Online Marketing Legal Developments

Although this chapter is divided into one section dealing with 'legal' and another with 'ethical' issues, it should become clear as you read through that the two areas are very much interrelated.

A comprehensive international legislation system that applies to global online trading does not exist at present and is not expected in the foreseeable future. Even within the USA, which is comparatively advanced in its use of the Internet, legal issues such as the validity of digital signatures have caused significant disagreements. While waiting for federal legislation, many states have set up their own laws, which have differed widely from state to state. Organizations such as the United Nations or bodies dealing with international trade law have been actively calling for global co-ordination of appropriate legal structures.

Copyright protection

Because the copyright legislation on the Internet is complex and vague, many Web site operators are reusing information from other sites. Comparison-shopping sites such as www.moneysupermarket.com, for example, rely heavily on aggregating information existing on other sites and presenting it in a comparative format. While this is acceptable in the USA, which allows data to be extracted and compiled in this way, there are indications that Europe may impose certain restrictions on what one site can do with another's information.

Another contentious issue concerns domain name conflict. There have been a number of cases whereby individuals (known as `cybersquatters') have registered domain names that resemble established brands or generic terminology and thenattempted to sell the right to use that name to the company concerned. For example, Chen (2001) notes that the address `business.com' was sold for $7.5 million and `wine.com' for $3 million. The author goes on to describe the case of Marks and Spencer v. One in a Million Limited and Others, in which Marks and Spencer sued for infringement of its trademark after the defendant registered the domain name marksandspencer.com and demanded money in exchange for handing it over. The courts found in favour of Marks and Spencer, and One in a Million was prevented from using the name or trying to sell it to anyone else. Chen also describes the problem of character string conflicts that arise when there is more than one legitimate user of a certain combination of letters. Finally, remember the case of www.untied.com that was described in Chapter 6? This site was set up by an online 'vigilante' to publicize the customer service failings of www.ual.corn (United Airlines), and accurately mimics the logo, style and layout of the original site.

This example also illustrates that copying anything from a Web site is very easy — merely a matter of cutting and pasting the code — so that protection of any intellectual property is very difficult. A famous example concerns the ongoing dispute over the piracy of music on MP3 sites, which are file compression formats allowing songs to be freely transmitted over the Web and downloaded to an individual's computer. Peer-to-peer (P2P) sites such as www.napster.com allow

users to share the content of their computers, hard drives, and this technological innovation makes the worldwide sharing of music files even easier.

While legislation continues to lag behind technological developments, one of the few protections currently available to businesses is to patent innovative techniques that they have devised. In the case of Amazon v. Barnes and Noble in 1999, Amazon won a lawsuit against Barnes and Noble, which had tried to copy the famous 'one-click' ordering system pioneered by Amazon.

Contractual agreements

Electronic contractual agreements are part and parcel of e-Commerce. The registration procedure is part of the purchasing process and requests the buyer to scroll through a set of contract terms. The purchase sequence is completed only when the buyer has clicked his or her agreement to the terms and conditions presented. The validity of such an electronic contract has been tested already through the US courts, but it is not certain that it is globally acceptable. Consumer protection laws vary from country to country and the global operator must be aware of differing obligations that could impact on the validity of the transaction performed.

The importance of keeping track of changes in legislation that will affect e-Business cannot be underestimated. Certain legislation such as the law passed recently by the European Union regarding email marketing could have far reaching consequences. Effective from 1 March 2001, this law states that if a dispute occurs between a consumer and an online retailer in any of the fifteen countries of the EU, the consumer may file a suit in his or her own country. Small firms that have thrived from the freedom the Internet is offering may well find it harder now to maintain control over their direct email marketing campaigns in this increasingly legislative environment.

Loyalty Programmes and Personalization

Despite the problems listed above, it does seem that relationship marketing at east has the potential to enhance customer satisfaction. Although it is easy to be cynical, a satisfied customer is more likely to be loyal than one who is not. A loyal customer base has a number of benefits to a company:

• Higher returns will accrue, from repeat sales over time.
• Increasing levels of competition means that service quality may be the only differentiating factor between otherwise similar companies.
• Higher costs are associated with recruiting new customers than with managing existing ones (because of the need to conduct credit checks, take up references and other administrative tasks).
• It provides scope for cross-selling.
• It creates possibilities for strategic partnerships.
• Loyal customers will recommend the company to others by word of mouth.
• Promotional costs to acquire new business are reduced.

Loyalty programmes (also known as 'reward schemes') can be introduced to increase loyalty. For example, successful programmes have been introduced in recent years by airlines such as BA and supermarkets such as Tesco. The costs of the rewards given away can be more than offset by the additional business gained through repeat or additional purchases. For example, Tesco's Clubcard loyalty programme now covers more than 14 million customers, and special offers can be customized, based upon analysis of transactional data in order to enhance the brand image and build trust. By 1996, 200 million in-store purchases per day were being tracked by the programme, and over 5,000 distinct customer segments identified, each receiving personalized coupons. Profits have grown from £500 million in 1995 to nearly £1 billion in 2000 (www.ltol.com). When Tesco began selling goods online (admittedly after a shaky start, when the company's computer systems were not sufficiently integrated and orders had to be rekeyed manually!), the company was a 'known quantity' in comparison with the unproven Internet `pureplays' that were setting themselves up in competition. Additional Clubcard points were awarded for online purchases, and Tesco now has over 1 million online customers. In 2000 it sold half of all online groceries in the UK (www.datamonitor.com). It dominates the home delivery market to such an extent that many competitors have accepted defeat. Safeway, for example, decided in 2001 to stop selling its goods online and concentrated instead on refurbishing and upgrading its retail outlets.

Another popular method of boosting loyalty is personalization. Tesco is moving in this direction with its online service, which is now becoming more sophisticated in its analytical capabilities in terms of suggesting particular products or special offers that might appeal to individual customers based upon their purchase history. Personalization software allows the name of the user to be incorporated into the Web pages, any previous transaction details to be displayed, and related areas of interest to be flagged. Personalized email messages can be distributed to highly targeted groups of customers at a very low cost. This type of marketing is also being driven by research such as that by Cyber Atlas (www.cyberatlas.com), which established that Web users who configure, person. alize or register on Web sites are more than twice as likely to buy online as those who do not. A combination of a reward scheme and personalization can therefore be a powerful tool to drive loyalty. Such mechanisms are of course ideally suited to online transactions, and this aspect will be considered in more detail in the next section.

As with relationship marketing as a whole, there has been a lot of hype recently claiming that personalization is a panacea for success. This ignores the fact that in many circumstances, customers are quite happy to receive a 'mass market' approach, and find any degree of personalization an intrusive invasion of privacy. Examine the mini case study below and make up your own mind — do you find such approaches valuable or intrusive? Why?