© Ana Isabel Canhoto, www.anacanhoto.com 1

Introduction to the

Internet of Things

for Marketers

Ana Isabel Canhoto

January 2017

© Ana Isabel Canhoto, www.anacanhoto.com 2

Table of Contents

1. Introduction ............................................................................................................ 3

1. Definition, types, and key components of IoT ....................................................... 4

2. Evolution and key applications .............................................................................. 6

3. Benefits of IoT ....................................................................................................... 8

4. Customer behaviour issues .................................................................................. 10

5. Marketing management opportunities and challenges ...................................... 12

6. Impact of IoT on the organisation ....................................................................... 13

7. Structural issues ................................................................................................... 14

8. Final comments .................................................................................................... 15

References .................................................................................................................... 17

© Ana Isabel Canhoto, www.anacanhoto.com 3

1. Introduction

The Internet has changed how we live and conduct business, and the Internet of

Things (which may be described as the third wave of Internet), is no exception. As

such, it is imperative that marketing managers, as well as researchers, understand

what it is, and how it impacts on marketing.

This paper aims to demystify the Internet of Things (IoT) for marketers. It

provides a non-technical introduction to what the IoT is and how it creates value for

users (and, hence, why there has been so much excitement about it). The paper also

presents a general overview of key implications for marketers to consider, in terms of

customer behaviour and marketing management. There are also numerous links to

practitioner and academic sources, for those readers who want to know more about

the topics discussed.

The remaining of this paper is organised as follows. Section 2 describes the two

different types of IoT, and the key components of the IoT eco-system. Then, section 3

outlines how the technology and the range of applications are likely to evolve, and

where growth is expected. After this, section 4 looks at the benefits of IoT for

different types of users. After these three overview sections, we turn our attention to

the implications of IoT for marketers. Section 5 explores customer behaviour issues

associated with the adoption and use of IoT. Then, section 6 builds on this, to explore

the opportunities and challenges that IoT present for marketing management. Section

7 goes one step further to consider the broad implications for the organisation, before

section 8 goes even broader and looks at industry issues. Section 9 concludes this

paper.

© Ana Isabel Canhoto, www.anacanhoto.com 4

2. Definition, types, and key components of IoT

The term IoT refers to devices enabled with an internet connection. Because they

are internet-enabled, these devices can collect and transmit data about how they are

used, and/or about their context, with little or no interference from users. Some

devices can also interact with each other.

There are two types of IoT devices (Figure 1). On the one hand, we have machine

to machine devices, which are those devices that communicate, interact or drive

action with each other. For instance, industrial automation or smart grid systems.

On the other hand, we have machine to human devices. These are machines that

communicate, interact or drive action with human users. For instance, these devices

may require input from the user; or they may collect data about the environment and

then propose an action to the user. Examples of machine to human devices include

smart home equipment and fitness devices.

Figure 1. Types of Internet of Things devices

Source: Holdowsky et al. (2015)

© Ana Isabel Canhoto, www.anacanhoto.com 5

The distinction between machine to machine and machine to human devices is

very important, because each type of device presents different challenges for

manufacturers, for marketers, and for researchers working in this area. While all IoT

devices present technological challenges related to the collection, transfer,

aggregation and analysis of data, machine to human devices also present behavioural

challenges because we need to take into consideration how the user is going to

interact with the device (Miltgen et al, 2013; Holdowsky et al., 2015).

As can be inferred from this brief description, the IoT is not one, single

technology or type of device. Instead, it is an eco-system of different technological

products and services. The following technologies are part of the IoT eco-system (Lee

and Lee, 2015; Botta et al, 2016):

1. Radio frequency identification (RFID) - allows automatic identification and

data capture using radio waves, a tag, and a reader;

2. Wireless sensor network (WSN) - monitors physical or environmental

conditions;

3. Application software – is used to develop industry-oriented or user-specific

applications;

4. Middleware – is a software layer that mediates between applications;

5. Cloud computing – enables on-demand access to a shared pool of resources.

To this list of key components, Holdowsky et al. (2015) add another one:

standards. Standards are ‘(c)ommonly accepted prohibitions or prescriptions for

action (which) enable processing of data and allow for interoperability of aggregated

data sets’ (p. 3). They are critical for interoperability between different IoT systems

(Manyika et al, 2015).

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3. Evolution and key applications

The technology underpinning the IoT is constantly evolving. Table 1 provides an

overview of how IoT technologies have evolved, and are likely to develop further.

Table 1. Evolution of IoT technologies

Source: Lee and Lee (2015)

Likewise, the range of settings in which the IoT has been deployed continues

to expand. Table 2 illustrates the broad range of applications of the IoT. The ever

expanding range of applications, associated with the decreasing price of underlying

technologies, the improvements in functionality (particularly around fine decision

making), the use of gamification techniques and feedback loops that encourage user

engagement, and the socialisation of consumers and peer pressure, have resulted in

exponential growth in this industry (Gao et al, 2015; Holdowsky et al, 2015).

© Ana Isabel Canhoto, www.anacanhoto.com 7

Table 2. Settings where the IoT has been applied

Source: Manyika et al (2015)

The market is expected to continue growing. It is estimated that, between 2015

and 2020, the IoT market will register a compound annual growth rate of 34% in

terms of units, and 21% in terms of revenues (Barker, 2015). Growth is likely to be

particularly significant in the consumer end of the market (Barker, 2015) and, within

this, healthcare is predicted to be the fastest growing vertical market (Nokia

Corporation, 2016). There is also large potential for IoT in the developing economies

(Manyika et al, 2015).

© Ana Isabel Canhoto, www.anacanhoto.com 8

4. Benefits of IoT

The expansion of the IoT promises to bring various benefits for society,

businesses, and individuals. For instance, governments can design cost-effective

transportation or public health systems; businesses can improve relationships with

their customers; and citizens can make informed decisions about their own well-being

or that of an elderly relative (Canhoto and Arp, in press).

These benefits arise because IoT devices can report on their own condition and the

environment, allowing users to monitor key behaviours in real time, and to control

resources remotely (Porter and Heppelmann, 2015; Weinberg et al, 2015). For

instance, Merrifield (2015) describes how Disney uses the IoT to monitor the

behaviour of visitors to their leisure parks, and sends them information and offers that

are relevant to where they are in the park, and which reflect contextual factors such as

whether there is congestion in a part of the park the visitor is heading to.

Moreover, the data generated by the IoT sensors and transmitted via the Internet

can generate valuable insight, and create new opportunities for optimisation (Figure

2). ‘Data now stands on par with people, technology, and capital as a core asset of

the corporation and in many businesses is perhaps becoming the decisive asset’

(Porter and Heppelmann, 2015, p. 100).

© Ana Isabel Canhoto, www.anacanhoto.com 9

Figure 2. The value of IoT data

Source: Porter and Heppelmann (2015)

The IoT can also enable new business models (Dijkamn et al, 2015). For

instance, makers of industrial machinery can shift from selling equipment to selling

services (e.g., charge by usage), and can generate additional revenues by identifying

opportunities for upgrades and cross-selling (Manyika et al, 2015).

For these reasons, there are significant growth opportunities for the suppliers of

software and analytics (Manyika et al, 2015; Porter and Heppelmann, 2015), as well

as for those overseeing the maintenance and support of the IoT eco-system (Paredes,

2015).

© Ana Isabel Canhoto, www.anacanhoto.com 10

5. Customer behaviour issues

For the individual, business and societal benefits of IoT to be realised, it is

necessary that these products are widely adopted and used.

To understand acceptance of IoT products and services, we need to consider the

features and utility of the technology, the context of usage, and the user of the

technology (Miltgen et al, 2013), as summarised in Figure 3.

Figure 3. Factors that might influence the adoption and use of wearables

Source: Canhoto and Arp (2016)

First and foremost, buyers need to believe that the technology will solve a

specific problem, be pleasurable to use, and that the benefits will exceed the costs and

the effort of acquiring and using it. Trust has been shown to be a key factor in driving

adoption of IoT systems (Manyika et al, 2015) To improve trust, it is vital to ensure

customer privacy, which may go against the organisations strategic and operational

goals, given that data is key to improving the service (Weber, 2105; Weinberg et al,

2015). It is also necessary to protect customer data against leaks, or hacking and

cybercrime (Manyika et al, 2015). Moreover, organisations need to protect customers

against new categories of risk, such as harm or losses resulting from product failures,

© Ana Isabel Canhoto, www.anacanhoto.com 11

machines’ actions in unpredictable situations, or the malevolent use of product

features such as the unauthorised access to customer conversations via voice

recognition systems in smart televisions (Holdowsky et al, 2015).

Second, the technical context needs to enable the use of the technology – for

instance, patchy internet coverage is likely to discourage adoption of machine to

human devices. The social context, too, is important. Social influence shape

customers’ perceptions of whether IoT is a good or bad purchase, while product

visibility (physical evidence, as well as virtual evidence) supports further growth. For

instance, in the case of wearables, it is important to design distinctive devices that

consumers feel proud to wear, and which are also ergonomic and comfortable, so that

the consumers do not feel compelled to take it off; as well as make it very easy for

users to share their activity with their peer group, for instance via social media

updates, or league tables (Canhoto and Arp, 2016).

Third, the users’ personal characteristics, and their previous experiences with

technology, are also likely to impact their behaviour.

Moreover, research has shown that the drivers of initial adoption may not be

enough to sustain continued use (Merrifield, 2015). For instance, in the context of

fitness wearables, the availability of features such as step counting or heart rate

monitoring are important in the adoption stage, whereas information accuracy and

battery life are key for continued use (Canhoto and Arp, 2016). Therefore,

manufacturers need to develop and emphasise different features and benefits to new

vs. experienced consumers.

© Ana Isabel Canhoto, www.anacanhoto.com 12

6. Marketing management opportunities and challenges

Offering devices that are embedded with sensors and software, are able to connect

to the Internet, and regularly collect and transfer data about their use and their

environment, is likely to impact how the company relates to their customers, too.

According to Porter and Heppelmann (2015), these are the marketing management

activities most likely to be impacted by the IoT:

- New ways to segment and customize, because the IoT data provide a detailed

picture of product use;

- New customer relationships, because the company remains connected to

customers via the product, there are opportunities for continuous dialogue with

them;

- Broadening of the value proposition, because products become components of

larger systems;

- Preventive after sales services, because the company can monitor and

diagnose problems remotely;

- Innovation, through the insight generated by analysing IoT data.

While data may be abundant, companies still need tools, methods and resources to

store, process and extract insights from those data (Manyika et al, 2015). It is also

crucial for marketing departments to either develop the skills and capabilities to

succeed in a data-driven marketplace or, conversely, to attract (and retain) suitably

qualified and experienced personnel (Quinn et al, 2016).

Moreover, value and insight comes from aggregating data and getting the

‘complete picture’ (HBR, 2014, p102). This may make marketing departments ever

© Ana Isabel Canhoto, www.anacanhoto.com 13

more dependent on data aggregation companies or gatekeepers like Facebook or

Google (Quinn et al, 2016).

Collecting and holding customer data also presents reputation risks for the

companies. Instances such as personal data leaks, or unauthorised use of data, can

damage the brands image and result in financial losses, even when the breach was not

the company’s fault but, instead, was caused by a supplier or technology partner

(HBR, 2014). In addition, problems with the security of devices – e.g., a car’s

computer system, a baby monitor’s camera or sound system, or a factory’s machinery

control network - is likely to result in product liability (O’Brien, 2015).

7. Impact of IoT on the organisation

IoT, with its real-time connectivity, potential for automation, and capability to

collect and transmit data, is likely to have a tremendous impact on various business

functions.

For instance, Porter and Heppelmann (2015) identify the following:

- Product development – Products become increasingly complex, embedded

with software and, probably, connected to the cloud.

- Production – Manufacturing goes beyond producing the product, to include

the loading and configuring of software. Final assembly may move to the

customer site.

- Logistics – Products can be continuously tracked, and provide information

about its location, movements and condition.

© Ana Isabel Canhoto, www.anacanhoto.com 14

In turn, Andersson and Mattsson (2015) note that, as technology changes, new

intermediaries are likely to emerge, while the roles of existing intermediaries are

likely to change.

There are likely to be cultural challenges, too. The importance of, and

responsibility for, strategy development in organisations is changing (Quinn et al,

2016), and managers need to adopt a mindset to use IoT effectively, and the ability to

adapt to new processes and business models (Manyika et al, 2015). Decision makers

may resist replacing professional judgment with data-driven approaches to decision

making, such as predictive analytics, because they may doubt their accuracy, or

because they do not understand how the outcome was reached (Holdowsky et al,

2015).

Organisations may even need to rethink how they measure their performance, and

how they monitor the customer experience (Merrifield, 2015).

8. Structural issues

The IoT industry is still relatively new and, therefore, it is still undergoing major

development. For the moment, the lack of clarity regarding the regulatory

environment for innovations such as autonomous vehicles makes investment in these

technologies very risky (Manyika et al, 2015). There are also legal questions around

intellectual property and data ownership, because data and insights are being

produced as a result of connecting multiple devices and systems (Manyika et al,

2015). The regulatory challenge is further complicated by the fact that businesses

operating with IoT devices and data often need to comply with various international

laws and regulations (Botta et al, 2016).

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For IoT to move past the early adoption stage, however, it is necessary that the

price of IoT devices (and, hence, the cost of IoT components) continue to drop

(Manyika et al, 2015). Furthermore, standards and systems operability need to

continue to develop, as the value of IoT is critically dependent on the ability of

devices and systems to interact with each other, and work together (Internet Society,

2015). Moreover, network availability and communications reliability are crucial for

data transmission and, in some cases, for the device to operate (Botta et al 2016).

Finally, it is necessary to develop quality verification processes and assurances.

Security is ‘only as strong as the weakest link within the chain of interconnected

products’ (O’Brien, 2015, p. 11), and the proliferation of poorly tested devices can

seriously undermine customer confidence and bring chaos to the system (Lee and Lee,

2015).

9. Final comments

This paper set out to give a brief and broad overview of the IoT for marketers. It

explored what IoT is and how it is used, as well as the opportunities and challenges

that this technology presents to marketing.

The paper stayed away from technical intricacies and latest developments,

focusing instead on enduring behavioural and managerial issues around the use of

IoT. As such, this document should be useful to marketing practitioners and

researchers beyond specific product iterations and configurations, or particular

business applications.

Having said that, the technology, the environment, and the state of knowledge are

always evolving. Hence, if you come across insightful articles, reports or statistics

© Ana Isabel Canhoto, www.anacanhoto.com 16

that would enhance this report, and help marketers, please let me know (contact

details here: https://anacanhoto.com/contact-me/).

© Ana Isabel Canhoto, www.anacanhoto.com 17

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