Decision Support Systems 27 Ž2000. 383–393
Marketing on the Internet — who can benefit from an online
Melody Y. Kiang , T.S. Raghu b, Kevin Huei-Min Shang c
Information Systems Department, College of Business Administration, California State UniÕersity, Long Beach, CA 90840, USA
School of Accountancy and Information Management, College of Business, Arizona State UniÕersity, Tempe, AZ, USA
Operations and Decision Technologies, Graduate School of Management, UniÕersity of California, IrÕine, CA, USA
Accepted 25 October 1999
The research builds upon the literature in electronic commerce and past research in marketing with the objective of
understanding factors that impact a product’s adaptability to online marketing. A review of marketing channel choice
literature reveals a set of factors and channel choice functions that are considered important in making channel decisions.
Using this as a basis, four major channel functions, namely, product customization, availability, logistics, and transaction
complexity are considered relevant in understanding the implications for Internet marketing. By building upon previous
research in the area of channel selection, we provide a means of classifying Internet marketing initiatives based on product
characteristics. The classification scheme based on product characteristics can help analyze the significance of each factor on
the success of a firm’s online marketing approach. Further, the classification scheme is used to discuss decision support
implications. q 2000 Elsevier Science B.V. All rights reserved.
Keywords: Electronic commerce; Channel selection; Internet marketing; Product classification
1. Introduction they commit substantial capital investment on Inter-
net marketing and risk the possibility of interfering
The potential of the Internet as a commercial
with their current channels. In this research, we
medium and market has been documented in a vari-
focus on the use of the Internet as a virtual storefront
ety of publications w17,20x. Despite overwhelming
where products are sold directly to customers. We
statistics regarding Internet development, both suc-
contend that product characteristics play a major role
cessful and unsuccessful cases of Internet marketing
in the successful marketing of a product on the
have been reported w15,16x. There is no proven suc-
Internet. We build a product characteristics based
cessful method that can help management evaluate
classification framework to study the implications of
how beneficial Internet marketing could be before
using the Internet as a marketing channel.
Channel selection is a complex task for both
Corresponding author. E-mail: email@example.com researchers and practitioners in marketing. Although
0167-9236r00r$ - see front matter q 2000 Elsevier Science B.V. All rights reserved.
PII: S 0 1 6 7 - 9 2 3 6 Ž 9 9 . 0 0 0 6 2 - 7
384 M.Y. Kiang et al.r Decision Support Systems 27 (2000) 383–393
Internet marketing has boomed in recent years, most literature, the types of channels can be divided
companies have used it mainly for advertising or broadly into direct and indirect marketing ap-
promoting corporate images. Not many companies proaches. Most companies do not sell their products
have fully utilized the power of Internet marketing as or services directly to the final users for three rea-
a new channel for handling transactions on the Inter- sons: Ž1. lack of financial resources to carry out
net. The existing research in channel design and direct marketing; Ž2. decreased cost-effectiveness
selection has only considered the traditional chan- Že.g., selling gum or other low-price consumer goods
nels, including direct and indirect marketing ap- directly.; Ž3. to focus on the core business w21x.
proaches. There is no documented results or research Internet marketing shares some of the characteristics
that provide a systematic method to guide evaluation, of both direct and indirect marketing forms. How-
planning, and execution of the channel choice deci- ever, the extant literature in channel selection only
sion when it comes to Internet marketing. The re- classifies products into direct or indirect marketing
search done in Ref. w30x provides a comprehensive and cannot be applied directly to Internet marketing
review of research in traditional channel selection choice. Several product and market factors determine
and is used as the basis for building our model. In channel choice Žthese are summarized in column 2 of
this paper, we extend and modify their work to Table 1. w30x. These factors can be classified based
include the new transactionrdistribution channel, In- on the function performed by the channel in fulfill-
ternet marketing. ing customers’ requirements. The classification
In this study, we first identify the product factors scheme of Ref. w30x groups the factors into eight
that may impact the selection of transaction chan- channel functions and provides their implications for
nels. This is done through a thorough review of the channel choice Žsee Table 1, column 1.. Although
literature in both traditional marketing channel selec- the Internet is an entirely new channel, it has many
tion and the new online marketing approach and of the same characteristics as those of conventional
identification of the key benefits of Internet market- channels. We believe studying the factors considered
ing. Product factors that have impacted the success- significant in conventional channel selection can also
ful capitalization of Internet marketing are added to help in analyzing the characteristics of Internet mar-
the current list of factors identified by previous keting. However, there are factors that either were
marketing research. considered less important in conventional channel
The rest of the paper is organized as follows. A literature or are unique to online marketing that need
summary of the review is presented in Section 2. To to be added to the analysis Žindicated in bold letters
better understand the type of products or services in Table 1, column 2..
selling on the Internet, Section 3 gives the classifica- In Section 2.2, we identify the key advantages of
tion of retailing on the Internet. Here, the findings Internet marketing recognized by companies partici-
from Section 2 are used as the basis for building the pating in Internet marketing. The findings are then
classification grid. Section 3 also discusses the deci- used as the basis for extending the channel selection
sion support implications of the classification. Sec- theory to encompass online marketing.
tion 4 concludes the research with a summary of
contributions and a direction for future research.
2.2. The adÕantages of internet marketing
2. Literature review Marketing activity occurs through three types of
channels: distribution, transaction, and communica-
tion channels w28x. Although this study focuses on
2.1. Current research in channel selection using the Internet as a new transaction andror distri-
bution channel, there are substantial interactions and
Marketing channel decisions are among the most overlap among the activities performed by the three
critical decisions facing management. In marketing types of channels. Therefore, we need to consider the
M.Y. Kiang et al.r Decision Support Systems 27 (2000) 383–393 385
Channel choice functions Žadapted from Rangan et al. w30x.
Customer’s Product-market factor Reference Marketing implications
requirement of identified in the
channel functions literature
Ž1. Product Searching time, technical, w3,22,26,36x Use direct marketing if high, indirect if low.
information complexity, rate of Internet can be used as a communication
technology channel in either case. If product complexity
is high, Internet is well suited.
Ž2. Product Adjustment, w3,8,36x Use direct marketing if high, indirect if low.
customization customization, customer Internet is ideal if factors associated
importance, product with customization are highly critical for
novelty, ease of value market success,
added, specialty goodsa
Ž3. Product Product criticality, w8,26x Use direct sales if Important, indirect if
quality significance of purchase Unimportant.
assurance These factors are not critical in choosing
Internet as a channel.b
Ž4. Lot size Purchasing effort, unit w7,22,26,36x Use direct if Large, indirect if Small.
value, extent of usage, If demand volatility is high, Internet can
order size, gross be chosen as the channel.c
Ž5. Assortment Assortment, one-stop w7,8x Use direct if Nonessential, indirect if
shopping, market Essential.
decentralization Use the Internet if market decentralization is
not essential. Other factors are not critical in
choosing Internet as a channel.
Ž6. Availability Frequency of usage, time w3,7,26,36x Use direct if Not critical, indirect if Critical.
of consumption Use the Internet if these factors are critical
replacement rate, to product success.
frequency of purchase,
Ž7. After-sales Waiting time, need for w7,26x Use direct if Not critical, indirect if
service service Critical.
For a digital product where need for service
is critical, Internet is well suited.d
Ž8. Logistics Need for special w6,36x Use direct if Complex, indirect if Simple.
equipment, Use the Internet if digital products or if
transportation logistics factors are simple.
Ž9. Transaction Order complexity w2,35x Use the Internet if transaction complexity
complexity is high to reduce time and error in
New factors are boldfaced.
Due to the ubiquitous nature of Internet Commerce, the authentication of a company is used as the surrogate for quality assurance of
the product. Therefore, companies with established reputation Žbrand name. tend to do well in electronic commerce w9,11,29x.
The main reason that prevents potential customers from using the Internet is security concerns. As Internet marketing matures, we
expect to see transactions of various lot sizes to occur on the Internet. Theoretically, the lot size just needs to be large enough to ensure the
coverage of its delivery cost.
This is true for companies that provide digital products. Also for companies that have established distribution channels other than the
Internet can use the established channel to provide after-sales services.
effect of Internet marketing on all aspects of market- of Internet marketing. The extant literature in Elec-
ing activities to be able to recognize the true benefits tronic Commerce has documented various advan-
386 M.Y. Kiang et al.r Decision Support Systems 27 (2000) 383–393
tages for companies to sell directly on the Internet. to Internet marketing. The four new factors are: Ž1.
These advantages can be classified into those three ease of value addition to the product w32,37x; Ž2.
channels based on the functions performed: specialty of goods w14,19,24x; Ž3. order complexity
Ø As a communication channel: information ex- w2x; and Ž4. convenient location w27,34x. Three of the
change between sellers and buyers. four factors can be grouped into one of the eight
- For accessing, organizing, and communicat- channel functions proposed by Rangan et al. w30x
ing information. ŽThese are boldfaced in Table 1.. We have also
- To improve interactivity and perceptual expe- added a new channel function in Table 1, namely
rience w28x. transaction complexity, an issue that was not consid-
- To gather information about customers via ered in traditional channel selection literature. Using
surveys and contests for new product develop- the Internet to handle transactions can help prevent
ment and introduction, relationship building and human errors, and thus reduce transaction costs espe-
personalization w10,15,18,25x. cially for complex transactions, such as those that
Ø As a transaction channel: sales activities. traditionally require trained personnel or experts Že.g.,
- To improve visibility and reach a much big- travel agents and stockbrokers..
ger customer base w23x. When analyzing the importance of each channel
- To improve revenues by exploiting cross-sell- function to online marketing, we based the analysis
ing opportunities w13x. on the advantages of Internet marketing identified in
- To streamline transaction processing, thereby Section 2.2. We separate the marketing process into
reducing task complexity, paperwork and trans- three channels and only focus on the advantages that
action costs w2,23,25,31x. have direct impact on the online transaction and
- To customize promotion and sales to individ- distribution processes. Product information, which is
ual customers and improve flexibility w18x. a function of the communication channel, should not
Ø As a distribution channel: physical exchange of be a factor to consider when selecting the transaction
productsrservices. channel. Companies can take advantage of the Inter-
- To eliminate huge inventories, storage costs, net as a communication channel for exchanging and
utilities, and space rental, etc. w4x. communicating information with customers but not
- To shorten supply chain and reduce commis- for directly placing orders and making transactions.
sion and operating costs w12x. In other words, the Internet can be used very well for
The ability to serve as both a transaction and information but not necessarily for marketing. On the
physical distribution medium for certain goods is a other hand, the instant communication feature of the
unique feature of Internet marketing. Companies in- Internet allows the companies to quickly respond to
volved in online ticketing and reservation, digital market changes and customer preferences and to
products, financial services, tele-medicine, etc., can customize its promotion and goods to individual
best realize such advantages. customers in a more timely fashion. Moreover, be-
Using the Internet as a distribution channel cannot cause the Internet access is not limited by any physi-
only reduce the delivery cost substantially, but also cal boundary and is available 24 h a day, it allows
ensure instant delivery of productsrservices. Thus, companies to provide convenient access to a broader
we extend the traditional dichotomy of direct or customer base. The logistics function is expanded
indirect marketing to include the Internet as an alter- here to include the consideration of distributing digi-
native channel for transactionrdistribution. The last tal or informational products or services that is perti-
column of Table 1 briefly describes the decision nent to the success of Internet marketing. Thus, it
choices involved in choosing one of the three chan- appears that product information, product quality
nels for product marketing. assurance, lot size, assortment, and after-sales ser-
To summarize, we make four new additions to the vice functions are less important factors to consider
traditional factors that affect channel choice. These in Internet marketing. Therefore, we utilize product
new factors are found to be important for Internet customization, availability, logistics, and transaction
transaction based on a review of several cases related complexity as the basis for building our framework
M.Y. Kiang et al.r Decision Support Systems 27 (2000) 383–393 387
to evaluate the suitability of marketing the products w28x further categorized the products or services along
or services on the Internet. three dimensions that are more relevant in the con-
text of the Internet: cost and frequency of purchase,
value proposition, and degree of differentiation.
3. Classification of productsr services selling on
r These three dimensions constitute eight different
Peterson et al. w28x suggested that when products
To help understand the effect of each channel are expensive and infrequently purchased, an Internet
function to Internet marketing, we first need to pro- marketer is more likely to carry such a product.
vide the classification of products or services selling However, the traditional retailer is favored when
on the Internet. There is a broad range of products there is a need to personally inspect the product prior
and services marketed on the Internet that range to purchase. When the value proposition is intangible
from consumable goods to durable goods. Services or informational Ždigital products., the Internet mar-
marketed on the Internet also range from online keter is favored.
newspapers to business-wide consultation. The clas- Peterson et al. w28x provide a classification of
sification criteria of different products or services are Internet products or services based on product char-
still controversial. The traditional method is to clas- acteristics and likely consumer decision sequences,
sify products by their tangibility, nature and needs, and the implications of the Internet for consumer
and buying behavior w21x. This kind of classification marketing. However, no justification is provided for
may be suitable for a traditional marketing environ- selecting the three dimensions used in their classifi-
ment but does not seem as appropriate in categoriz- cation. In this research, we have reviewed the mar-
ing products or services on the e-market. According keting channel choice literature and have identified a
to Ref. w28x, a better way to group products or set of factors and channel choice functions that have
services on the Internet is by separating them into been considered important in making channel deci-
search or experience goods. Search goods are goods sions. We have arrived at four major channel func-
that can be evaluated using external information, tions that we believe are relevant to Internet market-
whereas, experience goods have to be personally ing: product customization, availability, logistics, and
evaluated. If a product is a search good, it is more transaction complexity. Three of the four channel
suitable and likely to be marketed on the Internet. On functions match well with the three dimensions sug-
the other hand, if a product is an experience good, gested in Peterson et al. w28x as follows. The produc-
then marketing this product on the Internet is less tion customization function considers factors such as
possible. This classification gives us a clear picture adjustment, customization, and customer importance
of product suitability for marketing on the Internet that correspond well with the differentiation potential
Product and service classification grid Žadapted from Ref. w28x.
Dimension 1: Dimension 2: Dimension 3: Examples of products and services
outlay and value proposition differentiation
frequency of potential
Low outlay, Tangible High Wines, softdrinks, cigarettes
frequently purchased or physical Low Milk, eggs
goods Intangible or High Online newspapers and magazines
informational Low Stock market quotes
High outlay, Tangible or High Stereo systems, automobiles
infrequently physical Low Precious metal ingot of
purchase known weight and purity
goods Intangible or High Software packages
informational Low Automobile financing, insurance
388 M.Y. Kiang et al.r Decision Support Systems 27 (2000) 383–393
Expanded product and service classification grid
Logistics Product Transaction Availability Sample of cases Major productsrservices
Digital High High Critical GM Žfinancial service. Installment, finance,
TechrDSS TechrDSS TechrDSS Direct Credit Personal financing,
implications: implications: implications: options, credit report
Profiling and Wizards and Server side
customization Customization monitoring
agents to push tools to assists tools to ensure
products and users in uninterrupted
services. placing orders. service
Intelligent Using past
agents for transactions to
customized guide present
setting of users transactions.
Secure Tax, William Tax services
Brooks and Company
Not critical TravelBids, Expedia, Online auction or sales
Travelocity.com of travel-related products,
Southwest Airlines, Online travel,
United Airlines, reservations
Compaq Business consulting
Dartnell Software, services,
Low Critical ESPN, CNN, Business Online news
Week, Golf Digest magazines
AudioNet News, CDs, live audio
Canadian Insurance Online insurance
Electronic News News
You First Personal Health
Not critical Intuit.com, Soleau Online software
Dell Computer, Software, services
IBM, Cisco, Micron
Headbone Interactive Software, games
Low High Critical First Commerce Bank Online banking
M.Y. Kiang et al.r Decision Support Systems 27 (2000) 383–393 389
Table 3 Žcontinued.
Logistics Product Transaction Availability Sample of cases Major productsrservices
TechrDSS Not critical Prudential Securities, Insurance
Embedder user FIC Insurance Groups, Online brokerage
configurable EU Trade.com services
Data mining to
Physical High High Critical Sharper Image Small appliances, gifts
TechrDSS TechrDSS TechrDSS Not critical Chrysler, Toyota Automobile
implications: implications: implications: Computer hardware
Multimedia Supply chain Wizards and
tools for partnerships tools to
enhancing to enhance enhance user
perceptionr relations and experience in
experience. DSS to placing orders.
to improve of partnersr
through supply Interorganiztion-
chain relations. tional systems
Logistics to share
IBM, Dell Computer
Micron, Gateway 2000,
Onsale.com, Insight Computer hardware
Cisco Network hardware
OfficeMax High-end office
Low Critical Virtual Vineyard Wines
TechrDSS 1-800-Flowers Flowers
390 M.Y. Kiang et al.r Decision Support Systems 27 (2000) 383–393
Table 3 Žcontinued.
Logistics Product Transaction Availability Sample of cases Major productsrservices
Amazon, Barnes and Books
Noble’s, Rosewell Books
Cyberspace Computer books
Cdnow!, N2K CDs
Wal-mart Specialty items
Low High Critical Monitor Medical Online medicine
TechrDSS Not Critical
Low Critical Wal-Mart Wines, cigarettes, food
Office-Max Low price stationary
BargainFinder (failure) Shopping mall
IBm World Avenue
dimension. As Peterson et al. w28x stated, Internet-re- product or service is suited for marketing on the
lated marketing can result in extreme price competi- Internet. The Internet can ease transaction process-
tion when products or services are incapable of ing, especially for handling complex orders w2x,
significant differentiation. The availability function thereby reducing paperwork, increasing efficiency
looks at the frequency of usage, time of consump- w23x, replacing professionals tasks w31x, hence, reduc-
tion, and replacement rate, and is related to the first ing the transaction cost w25x. One example is the
dimension which ranges from low-cost, frequently purchasing of custom made blinds. The order needs
purchased goods to high-cost, infrequently purchased to specify all detailed measurements, color code,
goods. The logistics function has been redefined to style, brand, etc., for each blind ordered. It can take
focus on the difference between the logistics of an operator over 30 min to process one average size
digital vs. physical products. This function is the house order with 15 to 20 windows. By using the
same as the tangibility dimension discussed in Ref. Internet to place an order, it cannot only save the
w28x. Thus, our classification scheme provides justifi- processing time Žhence, save the operator cost. but
cation for Peterson et al. w28x framework based on also reduce the chance of human error and customer
traditional marketing channels literature. dispute. For business-to-business transactions, short-
We further refine the classification scheme by ening the processing time also means the seller can
incorporating the transaction complexity as an addi- maintain a lower inventory level and reduce other
tional dimension. We believe this is a critical dimen- related overhead for handling excessive inventory.
sion, especially in the context of e-business, where it Thus, transaction complexity should in itself be con-
deserves careful examination to determine whether a sidered as an important dimension in making channel
M.Y. Kiang et al.r Decision Support Systems 27 (2000) 383–393 391
choice decisions. Based upon the above discussion, 4. Conclusion
we have expanded Table 2 to include a transaction
complexity dimension Žsee Table 3.. The rapid development of online computing tech-
We collected an informal list of companies that nology makes it imperative for businesses to seri-
market their products or services on the Internet ously consider the Internet to avoid losing competi-
ranging from online bookstores to insurance compa- tive advantage. A Web site gives direct contact
nies. Some companies provide physical products as between the organization and the consumer. How-
well as intangible Žinformational. services. A sample ever, product characteristics play an important role in
of these companies appears in Table 3 based on the whether the organization benefits from utilizing the
classification scheme presented in this section. We Web as a means of direct sales w33x. The research
would like to add here that the list of companies builds upon the literature in both electronic com-
presented here is for illustrative purposes only, and is merce and past research in marketing with the objec-
not intended to be an exhaustive compilation of tive of understanding what factors have the most
companies doing business online. impact on a product’s adaptability to online market-
3.1. Decision support implications Table 3 links the product and service character-
istics of Table 1 to the company cases collected.
While our research provides a decision support Among the four functions, logistics has the dominant
framework for channel choice in online marketing, effect on the channel selection decision because digi-
important decision support issues need to be tackled tal products can take advantage of using the Internet
once a channel choice has been made. We believe for both transaction and delivery processes. The
our classification framework helps us understand the second important function is the product customiza-
decision support needs in using the Internet as a tion potential of the products or services, and that is
marketing channel. For instance, high product cus- followed by the transaction complexity and the im-
tomization requires extensive profiling and cus- portance of product availability. Consider some im-
tomization tools to identify and target individual plications of Table 3, where most successful online
customers. Highly sophisticated tracking tools to marketing companies belong to either companies that
monitor changing customer preferences are neces- provide digital products or services or physical prod-
sary to maintain the flexibility of the online market- ucts with high customization potential. This outcome
ing channel. When both product customization and matches well with Peterson’s prediction. One obser-
transaction complexity are high, wizards and tools vation from Table 3 is that the effect of product
Žthat may utilize past orders as a guide. are needed availability seems to be less important for Internet
to assist customers in placing orders. When product marketing. Both types of products or services Že.g.,
customization is low, one would still need tools that frequently vs. infrequently purchased goods. were
can broadly cluster customers for target marketing. observed in our sample of online businesses. As
Customer clustering could be based on a combina- Internet marketing matures, we expect to see transac-
tion of demographics and past interactions. If a tions of various price ranges and sizes to occur.
physical product is being marketed online, sophisti- For digital products or services with low product
cated multimedia tools could be used to enhance user customization and low transaction complexity, the
experience and knowledge about the products w1x. In Internet may not provide a new competitive advan-
addition, supply chain management would be critical tage to the company. For tangible goods, the most
to keep inventories low. When a physical product important factor that determines the suitability of
has high customization needs, forging strategic sup- Internet marketing is the potential of product cus-
ply chain relations and building of decision support tomization. With a high potential of product cus-
tools to optimize manufacturing and delivery effi- tomization, if convenient location is also important,
ciency are critical. A summary of decision support then products with low transaction complexity, such
and technology issues is presented in Table 3 under as wines and chocolates, still have a high possibility
columns 1 to 4. to do well on the Internet. For products with high
392 M.Y. Kiang et al.r Decision Support Systems 27 (2000) 383–393
transaction complexity, both low and high availabil- chance of survival on the Internet, and to reduce the
ity products can sell well on the Internet; for exam- uncertainty involved in expensive capital investment.
ple, the online banking and tax preparation services Ž3. For companies that have already participated in
on the Internet. When both the transaction complex- the online commerce, the key factors identified in
ity is low and the product availability is not critical, our model will help the companies to reevaluate their
we do not recommend using the Internet as a new projects and correct or avoid potential mistakes done
channel for handling transactions based on the cur- by their predecessors. For example, a company that
rent infrastructure. For tangible goods with low prod- sells commonly found tangible goods on the Internet
uct customization, unless the transaction complexity still can develop a niche business by offering deliv-
is high and product availability is critical, we do not ery service to nearby locations as added product
see much opportunity for Internet marketing. All customization.
cases appearing in Table 3 are successful cases
except BargainFinder, Downtown Anywhere Mall,
and IBM World Avenue Cybermall, which belong to References
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