An investigation of the relationship between internet

marketing performance and firm performance

Yue Jiao

Introduction:
Internet marketing which uses internet to promote or market products and services is
considered as the fastest way to reach consumers and business. It quickly replaces
traditional advertising media such as TV, radio and leaflet and becomes the most
popular strategies in marketing for companies. It has been considered as an essential
business tools. Internet marketing provides the opportunity for company to increase
market share, expand into new markets, promote new services and improve the
competition in the same industry. It also provides more comprehensive, accurate and up
to date information for reference, assists customers in making decision among multiple
choices on what products or services they need. Most people think that internet
provides equal chance for all kinds of companies regardless the size to promote their
products/service, explore new markets and ultimately make more profits. However it
may not be the case. This study tries to evaluate internet marketing by measuring its
performance and investigate its relationship with firm performance.
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Background:
The importance of the Internet marketing for a company depends on the nature of its
products and services, the buyer behavior as well as its primary target customers
(Chaffey, D., Ellis-Chadwick, F., Mayer, R., & Johnston, K. 2009). The positive impact of
internet use on marketing in industrial organizations has been addressed in many
studies(Cronin, Mary J. 1994;Mehta, Raj and Sivadas 1995; Stump, R., and Sriram, V.
1997), however, most of the studies researching on internet marketing/ digital marketing
have been either descriptive or theoretical. The role of the internet in business has been
investigated by George J. Avlonitis and Despina A. Karayanni in the study of The impact
of Internet use on Business-to-Business Marketing by an empirical method. Data
collected by an email survey of 130 business to business organizations. The conceptual
model was tested by path analysis. The key construct in this study was use intensity of
the internet. It was measured by two variables, the use of the internet tools and internet
budget. Internet enhance business performance in term of sales performance and
efficiency is suggested at the end of this study. However, use intensity of internet is not
strong enough to draw a conclusion on internet improves business performance.
Moreover, this study has limitations regarding the measurement of use intensity of
internet. In order to be more accurate, actual average daily commercial use, for
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example, hours of stay online, number of employee who are using internet, and number
of emails with professional content received everyday should be tracked (Avlonitis, G.,
and Karayanni, D, 2000). So there is still a lack of accurate measurement to assess
Internet marketing. A more comprehensive measurement is needed to understand
internet marketing. This study is trying to find out a more accurate measurement to
assess internet marketing and its impact on business in a way of combining subjective
indictor and objective indicator.

Conceptual model and Hypotheses

Size of firm

H2

Internet Marketing Performance

Create Brand Awareness
Generate Leads

Firm Performance
Profitability
Growth
Customer satisfaction
Employee Satisfaction

H1

H3

Type of firm

This study is trying to find out the relationship between internet marketing performance
and firm performance, and how this relationship moderated by the size of the firm as
well as the type of the firm. Three Hypotheses has been raised in order to address this
problem.
H1: Internet marketing performance has positive relationship with firm performance.
H2: The relationship between internet marketing performance and firm performance is
moderated by size of the firm.
H3: The relationship between internet marketing performance and firm performance is
moderated by type of the firm.

Constructs and measurements:

Two main constructs in this study are internet marketing performance and firm
performance.

Internet marketing performance:

The performance of internet marketing is defined in this study as the extent to which
internet assists a company to achieve its objectives by using internet marketing. Various
marketing studies indicates that using marketing performance measurement data in
marketing decisions has positive performance implication. (Kannan, Pope, & Jain, 2009;

Mintz & Currim, 2013). The performance measurement process can be defined as
following steps:
1. Map measurement objectives to project or business goals.
2. Identify specific key performance indicators that align with objectives.
3. Establish performance benchmarks or target to gauge success (Murdough, 2013)
In this study, this process is adopted to measure the performance of internet marketing.
An interview were conducted to investigate the purpose of adopting internet marketing in
2006. A total of 25 respondents, who were represented four categories of company
(retailing; government/not-for-profit; business to business and manufacturing/service) all
mentioned brand awareness creation and leads generation as either a primary or
secondary purpose of using internet marketing (Ray Welling, Lesley White, 2006).

Brand awareness creation is an important goal in many companies marketing

strategies. Brand awareness is the extent to which a brand is recognized and recalled
by potential customers. With a higher level of understanding, brand awareness can be
defined as the percentage of customers who know the product in the market, or the
association of the brand with the product category (E Macdonald, B Sharp, 2003). When
people use one product or service designed by or about one company, or the company
gains increased exposure to its brand (Donna L. Hoffman, Marek Fodor, 2010). Brand
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awareness, in the context of internet marketing, is reflected by branded traffic which is

measured by the number of website visit and the number of keyword search.
Regardless the ultimate goal of using internet, whether it is financial, behavioral or
strategic, most companies are expecting to attract a high volumes of branded traffic
(Ray Welling, Lesley White, 2006). Branded Traffic refers to the amount of data across
the internet that comes from visitors who search keywords that include any reference to
company's brand such as name, keywords of the particular products or services.
Achieving a large amount of branded traffic is also an prerequisite for companies to
reach their higher-level goal.

Leads is known as contact information. Leads generation refers to generate customers

interest or inquiry into a business products or services through the Internet. Poor
performance of internet marketing is much like a sales brochure which does not
generate leads, but merely provides information for customers who already know to
look you up on the internet. The key performance indicator is Capture leads, which is
measured by the number of name, phone number, email collected by e-newsletter.

Key performance indicator

Measured by

Brand awareness creation

Number of website visit and number of keyword search
(Branded Traffic)
Leads generation

Number of name, phone number, email collected by e-

(Capture Leads)

newsletter.

Firm Performance:
The narrowest conception of firm performance centers on the use of simple outcomebased financial indicators that are assumed to reflect the fulfillment of the economic
goals of the firm (Dess, G. G., & Robinson, R. B. 1984). Firm performance was always
assessed by its financial performance indices, such as return on investment, return on
assets. However, considering the potential strategic and competitive implications of
revealing these sensitive information, it can be predicted that not all the companies are
willing to report their current financial performance. In the meantime, the financial
indices which are reported in the public are always outdated (Li, Eldon Y., Ja-Shen
Chen, and Yuan-Ho Huang,2006). In order to circumvent the perceived risk of obtaining
inaccurate performance data, an indirect approach for collecting data was used. Rather
than directly collecting financial performance data by asking respondents to report their
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key indices, people were asking to assess and report how well their firm performed
during last 3 year by comparing to their major competitor in term of profitability, growth,
customer satisfaction and employee satisfaction (Tippins, M. J., & Sohi, R. S. 2003,
Santos, J. B., & Brito, L. A. L. 2012).

Profitability in this study is defined as the ability of a firm to make a profit and the ability
to generate returns. It can be reflected by several financial ratios such as return on
assets, return on investment, and return on equity. Firm growth is defined as essentially
expansion. It measures the ability to make company larger, enhance markets as well as
increase profits and cash generation. It can be reflected by a number of pertinent
statistics, such as overall sales, number of staff, market share and turnover.

In addition to these two financial based performance indicator, customer and employee
satisfaction are also considered as key performance indicators to measure firm
performance. customer satisfaction measures how products and services supplied by a
company match or exceed customer expectation. It is the best indicator of the likelihood
of a customer will make a purchase in the future. High customer satisfaction associates
with high willingness-to-pay and thus increase the value created by the company as well
as the reputation. Employee satisfaction refers to whether employees are happy and
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contented with their job or work environment. In other word, it describes whether current
job can fulfill employees need and desire. It is often related to the investment in human
resources practices such as investment in training and developing, Wages and rewards
policies, Career plans (Santos, J. B., & Brito, L. A. L. 2012). Higher level of employees
satisfaction results in a higher level of productivity. It increases employee morale; such
that employees are more willing to work harder to improve the firm performance.

Key performance indicator

Measured by
Return on Assets, Return on investment, Return on

Profitability
equity
Market-share growth, Asset growth, Net revenue
Growth

growth, Net income growth, Number of employees

growth
Number of complaints, Repurchase rate, New customer

Customer Satisfaction

retention, General customers satisfaction, Number of

new products/services launched
Turn-over, Investments in employees development and

Employee Satisfaction

training, Wages and rewards policies, Career plans,

Organizational climate, General employees satisfaction

Moreover, This study tries to further investigate the relationship between internet
marketing performance and firm performance by employing two moderators: size of firm
and type of firm. Internet marketing is suggested as a major marketing strategy for
small businesses. Internet provides equal chance for companies regardless the size to
promote their products/service, explore new markets and keep track of customers'
preferences. Small business should benefit more due to cost saving and be more
competitive. However, Small companies have limited capability of information
management to compete with large company. Information management capability has
positive association with firm performance in term of customer management, process
management and performance management (Mithas, S., RAMASUBBU, N., &
Sambamurthy, V., 2011). In the other hand, given the lack of brand name and credibility
of small business, larger companies may achieve more benefits in term of gaining the
access to larger markets and increase customer volume by using internet marketing.
Considering the impact of size of the firm on internet marketing, the relationship
between internet marketing performance and firm performance may also be effect,
probably in the same direction.

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All customers need information to evaluate products or service provided by a company

and make a purchase decision, however B2B purchasing agents and individual B2C
shoppers focus on different aspects. In particular, B2B purchasing agents are more
concerned than are B2C consumers with obtaining specific information, such as delivery
conditions and pricing option (Bridges, E., Goldsmith, R. E., & Hofacker, C. F, 2005).
Under the assumption of same capability of providing information by internet marketing,
B2B will interact with the company more frequently to require specific information and
thus that objectives of band awareness creation and leads generating are achieved. So
type of firm is considered as another moderator which affects the relationship between
internet marketing performance and firm performance in this study.

Methodology and data collecting

A self-analysis and reporting survey is designed to gather the data. Surveys are emailed
to executives who have sufficient knowledge about the companies and involve a lot with
internet marketing. A diverse sample of 200 companies are selected including 100 B2B
and 100 B2C. The companies should have their own on-going website and adopt
internet marketing as one of marketing strategies for at least three years.
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Executives are asked to assess the performance of internet marketing by reporting the
extent to which internet assists a company to achieve its objectives. As we mentioned
above, two primary objectives of using internet marketing are brand awareness creation
and Leads generation. According to performance measurement process, the
performance of each key performance indicator of the objectives can be described as
percent complete:

Performance of indicator = actual value/target value*100%

This needs executives have a target value for each indicator of the objective in their
mind. Actual data can be collected by Web analytics. Web analytics is adopted by
companies to understand and optimize internet usage by the means of collecting,
analyzing and reporting internet data ( Chaffey and Patron, 2012). It serves as a tool
that collect clickstream data regarding the source of website traffic. For some small
business which have limited budget and do not have a completed information system,
Google analytics can be used to collect clickstream data for free. In the meantime,
subjective performance questions are asked to assess the internet marketing
performance with four items covering recognition, recall, top-of-mind, and brand
knowledge (Homburg, C., Klarmann, M., & Schmitt, J. 2010) regarding to the objective
of brand awareness creation; two items covering interests and inquiry regarding to leads
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generation. The combination of subjective questions and objective data provides a more
accurate and comprehensive measurement of internet marketing performance.

As for firm performance, executives are asked to judge their companys performance as
compared to the competition for each indicator. subjective and objective performance
indicators proved to be positively correlated (Dawes, J. 1999). A correlations (p<0.05)
ranging from 0.44 to 0.69 was found in the study. Even though correlations are not
particularly high, they are significant and positive, indicating that subjective and
objective measures point and give the result in the same direction.

Result and Discussion

Correlation between performance of internet marketing and firm performance should be
positive and significant, indicating the positive relationship between these two
constructors. If the result is not significant, it is probably due to most company may not
use internet marketing as main marketing strategy. The effect may not be obvious when
internet marketing only accounts for a small parts in the whole marketing strategy. As
mention above, big company should benefit more due to a complete information system
and sufficient budget to implement new information technology to improve internet

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marketing performance, and thus that present a better firm performance ultimately. So
size of the company should have significant effect on the relationship between internet
marketing performance and firm performance. A significant effect should be also
expected with the moderator type of firm. B2B companies are more willing to show
their interests and requests for more specific information regarding to the provided
products or service. B2B purchase agents frequently interact with company, such as
register newsletter, download products introduction, email communicate with more detail
and specific concerns will definitely improve internet marketing performance in term of
brand awareness creation and leads generation.

In the end, this study still has limitation. The internet marketing has been narrowed
down to the website use in this study for purpose of data collecting. The measurements
of brand awareness creation and leads generation are limited. In order to get more
accurate description of two key performance indicators, more measurements should be
considered. However, this study is merely introducing a way which combines subjective
indicator and objective indicator together to measure a constructer. Further improvement
is still needed when more knowledge of internet marketing is available.

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Appendix 1: Survey sample

1.

Type of your company: B2B ____

B2C ____

2.

Size of your company: <49 ____

50-250 ____

3.

Brand awareness creation: Please indicate the extent to which you disagree to agree with following

>250 ____

statement based on a seven-point scale: strongly disagree to strongly agree

Strongly disagree

Neutral

Strongly agree

The decision-makers of our potential customers

have heard of our brand.

The decision-makers among our potential

customers recall our brand name immediately
when they think of our product category.

Our brand is often at the top of the minds of the

decision-makers in potential customer firms when
they think of our product category.

The decision-makers can clearly relate our brand to

a certain product category.

1.

4.

Leads generation: Please indicate the extent to which you disagree to agree with following statement
based on a seven-point scale: strongly disagree to strongly agree
Strongly disagree

15

Neutral

Strongly agree

The decision-makers of our potential customers

are interested in our products or service

The decision-makers of our potential are willing to

require more information about our products or
service

2.

5.

What is the percent complete regarding to number of website visit? (Actual number/ Target
number*100%)
<30% ____

4.

30%-60% ____

60%-90% ____

>90% ____

What is the percent complete regarding to number of keywords search? (Actual number/ Target
number*100%)
<30% ____

5.

30%-60% ____

60%-90% ____

>90% ____

What is the percent complete regarding to number of name, phone number, email collected by enewsletter? (Actual number/ Target number*100%)
<30% ____

6.

30%-60% ____

60%-90% ____

>90% ____

Firm performance: Please indicate the extent to which you disagree to agree with following
statement based on a seven-point scale: clearly worse to clearly better
Clearly worse

Nearly same

Clearly better

Over the last three years, how has your firm

performed relative to your competitors with respect
to return on assets?

Over the last three years, how has your firm

performed relative to your competitors with respect
to return on investment?

Over the last three years, how has your firm

performed relative to your competitors with respect
to return on equity?

Over the last three years, how has your firm

performed relative to your competitors with respect
to market share growth?

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Over the last three years, how has your firm

performed relative to your competitors with respect
to assets growth?

Over the last three years, how has your firm

performed relative to your competitors with respect
to net revenue growth?

Over the last three years, how has your firm

performed relative to your competitors with respect
to Net income growth?

Over the last three years, how has your firm

performed relative to your competitors with respect
to number of eemployee growth?

Over the last three years, how has your firm

performed relative to your competitors with respect
to number of complaints?

Over the last three years, how has your firm

performed relative to your competitors with respect
to repurchsing rate?

Over the last three years, how has your firm

performed relative to your competitors with respect
to new customer retention?

Over the last three years, how has your firm

performed relative to your competitors with respect
to general customer satisfaction?

Over the last three years, how has your firm

performed relative to your competitors with respect
to new products/services launched?

Over the last three years, how has your firm

performed relative to your competitors with respect
to Turn-over?

Over the last three years, how has your firm

performed relative to your competitors with respect
to investment in employee development and
training?

Over the last three years, how has your firm

performed relative to your competitors with respect
to wage and rewards policies?

Over the last three years, how has your firm

performed relative to your competitors with respect
to career plan for employee?

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Over the last three years, how has your firm

performed relative to your competitors with respect
to organizational climate?

Over the last three years, how has your firm

performed relative to your competitors with respect
to general employees' satisfaction?

3.

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