow, 2005). There are a number of sources where consumers can do this. Traditionally a source of reviews of consumer products were printed magazines and these are still popular. Most printed magazines have an online version too, where there is more interactivity. Readers can react on articles and discuss items on the bulletin boards. There are also a lot of online magazines that started online and do not have a printed version. In the United States Cnet.com is a good example and in The Netherlands Tweakers.net. These websites reach thousands, and some sites even millions of readers every day (Alexa, 2008). More and more blogs are taking on the role of the expert. Because of

7.50% 25.50% 24.50% 17.50% 11.50% 18% 18.50% 2% 2% 0% 5% 10% 15% 20% 25% 30% Other Blogs Online videos Podcasts RSS feeds Social networks User generated content Virtual worlds Wikis

Percentage of marketers

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the relatively high readership of blogs among journalists and the linking practices that allows interesting news and opinions to the top blogs are getting very influential (Farell, 2007). It is important that these sites review the organizations product or post news about it, so that awareness and, if the product is reviewed positive, attraction is created.

2.3 Visiting the web store

After awareness and attraction is created the next step in Kiani’s model is ‘visit/contact’. A consumer who is attracted to the product and interested in purchasing it will first visit a retailer’s website or the manufacturer’s online store (Dann & Dann, 2004). Interviews with Company X experts highlighted the importance of visibility, number of listings (shell displacement) and secondary placement for URC’s. According to the retail managers of Company X positioning in a store is critical for success. Secondary placement is the strategic placement of products next to key products consumers shop for. For URC’s this key product is for example a television. In traditional stores this forms an important tool of creating awareness for a product. A consumer who spends over €1500 for a new television is more open to buy an extra replacement or consolidation URC than a customer who is looking for a new replacement model.

Because online stores cannot offer consumers the possibility to physically examine products it is important that there is enough content to inform the consumer. A new trend for online stores is to offer a 3D movie of the product that consumers can control themselves and can view the product in all possible angles. The presentation in the online store can be of influence on the consumer’s choice. Verhagen & Creemers (2004) researched what the role of content in an online store was in the purchasing process. They found that content can be a decisive factor in the purchasing process

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Organizational Development

2.4 Disruptive technology

The internet of today emerged in 1969 as ARPANET, which first linked universities and government agencies with each other. After decades of technological improvements the web turned commercial in 1990, offering the first opportunities for commercial organizations. It was in this year that the World Wide Web (www) made its debut. Because of the new possibilities and the way internet changed many forms of doing business, e-commerce is more than just another way of enhancing existing business practices. It is rather a paradigm shift, a disruptive innovation that has changed the traditional way of business (Lee, 2001).

Disruptive technologies can be a challenge for companies and not all react in the same manner. Charitou and Markides (2003) described five possible responses to a new disruptive technology. Essential is that doing business is fundamentally different from the old way of doing business. One example they give is the development of online distribution as a new market development. The five responses a company can have towards disruptive technology are:

1) Focus and invest in the traditional business

A disruptive technology does not always require a company to step in. One can also respond by improving the current business, so that consumers will value it more and will not switch to the new technology.

2) Ignore the innovation – not part of the business

Although the new technology may be part of the established industry, it does not automatically mean that it is part of a company’s market. A company may decide its products are not ready to be sold via the internet (i.e. a customized car) and that it will ignore the new disruptive technology.

3) Attack back, disrupt the disruption

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4) Adopt the innovation by playing both games at once

Companies can acknowledge that the technology is here to stay and they need to play both games. However, this can be a challenge, because they already know how to play the old game and need to adjust to the new things of doing business without harming the traditional way. This can lead to conflict and a way of solving this is setting up a new business unit. Research (Charitour and Markides, 2003) has shown that the degree of autonomy has influence on how both businesses perform.

5) Embrace the innovation completely and scale it up

When a new technology seems superior to the old one, companies can decide to completely switch to and embrace the new technology and in the end scale it up.

2.5 Managing the innovation process

When organizations decide to use the technology in some way (depending upon their response) they need to manage the innovation. Tidd (2005) has created a model, shown in figure 6, which represents the innovation process:

Figure 6: Innovation process model. Source: Tidd (2005)

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• Acquiring the necessary knowledge needed to enable the new innovation. This can be i.e. market research or forming strategic alliances. When the necessary organizational assets have been acquired, the next step can take place.

• Executing the new project; circumstances are still uncertain and the organization has to do a lot of problem solving.

• Launching the new innovation to the market.

• Sustaining the innovation and adjust it where it is necessary.

When the innovation has been adopted organizations should try to learn from the process, so that they can react more effectively to new innovations in the future. Tidd (2005) makes clear that some factors influence how organizations cope with the innovation process. The size of company, the context (national, regional and local), the networks and system the organization is part of and the type of organization will influence the process. For example, a smaller company can be more agile and faster in decision making, but can lack the resources to fully adopt the new technology. Another core ability in managing innovation is ‘aligning’, a process that can be aligned under ‘implement’ in the model (Tidd, 2005). The aligning process ensures that there is a good fit between the overall and existing business and the proposed change/innovation.

2.6 The internet and business development

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2.4 Conceptual framework

In this chapter e-commerce has been defined and the key drivers for online sales have been identified. The organizational factors that determine how the company performs on these drivers have been identified too. The following conceptual framework has been developed to get a better understanding of the situation. Centered is the customer choice, since the choice of the customer will determine the market share of Company X. Customer’s choice can be influenced via the different variables listed in the framework.

2.4.1 Concepts and relationships

The following concepts are shown in the model:

• Organizational assets: the assets of an organization. These are a) financial, i.e. the available capital for investing in new technology, training or human resources b) human assets, the available workforce and its knowledge and c) other assets that are part of the organization, i.e. relationships with other companies.

• Organizational behavior: the culture within an organization. How the company reacts on a new technology is largely determined by the company culture. An organic and agile company reacts differently on a new technology than a hierarchical organization.

• Experts: The online experts that influence consumers. These experts have influence, because consumers assume they have great knowledge about the product.

• Marketing: the marketing activities an organization can undertake for promoting products. Customer choice Word-of-mouth Distribution characteristics Online marketshare Marketing Experts Organizational assets Organizational behavior Key drivers Organizational development

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• Distribution characteristics: the characteristics of the online sales channels. These characteristics are i.e. visual enrichment, listings in online stores and other features of an online store.

• Word-of-mouth: communication between consumers that influence the preference of a consumer for a particular product.

• Customer choice: the product a consumers has purchased.

• Online market share: The market share an organization has online, in this research the market share of Company X.

All the key drivers in the box ‘key drivers’ influence the customer choice, as they create some form of awareness or attraction. Although not explicitly stated in the literature, certain drivers also influence other key drivers. Marketing activities can stimulate word-of-mouth, as awareness is created among consumers. Experts might be influenced by marketing activities too; they may want to review the product if there is a buzz around it. The performance on these drivers is influenced by the organizational assets and culture, elements of organizational development. For example, increasing the budget of the marketing department influences the marketing activities. When customer choice is influenced by creating more awareness and attraction via the key drivers resulting in more consumers buying Company X products, the online market share will rise.

The key drivers that are listed in this conceptual model are ‘marketing’, ‘experts’, ‘word of mouth’ and ‘distribution characteristics’. The theoretical framework listed per driver several tools Company X can use to increase online sales, these were:

• Experts (chapter 4)

o Visibility at online magazines o Visibility at blogs

• Marketing (chapter 5) o Banner campaigns o Promotional websites o Search Engines

o Web 2.0 promotional tools • Distribution characteristics (chapter 6)

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o E-mail o Blogs

o Bulletin boards o Web 2.0 media

• Organizational behaviour (chapter 8)

o Strategy towards new market opportunities • Organizational assets (chapter 9)

o People and ownership o Internet knowledge

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3 Methodology

In this chapter the methodology for this research is explained that was used to analyze the performance of Company X on the key drivers and the organizational development.

3.1 Scope

This research was carried out for the management of HC. Because of the size of the European market and characteristics of the different countries the Dutch market was used as a test case for this research. As stated in the limitations, interviews could only be held in The Netherlands. Therefore, the scope of this research was mainly The Netherlands and data gathering took place here. There are some exceptions in the data gathering process. For the key driver ‘experts’, the blogging community in The Netherlands is not as active as in other countries and some international online magazines are also well read in The Netherlands. Further details and exceptions are explained below.

As stated earlier in the introduction, Company Y is Company X main competitor online. With a market of over 75% it seems reasonable to benchmark Company X only against this company. There are some other competitors, but their market share is insignificantly small (One for All 7% and Sky 2%) thus they will not be used for this research.

3.2 Data gathering

The methodology of this research is qualitative research using direct observation, in-depth interviews and analysis of documents (Cooper & Schindler, 2000). Direct observation was used to analyze the market and the way Company X and competitors are dealing with the online channel. Data gathering for the market analysis will differ between the drivers and below is specified how the data is gathered specifically.

Experts

The key driver ‘experts’ was operationalized via ‘online magazines’ and ‘blogs’. In The Netherlands there are many online magazines. These websites have been around since the introduction of internet and well known Dutch online magazines are i.e. Tweakers.net (since 1998) and Fok.nl (since 1999). PCMweb, the digital version of the printed magazine, has been online since 2004 and Nu.nl since 1998.

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industry and Thenextweb.org for the internet industry. However, for gadgets or consumer electronics these blogs hardly exist in The Netherlands and it was therefore hard to form a good sample to test how Company X performs in the blogosphere. To set up a list of blogs a sample was drawn from international, English written, blogs.

Marketing

Data of banner advertising campaigns was obtained from Company X, but this was not possible for competitors. For this reason only the data from Company X was analyzed. The banner activities were compared with the literature to check how Company X performs on these activities. For social media a sample was drawn from social media sites and these sites were analyzed for both Company X and Company Y. To analyze the performance on search engines the four largest search engines in The Netherlands, according to Alexa.com, were used.

Distribution characteristics

The five largest online stores of the Netherlands were used for analysis. Besides third party online stores, the corporate stores in The Netherlands were analyzed as well.

Word of Mouth

It is difficult to measure the key driver word-of-mouth, because it is not possible to tap into consumers private conversations (i.e. via chat rooms or instant messengers). This key driver is mainly a result of the performance on the other key drivers. Twitter and Tweakers.net were used to see how online word-of-mouth is, these sites will be further discussed in chapter 7.

Organizational

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4 Experts

In this chapter an analysis is made of the extent to which Company X is creating awareness and attraction on the key driver ‘experts’. As stated in chapter 3, online magazines and blogs will be used for the analysis.

4.1 Online magazines

The internet offers a huge amount of internet sites that act as an online magazine. These sites, for example Cnet or ZDNet, publish news daily and test a large amount of products. They publish the results in the form of reviews, which often link to the manufacturer’s websites and/or online shops.

To analyze how Company X performs on the driver ‘online magazines’ the following steps were undertaken.

• Indexing of reviews of Company X Product X • Indexing of notion of Company X products.

• Indexing of reviews of similar competitors products. • Indexing of notion of similar competitors products.

Selection criteria of magazines

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The results from the top listed websites in The Netherlands, the websites of printed magazines and from the search results, result in a sample of 17 online magazines that were used and are listed in table 2 in appendix 2.

Ranking

As stated above, the ranking was based upon the number of reviews and the number of notions (i.e. news or video) of the products. The Company Y Product Y-1 range consists of seven models, but the Y-1 and the Y-2 are the latest releases. The Product X range consists of three models, the X-1, X-2 and the X-3. When a website reviewed only one model of the product range it received one ‘+’, ‘++’ with two models and ‘+++’ with three models. Because of the fact that Company Y has a lot of older models, only one ‘+’ extra was assigned (despite the number of reviews of older models) when reviewing more than only the Y-1 or the Y-2 model. The ranking is listed in table 3 in appendix 2.

4.2 Blogs

A weblog differs from the online magazines in that it is often written in a personal and subjective manner (Van der Wolf, 2007). Readers of blogs can often react on an article and discuss the content of it. Although there are many blogs, some of them seem to have a big impact and attract millions of readers. Blogs are important, because when well managed it can directly lead to inbound calls from prospects (Van der Wolf, 2007). Most bloggers do not use a ranking system to judge a product (like online magazines), but only mention the launch, purchase of opinion about the product.

To analyze how blogs are reporting about the Company X Product X range and its competitors two steps were undertaken. First, a sample of blogs was formed that was used for analysis. The following criteria were used to analyze how Company X performs in the blogosphere.

• How many times Product X units were mentioned on the blog • How many times products of competitors were mentioned • If mentioned, how was the bloggers attitude towards the product?

As an extra check Trendpedia.com and Blogpulse.com were used. These tools measure how many times a brand is mentioned online.

Selection criteria of blogs

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more diaries of people publishing day to day stories. Well known personal blogs are travel blogs, where people blog about their travel adventures.

The directories of Blogged and Technoraty were used to create a list of international blogs. The directory of Blogged lists over 200.000 blogs and the editors give rankings to the blogs. Technoraty lists over 100.000 blogs and sorts the blogs by popularity. Both also sort the blogs into categories and a sample from relevant categories was made. These categories were ‘consumer electronics’ at Blogged and ‘gadgets’ at Technoraty. From each category the top 10 ranking blogs was selected for the sample. It is assumable that these blogs will attract most consumers (and form a good sample) since their rankings are high. There are some blogs that are topic specific and not relevant for this research, for example Macintosh blogs that were also listed in the top 10 of ‘consumer electronics’. These blogs were filtered. The blogs were required to have a search engine, because of practical reasons. The results are listed in table 4 in appendix 2.

Trendpedia.com and Blogpulse.com

Trendpedia.com is a website that searches blogs online and keeps track of trends. Companies and individuals can enter the brand or product they are looking for and Trendpedia shows these results in a chart. The chart indicates when blogs are talking about the product or brand. Blogpulse is an initiative from Nielsen buzzmetrics and also keeps track of trends in the blogosphere. It works in the same way as Trendpedia, but can show results from up to 6 months ago. The charts of Trendpedia and Blogpulse are listed in appendix 3.

4.3 First findings key driver ‘experts’

The results show that Company Y is much more represented at online magazines than Company X is. There are twice as much of reviews online for Company Y remotes then there are for Company X remotes. Looking at news items, there are three times as much news items about Company Y than there are about Company X. Visitors of an online magazine will see more about Company Y remotes, so there will be more awareness created for Company Y products.

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5 Marketing

In this chapter an analysis is made of the extent to which Company X is creating awareness and attraction on the key driver ‘marketing’. For this analysis the performance will measured on the drivers ‘banner activities’, ‘social media’ and ‘search engine marketing’.

5.1 Banner activities

Analyzing how Company X banner campaigns performed compared to Company Y’ campaigns, was not possible. Information about banner campaigns of Company Y is not accessible by outsiders and the internet is too vast to estimate the effect and size of campaigns. Banner campaigns are organized by the online team and they target specific websites. However, the impact of a banner campaign can be impressive. In November 2007 Company X launched a €xxx.xxx Product X-1 campaign in five countries and as stated in the introduction, sales did increase, but dropped again after a certain period of time. However, as the theoretical framework has pointed out, banner campaigns can very successful when combined with contextual ads. Clicks on these ads can increase with 249% when a banner campaign is active. When the November banner campaign was active, Company X did not actively manage the other key drivers. Therefore, a new campaign can be more successful when the other key drivers are managed too.

5.2 Social media

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‘RSS feeds’. It must be mentioned that the other tools can be useful for Company X, but are too comprehensive for only the management of HC.

5.2.1 Blogs

Van der Wolf (2007) listed two types of blogs companies can use as a marketing tool, the CEO blog and the company blog. The CEO blog is often used to talk about the vision and strategy of the company and is maintained by the CEO. The company blog is maintained by several authors and can be published in the different forms, i.e. ‘service blogs’, campaigning blogs’, ‘issue blogs’, ‘product/brand blogs’, ‘customer relationship blogs’ and ‘crisis blogs’ (Zerfass, 2006).

• Company X

One corporate blog is maintained by Company X, the ‘live’ blog. This blog offers the possibility for every visitor to ask a question or share ideas. In this way Company X wants to get better connected with consumers and tap into their ideas. The primary question in this research with the use of blogs is what role it can play for the management of HC. One characteristic of a weblog is that it is updated regularly, but the newsfeed from the last three months shows that this is not possible for URC’s. However, the DEPARTMENT A department consists of nine product groups that independently publish several news items and/or products per month. Company X has a product news portal on its website and news is posted chronologically. The layout of the website looks a lot like a blog (see figure 14 in appendix 3), but key features of a blog are missing.

• Company Y

Company Y doesn’t have a corporate weblog at this moment that consumers can visit. One reason for this might be that Company X is larger and the blog it uses is more for sharing ideas about the theme ‘simplicity’. Like Company X, it has a corporate news center where news is posted on a regularly basis, but the key features of a blog are missing too.

5.2.2 RSS feeds

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• Company X

Company X has a total of 14 RSS feeds on its global corporate website, three news feeds on corporate level, two for Division C, three for Division A, five for Division B and one for other news. However, these feeds are only in English and users can only subscribe to them when visiting the global website. When a consumers visits the national website of Company X, only German visitors can subscribe to a RSS feed. Consumers from The Netherlands and the other four key countries in Europe (France, UK, Italy and Spain) cannot subscribe to a newsfeed in either their own language or to the global RSS feed, although all the countries have their own news centre.

• Company Y

Company Y is using one RSS feed for all its products and is offering a RSS feed on every national website (including the global corporate website). Although the feeds are not always in the language of the subscriber, Company Y is able to get connected with them via RSS. The feeds use the news items that are posted under the news section of the Company Y website.

5.2.3 Online video

Research from Cisco shows that online video is becoming more and more important and will consume 400 times more data traffic than the internet as a whole does in 2000. They expect this rise in traffic because users are increasingly sharing video with each other. The most popular online video sharing site is Youtube.com, which ranks 4th in the Alexa chart (both in The Netherlands as in the United States). For this research Youtube.com was analyzed to see how Company X and Company Y perform.

• Company X

The Spain office of Company X has joined Youtube and posted eleven videos of different Company X products. For URC’s there are four videos online, but only in Spanish. The rest of videos are in Spanish too, so the range is quite limited. Only 110 people have viewed the video.

• Company Y

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post their own stories and spread the message to friends. Under the name ‘Remote Y’ Company Y created several videos in which the URCs play a prominent role and are intentionally filmed in an amateur way. The company also launched a special website for it and an average of 45.000 visitors have seen the videos and in one month almost 200 visitors have posted their own experiences with URC’s. At the moment there are 99 videos online of the Company Y Product Y-1 remotes.

5.3 Search Engine Marketing

Search Engine Marketing consists of two elements, Search Engine Optimization (SEO) and Search Engine Advertising (SEA). To analyze how Company X is ranked in the search engines, and thus can be found by consumers, several search engines were analyzed. The effects of SEO cannot be measured directly, because the ranking in search engines depends upon several factors; SEO is a tool of many that can be used to rank higher in search engines. Google uses a method to rank websites that is not publicly known, to prevent abuse. Besides the code of a website (element of SEO), links from other third party websites linking to the website of Company X or Company Y are i.e. also important. The following section will only focus on how the URC’s of Company X and competitors perform in the search engines and not on the elements that determine the ranking. Search Engine Advertising is the activity of buying paid placements in search engines. These placements are often listed in top of the search results. Both Company X and Company Y have bought placements, but this data highly confidential and not available for this research. It was therefore not possible to create a benchmark for SEA.

5.3.1 Performance in search engines

For this analysis several search engines were used and the corresponding rankings were compared. According to Checkit (2008), Google.nl, Vinden.nl Ilse.nl and Yahoo.nl are the largest search engines in The Netherlands. The terms that are used for this performance check are:

• Universal Remote Control • Universal Remote Control information

• URC • Universele afstandsbediening informatie

• Remote control replacement • Remote control vervanging • Remote control consolidation • Remote control consolidatie • Afstandsbediening • Universele afstandsbediening • URC information

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the listing of several review sites (i.e. Cnet.com). Only the first two pages were checked for the ranking of the companies. This is safe margin, since research has shown that 80% of all traffic goes to the first three links (Falkow, 2008).

• Direct results search engine

The results of the search engine performance are listed in table 5 in appendix 2. Analysis of Google’s Keyword Tool shows which keywords generate most traffic and are therefore important. This tool is free to use and is developed by Google to help marketers gain insight in the search behavior of people. Results are listed in appendix 4. The keywords that turned out to be important are: ‘universal

remote control’, ‘remote control replacement’, and ‘afstandsbediening’. Both Company X and Company Y did not score high on these keywords.

• Results pageranking Google

A second tool besides the direct results is Google’s Pagerank Checker. This service checks how websites are ranked in Google and keeps track of how ‘important’ a website is for Google. Its principle is based upon how many websites link to one page, called back linking, and thus giving it a higher ranking. The listing of a website in the search results depends heavily on its pagerank.

The individual Product X-1 websites of The Netherlands, France, Germany, the United Kingdom, Italy and the global corporate site were compared with the sites of Company Y. The results are listed in table 6 in appendix 2 and show that Company Y has a higher ranking than Company X in Google. The numbers of back links are much higher for Company Y.

• Google trends

Just as Trendpedia.com and Blogpulse.com do with blogs, Google keeps track of trends in search terms. The results are listed in appendix 3 in figure 13 and are in line with the other results. They show that Company Y is more popular in the search engine of Google than Company X is; more people are searching for Company Y remotes than they are looking for Company X remotes.

5.4 First findings key driver ‘marketing’

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the ‘sense and simplicity’ vision. It does not address the other social media tools that are online now and Company Y has a big head start on this driver. It offers RSS feeds on every country page and its viral campaign is very successful on Youtube. The video of ‘Remote Y’ has drawn 410 times more viewers than the video of Company X and Company Y is building a consumer database around its promotional website.

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6 Distribution characteristics

To analyze the performance on the key driver ‘distribution characteristics’, the online shop of Company X and a sample of other retailers were used. To analyze how Company X performs at distributors the checklist of Verhagen and Creemers (2004) was used. This checklist consists of 14 content items that are important for consumers. Because Company X has limited possibilities to influence the website of retailers, only the items that Company X can influence were used for the analysis.

6.1 Online store company

The online stores of Company X and Company Y were compared with each other using the table of Verhagen and Creemers (2004). The first thing that comes to notice is that the corporate website of Company Y is integrated with the online store. Company X separates the online store from the corporate website where products are listed. The 14 content types were rated using a scale ranging from [- -], [-], [+], [++]. The rating of the websites is listed in table 7 in appendix 2.

Although the Company Y store has a slightly higher score, the online stores appear to be comparable and offer the same level of convenience to consumers. Verhagen & Creemers (2004) also rank the 14 content types and state for example that sensory stimulation is more important than word-of-mouth options. Observation shows that Company Y has much more product enrichment on the website than Company X.

6.2 Retailers website

To analyze how Company X products are displayed at the online stores of retailers a sample had to be created. For this the largest online stores of the four key European countries were used. These are Amazon (UK and DE), Bol (NL), Boulanger (FR), Dixons (UK), Mediaworld (IT), Conrad (DE), Pixmania (FR) and Wehkamp (NL). The key content types of Verhagen and Creemers (2004) are used, but only four were valid for analysis. These are ‘promotion’, ‘information’, ‘aggregation’ and ‘sensory stimulation’. The results can be found in table 8 in appendix 2.

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6.3 First findings key driver ‘distribution characteristics’.

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7 Word-of-mouth

Word-of-mouth is hard to monitor because most of it takes place in private settings. Marketers cannot tap into private conversations and must rely on the postings of consumers that are posted on public forums, blogs, web 2.0 applications and comparison sites. Another tool to analyze word-of-mouth is to measure how often the ‘tell a friend’ button is used. However, this data is not available from competitors and thus benchmarking is impossible. Analyzing forums was also hard because of the sheer number of forums and the possibility to search for conversations about URC’s. There are thousands, if not millions, of forums and creating a sample is difficult. There is also some overlap with other key drivers. Blogs can be used as a marketing tool, a form of an expert site or a word-of-mouth tool. In this research blogs are analyzed in chapter 4.2, because blogs in the form of a expert site (and not as a personal blog) are more popular and more easily benchmarked. Because of the limitations of measuring word-of-mouth only data from a sample of web 2.0 applications was used for this research.

7.1 Web 2.0

Analysis of web 2.0 applications was difficult, since URC’s are products that do not invite people to create web 2.0 content around and are used for very practical reasons. Mobile phones for example are for young people style icons and creating content, with a phone as central theme, is very popular. The analysis of word-of-mouth via web 2.0 media was based upon the ‘talk’ on Twitter.com and forum analysis of the largest consumer electronics site in The Netherlands, Tweakers.net.

Twitter

Twitter is a social media platform where people can drop very short messages about what they are doing or thinking of. This platform is used by marketers to keep up with the buzz, and is an important buzz tracker, because it keep track about what is being talked about any given moment (O’Hear, 2007). The site was used to see how many times people are talking about the Company Y Product Y remote controls and how many times about the Company X Product X-1 remotes. In total 451 posts were about the Product Y-1 remote and 27 about the Product X-1.

Tweakers.net

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7.2 First findings key driver ‘word-of-mouth’

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8 Organizational behavior

As discussed in chapter 2 the internet can be seen as a disruptive technology and there are several ways an organization can respond to this new technology. To analyze how Company X has responded several interviews were held with responsible managers in the online team of Company X. Besides the people in the online team, marketing managers who are responsible for sales and marketing strategies were interviewed too.

8.1 Strategy towards the internet

Company X has responded relatively late when the internet showed its commercial opportunities. Only in 2007 the company formed a special online team responsible for all the online activities. Interviews with the online team and marketing managers lead to the general agreement that Company X has responded too late and ignored the possibilities of the internet in the beginning. Looking at the five possible responses of Charitou and Markides (2003) this is the ‘ignore the innovation – not part of the business’ response. In 1995 the web showed its potential and during the late 90’s e-commerce was starting to take off. However, the traditional retail stores, i.e. Media Markt and BCC, have always been and are still very important for the organization. For most traditional stores the internet as a new market poses a threat because of the lower prices. Since a physical store and a sales force are not needed, online stores can offer much lower prices. Traditional retail stores are still responsible for 94% of all revenue within Company X, so they have a lot of power and can influence how Company X deals with online stores. Not only the stores have interest in keeping high volume of sales via the traditional stores, also the account managers of these stores have personal interest in blocking the online market as a new distribution channel. The reward system for account managers works partly with bonuses; the higher the sales via traditional stores (or their account), the higher their bonus. This explains why there was a lot of organizational resistance for adopting the internet as a new market, developing a correct strategy and allocating the necessary resources. This has resulted i.e. in a pricing policy that aims to protect the traditional retail stores. Online stores have a higher purchase price than offline stores.

Company Y however has dealt with the internet in a totally different way. The company was founded in 1981 as a supplier for PC peripherals and quickly recognized the internet as a new technology that offered business opportunities. As their quarterly press note in 2000 states; ‘Company Y designs, manufactures

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keyboards and optical trackballs; multimedia speakers; and interactive gaming products such as joysticks, gamepads and racing systems’. This mission statement explicitly names the internet as opportunity to develop products for it. Although developing products that link people to the internet is different than seeing it as a new business opportunity for distributing goods, it is clear that they recognize the potential of the web. In the Annual Report of 2008 the company explicitly names the internet as one of their main distribution channels; ‘We sell our products to a network of distributors and resellers

(‘retail’) and to original equipment manufacturers (‘OEMs’). Our worldwide retail network includes wholesale distributors, consumer electronics retailers, mass merchandisers, specialty electronics stores, computer and telecommunications stores, value-added resellers and online merchants.’ These statements indicate that Company Y has responded differently towards the internet than Company X has done. Looking at the five possibilities of Charitou and Marikes (2003), Company Y’s strategy was that of ‘adopt the innovation by playing both games at once’. The company did not abandon the traditional retail stores, but did not ignore the rise of the internet (productwise and marketwise).

8.2 First findings ‘organizational behavior’

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9 Organizational assets

In this chapter the organizational assets will be analyzed. Data was gathered via interviews with experts and observations. Because this research was carried out for Company X it was not possible analyze competitors; i.e. interviews could not be held with Company Y employees. Therefore, this analysis will focus only on the assets of Company X.

9.1 People and ownership

As stated before, Company X has formed an online team in 2006. This team consists of 25 people who are all have their own expertise and responsibility in the team; there are smaller teams for e-trade, e-shop (Company X online store), design, CMST, Marcom (marketing and communication), planning and reporting, CMC, search marketing, direct marketing, IT and the Company X corporate website. At first glance, it seems that most areas of the internet are covered, but problems arise when certain activities that take place online are the responsibility for people outside the online team. Several interviews pointed out this problem. A part of the key driver ‘experts’ is the blogosphere. Bloggers are a part of the online community, but within Company X bloggers are categorized as journalists or press. Company X has a strict policy for communicating with the press and the PR department is responsible for this. However, PR is not part of the online team and there is no formal communication between them.

A second aspect that complicates the management of key drivers is ownership of drivers. The internet is evolving very fast and new applications are constantly developed. Company X as an organization is formal and in many aspects a mechanistic organization (de Leeuw, 2003). Members of the organization have a clear job description and during interviews it became clear that most teams feel understaffed, resulting in people that stick to their own job description and tasks. A reorganization that took place in the beginning of 2008 also emphasizes formal structures, whereas the management of HC has to follow strict lines in order to plan campaigns. These two aspects of the organization have far reaching consequences, where some elements that are important for online success are dealt with too slowly, or not at all. Blogs are dealt with in the same way as printed magazines and social media are hardly addressed resulting in poor performance on i.e. these two drivers.

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be sure that the product is on stock. Listing at e-tailers is the responsibility of the International Retail Management (IRM) and they have several account managers for each online store. Launching a campaign can be complicated and the business manager needs to deal with multiple persons and make sure that everyone meets the deadlines. To demonstrate how complicated the management of online key drivers is, a process model has been created which can be found in appendix 5 In this model the planning of an online banner campaign is conceptualized. Some elements are listed grey; these items need to be addressed constantly in order to be effective. Examples are press notes or review material to online magazines. Keeping the information flow going will improve the organic rating in the search engines. When launching a banner campaign, these items can improve the overall success.

9.2 Internet knowledge

With the formation of the online team Company X has adopted and recognized the internet as a new technology and market to invest in. According to Tidd (2005), an organization first needs to acquire the necessary knowledge before launching the new innovation. The online team is formed around people with their own expertise in a certain area. Most key drivers for online sales are covered in this team; i.e. search engine optimization is the responsibility of the search engine marketing team and maintaining and optimizing the corporate online store is the responsibility of the e-shop team. Company X has attracted people from other companies that are more experienced with the internet in order to acquire the necessary information faster; the general manager was a former Apple employee and for user generated content the organization has attracted a HP employee. However, interviews with business managers and online team members showed that most knowledge that exists in the online team is not shared with the business managers, as shown in figure 8 (see next page).

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Not only the information in the online team is not completely shared, the information in other departments is unknown too for business managers. The example already given is the blogosphere. The PR team is aware of the important and relevant blogs, but this information is not communicated towards the business manager. When it comes to product seeding, sending review material to the online experts, these blogs are ignored resulting in less awareness being created on these websites.

9.3 First findings ‘organizational assets’

The analysis shows that there is an ownership problem and communication flows are not optimized. Areas of the internet that are important, but not covered by a department, are simply ignored. Besides missing links in the communication, it is also complicated for a business manager to address the responsible people for a certain key driver. Launching an internet campaign is very complicated and requires the collaboration of many individuals. There is also a knowledge gap; the business manager is not aware of all the operations in the online team. This results in drivers being ignored, that could have been addressed by the people in the online team.

Internet knowledge of online team

Knowledge BM has access to or knowledge of Internet knowledge in

other departments (i.e. PR)

Missing link between

departments Knowledge is not

completely shared

Developing an e-commerce strategy for HC