Case Studies of Cybercrime and Their Impact on Marketing Activity and Shareholder Value

By Smith, Katherine T.; Smith, L. Murphy et al. | Academy of Marketing Studies Journal, July 1, 2011 | Go to article overview

Case Studies of Cybercrime and Their Impact on Marketing Activity and Shareholder Value


Smith, Katherine T., Smith, L. Murphy, Smith, Jacob L., Academy of Marketing Studies Journal


ABSTRACT

Cybercrime, also called e-crime, costs publicly traded companies billions of dollars annually in stolen assets and lost business. Cybercrime can totally disrupt a company's marketing activities. Further, when a company falls prey to cyber criminals, this may cause customers to worry about the security of their business transactions with the company. As a result, a company can lose future business if it is perceived to be vulnerable to cybercrime. Such vulnerability can lead to a decrease in the market value of the company, due to legitimate concerns of financial analysts, investors, and creditors. This study examines 10 case studies of publicly traded companies affected by cybercrime, and its impact on marketing activity and shareholder value. The study also describes some of the major types of cybercrime. Results indicate that costs of cybercrime go beyond stolen assets, lost business, and company reputation; cybercrime has a significant negative effect on shareholder value.

INTRODUCTION

E-commerce is a fundamental part of marketing activity. Most e-commerce takes place on the websites of publicly traded companies. The term 'cyberspace' refers to the electronic medium of computer networks, principally the Web, in which online communication takes place. A challenge facing e-business or cyber-business is that it is vulnerable to e-crime, also called cybercrime. Cybercrime can totally disrupt a company's marketing activities. Cybercrime costs publicly traded companies billions of dollars annually in stolen assets, lost business, and damaged reputations. Cybercrime costs the US economy over $100 billion per year (Kratchman et al. 2008, Mello 2007). Cash can be stolen, literally with the push of a button. If a company website goes down, customers will take their business elsewhere.

In addition to the direct losses associated with cybercrime, a company that falls prey to cyber criminals may lose the confidence of customers who worry about the security of their business transactions. As a result, a company can lose future business if it is perceived to be vulnerable to cybercrime. Such vulnerability may even lead to a decrease in the market value of the company, due to legitimate concerns of financial analysts, investors, and creditors. This study examines types of cybercrime and how they affect marketing activity. In addition, the study reviews 10 case studies of publicly traded companies affected by cybercrime, and its impact on shareholder value.

The research questions addressed by this study include: (1) What are some ways that cybercrime affects marketing activity? and (2) Do cybercrime news stories negatively affect shareholder value? Results suggest that there are a number of types of cybercrime that have detrimental effects on marketing activity. Furthermore, the costs of cybercrime go beyond stolen assets, lost business, and company reputation, but also include a negative impact on the company's stock price.

E-Business and E-Risk

Corporate managers must consider e-risks, that is, potential problems associated with ebusiness. Precautions must be taken against e-fraud, malicious hackers, computer viruses, and other cybercrimes. To some extent, electronic business (e-business) began with the early computers in the 1950s. However, not until development of the World Wide Web in the 1990s did e-business really take off. E-business is exchanging goods or services using an electronic infrastructure.

Only a short time ago, using the Internet as a primary way to do business was considered too risky. Today, e-business is simply business; it's the way business is done in the twenty-first century. The Internet is widely used for both business-to-business (B2B) transactions and business-to-consumer (B2C) transactions. The B2B market is from five to seven times larger than B2C. The B2B market is predicted to exceed $5 trillion in the early 21st century. The B2C market is growing as fast but is characterized by a much smaller average transaction size (Kratchman et al. …

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