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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 perfor-

mance and service information via a website. But truly new products or services that can 

be delivered by the Internet apply only for some types of products. These are typically 

digital media or information products. Retailers can extend their product range and 

provide new bundling options online also.

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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 

website and customer emails to promote  travel-  related services).

● 

Diversification into unrelated businesses – again the website can be used to promote 

 less-  related  products  to  customers.

● 

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 marketing 

strategy

. This starts with segmentation, or identification of groups of customers sharing simi-

lar characteristics. Targeting then involves selectively communicating with different segments. 

(This topic is explored further in Chapter 8.) Some examples of customer segments that are 

commonly targeted online include:

● 

The most profitable customers – using the Internet to provide tailored offers to the top 20% 

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.

● 

Smaller companies (B2B) – large companies are traditionally serviced through sales repre-

sentatives and account managers, but smaller companies may not warrant the expense of 

account managers. However, the Internet can be used to reach smaller companies more 

 cost-  effectively.

●