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302 Part 2 Strategy and applications

Existing products can also be sold to new market segments or different types of customers.
This may happen simply as a by-product of having a web site. For example, RS components
(www.rswww.com), a supplier of a range of MRO (maintenance, repair and operations)
items, found that 10% of the web-based sales were to individual consumers rather than tra-
ditional business customers. The UK retailer Argos found the opposite was true with 10% of
web-site sales from businesses, when their traditional market was consumer-based. EasyJet
also has a section of its web site to serve business customers. The Internet may offer further
opportunities for selling to market sub-segments that have not been previously targeted. For
example, a product sold to large businesses may also appeal to SMEs they have previously
been unable to reach because of the cost of sales via a specialist sales force. Alternatively, a
product targeted at young people could also appeal to some members of an older audience
and vice versa. Many companies have found that the audience and customers of their web site
are quite different from their traditional audience, so this analysis should inform strategy.
3 Product development. The web can be used to add value to or extend existing products for
many companies. For example, a car manufacture can potentially provide car performance
and service information via a web site. But truly new products or services that can be deliv-
ered by the Internet only apply for some types of products. These are typically digital
media or information products, for example online trade magazine Construction Weekly
has diversified to a B2B portal CN Plus (www.cnplus.co.uk) which has new revenue
streams. Similarly, music and book publishing companies have found new ways to deliver
products through the new development and usage model such as subscription and pay per
use as explained in Chapter 8 in the section on the Product element of the marketing mix.
Retailers can extend their product range and provide new bundling options online also.
4 Diversification. In this sector, new products are developed which are sold into new markets.
The Internet alone cannot facilitate these high-risk business strategies, but it can facilitate
them at lower costs than have previously been possible. The options include:
Diversification into related businesses (for example, a low-cost airline can use the web site
and customer e-mails to promote travel-related services such as hotel booking, car
rental or travel insurance at relatively low costs).
Diversification into unrelated businesses – again the web site can be used to promote less-
related products to customers – this is the approach used by the Virgin brand, although
it is relatively rare.
Upstream integration – with suppliers – achieved through data exchange between a
manufacturer or retailer with its suppliers to enable a company to take more control of
the supply chain.
Downstream integration – with intermediaries – again achieved through data exchange

with distributors such as online intermediaries.
The danger of diversification into new product areas is illustrated by the fortunes of
Amazon, which was infamous for limited profitability despite multi-billion-dollar sales.
Phillips (2000) reported that for books and records, Amazon sustained profitability through
2000, but it is following a strategy of product diversification into toys, tools, electronics and
kitchenware. This strategy gives a problem through the cost of promotion and logistics to
deliver the new product offerings. Amazon is balancing this against its vision of becoming a
‘one-stop shop’ for online shoppers.
A closely related issue is the review of how a company should change its target market-
Target marketing
strategy ing strategy. This starts with segmentation, or identification of groups of customers
Evaluation and selection sharing similar characteristics. Targeting then involves selectively communicating with dif-
of appropriate segments
and the development of ferent segments. This topic is explored further in Chapter 8. Some examples of customer
appropriate offers. segments that are commonly targeted online include:
the most profitable customers – using the Internet to provide tailored offers to the top 20
per cent of customers by profit may result in more repeat business and cross-sales;
larger companies (B2B) – an extranet could be produced to service these customers, and
increase their loyalty;