The Influence of Porter s Generic Strategies on the Success of Internet Marketing

Transcription

1 The Influence of Porter s Generic Strategies on the Success of Internet Marketing Roger Elliot, University of Fort Hare Pamela Rupping, Rhodes University Abstract One way of distinguishing between small tourism businesses is to consider their strategic positioning. The focus of this study is to identify the impact of the strategic positions adopted by small South African tourism businesses on the success of their use of the Internet for marketing. If these factors can be identified, this will allow existing and emerging small businesses to access markets and retain customers more easily. The results indicate that there is a positive relationship between firms which have taken a cost leadership or differentiation strategic position and Internet marketing success. Introduction The potential benefits of the utilization of the Internet as a marketing tool in the tourism industry have been well documented (Gretzel, Yuan and Fesenmaier, 2000; Hoof, Hubert, Collins, Combrink and Verbeeten, 1995; Kasavana, Knuston and Polonowski, 1997; Walle, 1996). These benefits include cost-savings (for instance cheaper advertising and lower expenditure on physical retail sites), speed, accessibility, communicating large volumes of information, customer convenience, improved customer relationship management, improved target marketing and a worldwide reach for even the smallest of tourism firms. The implications of these benefits for smaller tourism businesses are particularly salient as it will completely alter the ability of these firms to compete in markets that were previously inaccessible such as overseas markets (Haynes, Becherer and Helms, 1998; Vargha and Pettigrew, 2001). Up to now the use of technology had been the almost exclusive preserve of large tourism businesses with the necessary financial muscle to gain access to expensive mainframe computer systems, huge servers, sophisticated software and skilled and thus expensive labor. But, as Heim and Sinha (2001) point out, that is no longer the case. Affordability and enhanced access to hitherto inaccessible markets are powerful forces that will shape the marketing practices of small-sized firms in the foreseeable future. This has important implications for the tourism industry given that the majority of tourism ventures are small businesses (South Africa, 1996; South Africa, 1998). Although the Internet allows businesses access to diverse markets irrespective of the size of the business (Haynes, Becherer and Helms, 1998; Vargha and Pettigrew, 2001) the extent of this impact in respect of different types of businesses and industries is not clear (Porter, 2001; Kimiloğlu, 2004). In other words, there is some conjecture as to whether or not the nature and type of the business will influence the extent to which the Internet can be successfully deployed for marketing. This is particularly significant in the tourism industry in South Africa which comprises a wide variety of small tourism businesses with very little similarity to each other besides having certain customers in common (TBCSA, 2002). 1

2 Problem Statement and Objectives Despite the early promise of the Internet for marketing, this technology has not had the same impact in respect of all industries and products (Christensen and Tedlow, 2000; Evans and Wurster, 1999; Eggert, 2006). Tourism is one industry which comprises a diverse range of (predominately small) businesses, not only in respect of their product offering, but also in terms of the way the businesses are managed and the market segments that are targeted. Against this backdrop, it is important to identify the impact of strategic positioning on the Internet marketing success of small tourism businesses. Strategic Positioning In this study, Porter s (1980, 1985) three generic marketing strategies are used to distinguish between the strategic positions of small tourism businesses although these have modified to a certain extent (Porter, 1990). Notwithstanding that there are a number of different models which could have been used in this study, (for example see Miles and Snow, 1978; Mintzberg, 1973), it was decided to use Porter s (1980, 1985) generic strategies because they are among the most widely used and have been empirically verified in a number of industries (Dess and Davis, 1984; Hambrick, 1983; Miller and Friesen, 1986a; Miller and Friesen, 1986b). In spite of this, Porter s (1980, 1985) model has been criticised on a number of fronts (e.g. Hill, 1988; Miller, 1992; Murray, 1988; Wright, 1987) but the most appealing aspect of Porter s (1980, 1985) approach, for the purposes of this study, is that it is pragmatic (Kotha and Vadlamani, 1995) and manages to capture the essence of single business strategies (Miller and Dess, 1993). In this research, a distinction is made between firms taking a differentiation, focus and low cost approach to achieving a sustainable competitive advantage (Porter, 1980, 1985). Differentiation strategies focus on the external aspects of the firm, such as brand image, product features, technology and distribution network. A focus strategy allows firms to compete because it is able to serve its narrow strategic target more effectively or efficiently than competitors who are competing more broadly (Porter, 1980:38). In contrast, a low cost strategy is essentially internal and seeks to pass on cost advantages to consumers (Porter, 1980, 1985). A company s strategic choice influences the degree to which a firm can successfully develop and implement an innovation (Frambach, Prabhu and Verhallen, 2003; Kickul and Walters, 2002) such as new product success (Pelham and Wilson, 1996) and new product activity (Frambach et al, 2003; Zahra, 1993). An innovation, though, is more than new product development and includes new production methods and ways of approaching the market (Schumpeter, 1934) such as a firm s use of the Internet for marketing (Bengtsson, Boter and Vanyushyn, 2003). In other words, although the Internet has fundamentally changed the communication as well as the business paradigms of the world, (Hoffman and Novak, 1996) conventional tools and concepts of marketing, such as Porter s (1980, 1985) generic strategies can be applied to the Internet marketing environment (Merrilees, 2001). Consequently, it is argued that the extent to which a small tourism business can successfully use the Internet to market its service is influenced by the nature of the firm s strategic positioning (Bengtsson, Boter and Vanyushyn, 2003; Frambach et al, 2003). Small tourism businesses following a focus positioning strategy attempt to serve a particular market really well, which would imply that they would be innovative in 2

3 respect of that particular market (George, 2001). However, Frambach et al (2003) argue that this is not necessarily the case and that firms following a focus strategy are less likely to be innovative as they focus on narrow markets, with few market segments. In other words, because these market niches are relatively free of competition, businesses will be under less pressure to be innovative. This view is supported by empirical results that found that a focus strategy had a negative influence on new product activity (Frambach et al, 2003). This finding is consistent with the research of Zahra (1993), which found that new product activity is carried out less in firms following a focus strategy than other types of firms, and that the study of Campbell-Hunt (2000), who did not find a positive relationship between a focus position and new product activity. There is, however, some authority to the contrary. It has been argued that it is important to focus any Internet marketing campaign (Chaffey, Mayer, Johnston, and Ellis-Chadwick, 2000; McBride, 1997; Reichheld and Schefter, 2000; Seybold, 1998). However, focus goes beyond simply focusing a communication campaign and needs to be a reflection of a company s strategy to maintain a competitive advantage (Brooksbank, 1999; George, 2001). This is particularly apposite in the case of tourism services, where the production and consumption of a service are inseparable (Palmer, 2001). Small tourism businesses following a low cost strategy are unlikely to engage successfully in marketing over the Internet since their cost leadership positions are mostly achieved by refining existing products or models rather than by managing innovations such as marketing over the Internet or new product development (Dess and Davis, 1984; Frambach et al, 2003; George, 2001). This is supported by Pelham and Wilson (1996) who argue that a low cost strategy is not an appropriate positioning strategy for small businesses. This is because the SMME s lack of resources does not allow it to pursue a low cost strategy in the long term and it should rather follow a differentiation strategy (Pelham and Wilson, 1996). However, Hill (1988) argues, that in some industries, differentiation could mean cost leadership. Tourism SMMEs that follow a differentiation strategy are likely to have the competencies to successfully use the Internet for marketing. This is because these firms are outward looking and have the ability to learn from the business environment at large. Businesses following a differentiation strategy need to be able to assess the strategies followed by their competitors and implement unique and innovative ideas as a way of competing in their industry. This innovative approach will allow these small tourism businesses to expand their knowledge and overcome their resource weaknesses to allow them to successfully implement the Internet for marketing (Campbell-Hunt, 2000; Frambach et al, 2003; George, 2001). The Hypotheses Based on the literature, the following hypotheses were tested: H 1 : A cost leadership strategy will have a positive impact on Internet marketing success. H 2 : A differentiation strategy will have a positive impact on Internet marketing success. H 3 : A focused strategy will have a positive impact on Internet marketing success. 3

4 Methodology In order to ensure validity and reliability, measuring instruments from previous studies were, where possible, used to measure both the independent variables and the dependent variable. Altogether 523 potential respondents were surveyed and the 153 usable questionnaires comfortably exceed the minimum guideline for the use of multivariate statistical procedures to analyse the data (Hair, Anderson, Tatham, and Black, 1998). The initial step in the data analysis was to assess the discriminant validity of the instrument used to measure the variables in the theoretical model. This was done using the multivariate technique of exploratory factor analysis with the purpose of establishing which of the questionnaire items measure each construct (and only that construct) in the theoretical model. This suggested that the extraction of four variables would be appropriate which were named Perceived success of Internet Marketing, Cost Leadership, Differentiation and Focus. Reliability was measured using Cronbach s alpha coefficient and three of the factors (Perceived success of Internet Marketing, Cost Leadership and Differentiation) returned a Cronbach alpha coefficient score in excess of 0.70 and are accordingly considered reliable. One factor, Focus, returned a Cronbach alpha score of 0.64 but is nevertheless considered to be reliable given the exploratory nature of this study (Churchill, 1979; Hair et al, 1998). Results In order to test these research hypotheses a multiple regression analysis was conducted and a summary of the results are shown in Table 1. It is apparent from Table 1 that two of the independent variables namely Cost Leadership and Differentiation exert a positive influence on the dependent variable Perceived success of Internet marketing. There is no significant relationship in respect of Focus and Perceived success of Internet marketing. Hypotheses H 1 are H 2 are thus accepted and H 3 is rejected. Table 1 also shows that the independent variables in the multiple regression analysis explain 98.4 percent of the variance in the dependent variable Perceived success of Internet marketing. Table 1 Summary of Multiple Regression Results Determinants of Successful Internet Marketing N = 153 B Std Error of B t value p-value Intercept Cost Leadership *** Differentiation *** Focus R 2 = 98. 4% p< Std Error of Estimate: F(3.149) = *** = p<

5 Discussions and Conclusions Cost leadership Table 1 reveals that there is a significant positive relationship at the p < level between Cost Leadership and Perceived success of Internet marketing. In other words, if a small tourism business takes a low cost position, this will have a positive effect on the use of the Internet for marketing. In many respects this contradicts previous studies in respect of the drivers of the successful implementation of innovations such as Internet marketing (Dess and Davis, 1984; Frambach et al, 2003). This apparent aberration could be as a result of industry specific factors. In the tourism industry, a small business taking a low cost position (with a concomitant low price) does not necessarily imply an inferior or lower quality product but rather an alternative experience as is offered by many backpacker establishments. In other words, consistent with Hill (1996), cost leadership in the tourism industry could imply a form of differentiation and as such a cost leadership position would not be inconsistent with the successful implementation of an innovation such as the Internet for marketing. Differentiation The empirical results shown in Table 1 support the hypothesis (H 2 ) that there is a significant relationship at the p < level between Differentiation and the Perceived success of Internet marketing. This finding is consistent with previous studies which demonstrated that firms which take a differentiation position will be more likely to be able to successfully implement an innovation (such as using the Internet for marketing) (Campbell-Hunt, 2000; Frambach et al, 2003; George, 2001). In other words, firms adopting a differentiation position will be constantly trying to innovate to distinguish themselves from the competition and as such will have the competency to successfully implement and manage an innovation such as using the Internet for marketing. Focus Table 1 show that there is not a significant relationship between Focus and the Perceived success of Internet marketing as was expected. Although research on the impact of a Focus position on the success of the introduction of an innovation such as the use of the Internet for marketing is equivocal (Campbell-Hunt, 2000; Frambach et al, 2003; Zahra, 1993; Chaffey et al, 2000; McBride, 1997; Reichheld and Schefter, 2000), the absence of a relationship could be explained by the fact that many small tourism businesses serve small or niche markets with little competition and there is little value in introducing innovations such as the use of the Internet for marketing. In other words, small tourism businesses with limited means and an intimate knowledge of their market would have difficulty in justifying the spending of time and resources to implement this technology. This conclusion is consistent with the study of Frambach et al (2003) which argues that firms following a focus strategy usually serve a specific market niche, which is relatively free of competitors, and as such are less likely to possess the competencies to introduce innovations. The results confirm the use of the Internet for marketing may be more apposite in respect of some small tourism businesses than others. However, the Internet is a broad technology with a many applications and a key factor in the technology s successful implementation may be setting realistic goals and objectives taking into consideration the nature of the organisation and their target market. 5

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