CHAPTER 15
GLOBAL MARKETING AND THE DIGITAL REVOLUTION
SUMMARY
A. The digital revolution has created a global electronic marketplace. The revolution has
gained momentum over the course of 75-plus years, during which time technological
breakthroughs included the digital mainframe computer; the transistor; the integrated
circuit; the personal computer; the spreadsheet, the PC operating system; and the
Internet, which originated as an initiative of the Defense Advanced Research Projects
Agency (DARPA). Three key innovations by Tim Berners-Lee, URLs, http, and html,
led to the creation in the early 1990s of the World Wide Web.
B. The digital revolution has resulted in a process known as convergence, meaning that
previously separate industries and markets are coming together. In this environment, the
innovator’s dilemma means that company management must decide whether to invest in
current technologies or try to develop new technologies. Although leading firms in an
industry often develop sustaining technologies that result in improved product
performance, the revolution has also unleashed a wave of disruptive technologies that
are creating new markets and reshaping industries and value networks.
C. E-commerce is growing in importance for both consumer and industrial goods
marketers. Generally, commercial Web sites can have a domestic or global focus; in
addition, they can be classified as promotion sites, content sites, or transaction sites. .
Global marketers must take care when designing Web sites. Country-specific domain
names must be registered and local-language sites developed. In addition to addressing
issues of technology and functionality, content must reflect local culture, customs, and
aesthetic preferences. Cybersquatting can hinder a company’s effort to register its
corporate name as an Internet destination.
D. The Internet is a powerful tool for advertisers; click-through rates are one measure of
effectiveness. Another trend is paid search advertising. New products and services
spawned by the digital revolution include: broadband, which permits transmission of
streaming media over the Internet; mobile commerce (m-commerce), which is made
possible by Wi-Fi, Bluetooth, and other forms of wireless connectivity; global
positioning systems (GPS); and short message service (SMS). Smartphones are
creating new markets for mobile music downloads and streaming; smartphones can also
be used for mobile gaming and Internet phone service using VoIP.
LEARNING OBJECTIVES
1 List the major innovations and trends that contributed to the digital revolution
2 Define “convergence” and give an example
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3 Define value network and explain the differences between sustaining technologies and
disruptive technologies
4 Identify current trends in global e-commerce and explain how global companies are expanding
their presence on the Web
5 Explain the key issues facing a global company when designing and implementing a Web site
6 Identify the most important new products and services that have been introduced in the past
decade
OVERVIEW
Africa’s widespread adoption of the cell phone and the explosive growth of the telecom sector
have also changed a common misperception among global marketers: that the market
opportunity in Africa is limited because the people are too poor and it is too risky to do business
there.
The digital revolution is driving the creation of new companies, industries, and markets in Africa
and the rest of the world.
It is also contributing to the transformation and, in some cases, destruction of companies,
industries, and markets. In short, the revolution is dramatically transforming the world in which
we live.
The digital revolution is driving the creation of new companies, industries, and markets in all
parts of the world; the same process is also contributing to the destruction of companies,
industries, and markets.
As the revolution gains traction and picks up speed, global marketers will be forced to adapt to
an evolutionary world in which cell phone tablets, and other mobile devices play an important
role.
This chapter appears after the five-chapter sequence devoted to the marketing mix. Why?
Because all the elements of the marketing mix—the four Ps—converge in the world of Internet
connectivity and commerce. For example, the product “P” includes Facebook, Google, Pinterest,
Twitter, Wikipedia, and the myriad other Web sites that can be accessed worldwide.
The Web also functions as a distribution channel, and a very efficient one at that. Case in point:
Apple’s iTunes, the digital-only entertainment retailer that has rewritten the rules of music and
video distribution.
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The Internet has also become a key communication platform. Today, virtually every company
and organization has a presence in the online space. The Internet can be used as an advertising
channel, as a PR tool, as a means for running a contest or sales promotion, and as support for the
personal selling effort. Finally, there is price.
Comparison-shopping Web sites make it easy to check and compare prices for products and
services. Moreover, the marginal cost of warehousing and distributing digitized products—music
files, for example—is practically nothing. This has led to some interesting pricing strategy
experiments. For example, Radiohead, the innovative rock band from Oxford, England,
harnessed the efficiency of the Web to offer downloads of In Rainbows for free.
ANNOTATED LECTURE/OUTLINE
THE DIGITAL REVOLUTION: A BRIEF HISTORY
(Learning Objective #1)
The digital revolution is a paradigm shift resulting from technological advances that allow for
the digitization of analog sources of information, sounds, and images.
The origins of the digital revolution can be traced back to the mid-twentieth century. Over a 5-
year period between 1937 and 1942, John Vincent Atanasoff and Clifford Berry developed the
world’s first electromechanical digital computer at Iowa State University.
In 1947, William Shockley and two colleagues at AT&T’s Bell Laboratories invented a “solid
state amplifier,” or transistor, as it became known.
This was a critical innovation because the vacuum tubes that were used in computers and
electronics products at that time were large, consumed a large amount of power, and generated a
great deal of heat.
During the 1950s, Robert Noyce and Jack Kilby independently invented the silicon chip (also
known as the integrated circuit or IC). The IC and the concept of binary code permitted the
development of the personal computer.
IBM brought its first PC to market in 1981. Bill Gates initially declined an offer to create an
operating system—the software code that provides basic instructions—for IBM’s new machine.
Gates later changed his mind and developed the Microsoft Disk Operating System (MS-DOS).
In 1984, Apple introduced the revolutionary Macintosh.
The Internet’s origins can be traced back to an initiative by the Defense Advanced Research
Projects Agency (DARPA) that created a computer network that could maintain lines of
communication in the event of a war.
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In 1990, the uniform resource locator (URL), an Internet site’s address on the World Wide
Web; hypertext markup language (HTML), a format language that controls the appearance of
Web pages; and hypertext transfer protocol (http), which enables hypertext files to be
transferred across the Internet, were all invented by Tim Berners-Lee.
In short, Berners-Lee is the father of the World Wide Web. (Exhibit 15-2)
In the mid-1990s, a computer scientist at the University of Illinois named Marc Andersen
developed a Web browser; called Mosaic, later changed to Netscape.
Within 5 years of the Web’s debut, the number of users increased from 600,000 to 40 million.
The Internet’s powerful capabilities and increasing importance have resulted in a backlash that
manifests itself in various ways.
Recently, China, India, Brazil, and the EU have taken the position that, because the Internet is
global, no single country should be in control.
CONVERGENCE
(Learning Objective #2)
The digital revolution is causing dramatic, disruptive changes in industry structure.
Convergence is a term that refers to the coming together of previously separate industries and
product categories (see Figure 15-1).
INNOVATION, ENTREPRENEURSHIP, AND THE GLOBAL STARTUP
Jack Ma, Alibaba
Jack Ma is an entrepreneur. He has developed several innovative products and services, created
new brands, and started companies to market his creations. By applying the basic tools and
principles of modern marketing, Ma has achieved remarkable success.
About 80 percent of China’s e-commerce is channeled through Alibaba, the company Ma
founded in 1999. In 2003, Ma launched a consumer site called Taobao (Chinese for “search for
treasure”) as an alternative to eBay. At the time, eBay and its Chinese partner, EachNet,
dominated the market. Initially, Taobao set itself apart from eBay by not charging sales
commissions or listing fees. In less than five years eBays share of the Chinese market was down
to single digits, while Taoboa dominated the market with an 85 percent share.
In 2005, Yahoo paid $ 1 billion for a 40 percent share of Alibaba, and Ma became chief executive
of Yahoos Chinese operations. In 2014, Alibaba made history when its $ 25 billion initial public
offering on the New York Stock Exchange set a record for both the United States and the world.
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CONVERGENCE
(Learning Objective #2)
The digital revolution is causing dramatic, disruptive changes in industry structure.
Convergence is a term that refers to the coming together of previously separate industries and
product categories (see Figure 15-1).
Convergence presents challenges (e.g., Kodak, the leader in photography-related products for
more than a century faces competitors such as Dell and Hewlett-Packard because of
convergence).
VALUE NETWORKS AND DISRUPTIVE TECHNOLOGIES
(Learning Objective #3)
As noted in the chapter introduction, the digital revolution has created both opportunities and
threats.
In an era when environmental scanning, strategic planning, and other conceptual tools are widely
known, some managers have failed to respond to change in a timely manner.
According to Harvard Professor Clayton Christensen, executives are so committed to a current,
profitable technology that they fail to provide adequate levels of investment in new, riskier
technologies. Companies listen to and respond to the needs of established customers; Christensen
calls this situation the innovator’s dilemma.
Companies have a value network, which has a cost structure that dictates the margins needed for
profitability; the boundaries are defined by order of importance of product performance
attributes.
Parallel value networks, each built around a different definition of what makes a product
valuable, may exist within the same broadly-defined industry. For example, during the 1980’s
buyers of portable computers paid a premium for smaller size; mainframe buyers do not value
this attribute; value networks for mainframes and portable computers are different.
As firms gain experience, they develop capabilities, organizational structures, and cultures
tailored to the requirements of their respective value networks.
Dominant firms lead in developing and/or adopting sustaining technologies, incremental or
radical innovations that improve product performance.
Most new technologies developed by established companies are sustaining in nature; new
entrants lead in developing disruptive technologies that redefine performance.
Disruptive technologies go beyond enhancing product performance; they enable something to be
done that was deemed impossible and enable new markets to emerge.
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To help managers recognize the innovator’s dilemma and develop appropriate responses to
environmental change, Christensen developed five principles of disruptive innovations:
1. Companies depend on customers and investors for resources. The best innovations are
user-driven; however, listening to established customers may lead to missing
opportunities for disruptive innovation.
2. Small markets don’t solve the growth needs of large companies. Small organizations can
respond to the opportunities for growth in a small market. This fact may require large
organizations to create independent units for new technologies.
3. Markets that don’t exist can’t be analyzed. Companies should embrace agnostic
marketing, the assumption that no one knows if a disruptive product can be used before
using it.
4. An organization’s capabilities define its disabilities.
5. Technology supply may not equal market demand. Some products offer more
sophistication than required. Complex accounting software created an opportunity for
Quicken and QuickBooks.
GLOBAL E-COMMERCE
(Learning Objective #4)
The term e-commerce refers to the general exchange of goods and services using the Internet as
a marketing channel.
According to Forrester Research, online retail sales revenues in 2014 totaled $304 billion, a
figure that represents about 7 percent of the total U.S. retail sales.
Internet penetration in the United States is currently at 75 percent of the population.
Consider the following:
Every 48 hours, Yahoo records more than 24 terabytes of data about its users’ online
activities. That is the equivalent of all the information contained in all the books in the
Library of Congress.
Between 2003 and 2014, the number of Internet users in China increased from 68 million
to 640 million. This makes China the world’s largest e-commerce market. Local
companies such as Alibaba are proving to be formidable competitors against global rivals
such as Yahoo, Google, and eBay.
According to Forrester Research, online retail and travel sales in Western Europe grew at
a compound annual rate of 8 percent between 2008 and 2014. By 2018, it is expected
that 75 percent of European Internet users will be shopping online, up from 65 percent in
2013.
E-commerce activities can be divided into three broad categories:
1. Business-to-consumer (B2C or b-to-c)
2. Business-to-business (B2B or b-to-b)
3. Consumer-to-consumer (or peer-to-peer or P2P).
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Overall B2B commerce constitutes the biggest share of the Internet economy and will likely
continue to do for the foreseeable future.
Web sites can be classified by purpose:
Promotion sites provide marketing communications about a company’s goods or
services
Content sites provide news and entertainment and support a company’s public relations
efforts
Transaction sites are cyberspace retail operations that allow customers to purchase
goods and services.
Companies such as FedEx and Gucci are already global in scope, and the Internet constitutes a
powerful, cost-effective communications tool.
Companies can also seek e-commerce transactions with customers on a worldwide basis. Today,
Amazon.com is the world’s largest retail site, with hundreds of millions of annual visitors.
Online retail in the United States passed the $300-billion mark in 2014.
In some instances, global marketers make the strategic decision to establish a presence on the
Web without offering transaction opportunities even though the product could be sold that way.
Rather, such companies limit their Web activities to promotion and information in support of
offline retail distribution channels.
There are several reasons for this. First, many companies lack the infrastructure necessary to
process orders from individual customers.
Second, it can cost anywhere from $20 million to $30 million to establish a fully functioning e-
commerce site.
Until recently, visitors to Web sites for most luxury good purveyors were not give the
opportunity to buy. The reason is simple: Top design hours strive to create an overall retail
shopping experience that enhances the brand.
This belief is changing, however. Some luxury goods marketers have developed Smartphone
and iPad apps to help consumers shop.
As the Internet has developed into a crucial global communication tool, decision makers in
virtually all organizations are realizing that they must include this new medium in their
communications planning.
Many companies purchase banner ads on popular Web sites; the ads are linked to the company’s
home page or product- or brand-related sites. Advertisers pay when users click on the link.
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Although creative possibilities are limited with banner ads and click-through rates—the
percentage of users who click on an advertisement that has been presented—are typically low,
the number of companies that use the Web as a medium for global advertising is expected to
increase dramatically over the next few years.
An important trend is paid search advertising, whereby companies pay to have their ads appear
when users type certain search terms. Yahoo! recently paid $1.6 billion to acquire Overture, a
company specializing in paid search advertising.
One of the most interesting aspects of the digital revolution has been noted by Chris Anderson,
the editor of Wired magazine and author of The Long Tail. The book’s title refers to the use of the
efficient economics of online retail to aggregate a large number of relatively slow selling
products. The Long Tail helps explain the success of eBay, Amazon.com, Netflix and iTunes, all
of which offer far more variety and choice than traditional retailers can.
WEB SITE DESIGN and IMPLEMENTATION
(Learning Objective #5)
To fully exploit the Internet’s potential, company executives must be willing to integrate
interactive media into their marketing mixes.
A critical first step is registering a country-specific domain name.
Cybersquatting—the practice of registering a particular domain name for the express purpose of
reselling it to the company that should rightfully use it—is a problem.
Payment can be another problem. In some countries, including China, credit card use is low.
Another issue is credit card fraud.
Ideally, each country-specific site should reflect local culture, language usage, customs, and
aesthetic preferences.
Logos and other elements of brand identity should be included on the site, with adjustments for
color preferences and meaning differences when necessary.
A note of caution is in order: It is not enough to simply translate a Web site from the home
country language into other languages.
Another critical global e-commerce issue is privacy.
The European Union’s regulations are among the world’s strictest, regarding privacy.
A number of issues are related to physical distribution decisions. As online sales increase in a
particular country or region, it may be necessary to establish local warehouse facilities to speed
delivery and reduce shipping costs.
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