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8 Marketing
Concepts
LEARNING OUTCOMES
By the end of this topic, you should be able to:
1. Describe basic marketing concepts needed to understand Internet
marketing;
2. Discuss the main technologies that support online marketing;
3. Examine basic e-commerce marketing and branding strategies; and
4. Explain how online market research is conducted.
X INTRODUCTION
What is the key objective of e-commerce marketing? You can seek the answer for
this key question by reading the following explanation. The key objective of
Internet marketing is to use the web as well as traditional channels to develop a
positive, long-term relationship with customers (who may be online or offline)
and thereby create a competitive advantage for the firm by allowing it to charge a
higher price for products or services than its competitors.
In this topic, you will learn on the basic marketing concepts and evaluates e-commerce
marketing programmes. You will also learn on consumer behaviour on the web,
brands, unique features of electronic markets and special technologies that support the
new kinds of branding activities.
240 X TOPIC 8 E-COMMERCE MARKETING CONCEPTS
Feature set is the bundle of capabilities and services offered by the product
or service.
Let us say, for example, that the core product is a washing machine.
Marketers must identify the features of the washer that differentiate it from
other existing washing machines.
SELF-CHECK 8.1
What are the differences between the core product, the actual product
and the augmented product?
242 X TOPIC 8 E-COMMERCE MARKETING CONCEPTS
has been crucial in the success and failure of many companies, as described
throughout this module.
What is brand strategy? If you do not what it is, refer below to know its meaning.
Nike sneakers that make you run like an athlete, high-specification Volvo car that
makes you feel safe on dark rainy nights, luxurious shirts from Polo that make
you appear as if you were on the way to a country club all these are examples of
products with extraordinary brand names for which consumers pay premium
prices.
How much is a brand worth? Brands which differ in their power and value in the
marketplace is called as brand equity (refer below).
According to Interbrands 2009 Worlds Most Valuable Brands survey, the top
five brands and their estimated equity value are as follows:
(a) Coca-cola ($68.7 billion);
(b) IBM ($60.2 billion);
(c) Microsoft ($56.6 billion);
(d) General Electric ($47.7 billion); and
(e) Nokia ($34 billion).
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ACTIVITY 8.1
By segmenting markets, firms can differentiate their products to more closely fit
the needs of customers in each segment. Rather than charge one price for the
same product, firms can maximise revenues by creating several different
variations on the same product and charging different prices in each market
segment.
ACTIVITY 8.2
(c) Information-carrier
Confronted with many different drinks, the choice of Coke can be made
quickly without much thought and with the assurance that you will have
the drinking experience that you expect based on prior information of the
product.
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The ability of brands to become a corporate asset and to attain brand equity
is based on future anticipated premiums paid by consumers. This also
provides an incentive for firms to build products that serve well the
customer needs compared to other products. Therefore, although brands
create micro-monopolies, increase market costs, and led to above-average
returns on investment or m monopoly rents, they also introduce market
efficiencies for the customer.
For business firms, brands are a major source of revenue and are
obviously rational. Brands lower customer acquisition costs and increase
customer retention costs. The stronger the brand reputation, the easier it is
to attract the new customers.
Let us look at the definitions given for the previously mentioned terms.
SELF-CHECK 8.2
List some of the major advantages of having a strong brand. How does
a strong brand positively influence consumer purchasing?
EXERCISE 8.1
You can visit these websites to get more ideas on basic marketing concepts:
anything that has come before. In order to understand just how different Internet
marketing can be and in what ways, you first need to become familiar with some
basic technologies of Internet marketing.
ACTIVITY 8.3
On balance, the Internet has had three very broad impacts in marketing:
Table 8.2 lists the data elements contained in a web transaction log and how these
elements can be used in marketing.
Response of site server: Used to monitor for broken links, pages not returned.
200 (usually HTTP/1.1.
HTTP/1.1 304 is a code
to send users to a different
source for the page or object).
Size of pages sent (bytes of Used to understand capacity demands on servers and
information): 1996. communications links.
Name of page or site from Used to understand how consumers come to a site
which the consumer came and once there, their patterns of behaviour.
to this site:
http://www.azimuthinteracti
ve.com/ office97text.htm
Name and version of the Useful for understanding target browsers, ensuring
browser used: Mozilla/4.0 your site is compatible with browsers being used.
compatible; MSIE 4.01
(Mozilla is a Netscape
standard. MSIE is Microsoft
Internet Explorer).
252 X TOPIC 8 E-COMMERCE MARKETING CONCEPTS
Name and version of the Useful for understanding the capabilities of target
operating system, of the client machines; more recent operating systems
consumers client machine: indicate new machine or technically savvy user.
Windows 95.
History of all the pages Used to establish personal profiles of individuals
and objects visited during analyse the site activity and understand the most
a session at the site. popular pages and resources.
WebTrends is a leading log file analysis tool. Transaction log data becomes even
more useful when combined with two other visitor-generated data trails:
ACTIVITY 8.4
For a website that has a million visitors per month, and where, on average, a
visitor makes 15 page requests per visit, there will be 15 million entries in the log
each month. These transaction logs, coupled with data from the registration
forms and shopping cart database, represent a treasure trove of marketing
information for both individual sites and the online industry as a whole. Nearly
all the new Internet marketing capabilities are based on these data-gathering
tools.
For instance, here are just a few of the interesting marketing questions that can be
answered by examining a sites web transaction logs, registration forms, and
shopping cart database:
(a) What are the major patterns of interest and purchase for groups and
individuals?
(b) After the homepage, where do most users go first, and then second and
third?
(c) What are the interests of specific individuals?
(d) How can we make it easier for people to use our site?
(e) How can we change the design of the site to encourage visitors to purchase
our high-margin products?
254 X TOPIC 8 E-COMMERCE MARKETING CONCEPTS
(f) Where are visitors coming from (and how can we optimise our presence on
these referral sites)?
(g) How can we personalise our messages, offerings, and products to
individual users?
ACTIVITY 8.5
Let us look the detailed explanation provided for both of these data collection
techniques:
(a) Cookies
If you are wondering of what is meant by the term cookie, refer below for
a clearer explanation.
A cookie is a small text file that websites place on the hard disk of visitors
client computers every time they visit, and during the visit as specific
pages are visited. Cookies allow a website to store data on a users machine
and then later retrieve it.
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Where you can spot a cookie in a computer? Below are the locations where
you might find a cookie:
(i) Cookie files on a computer using Microsofts Internet Explorer can
typically be found in a directory called c:\windows\cookies; and
(ii) Cookie files on a computer with the Netscape browser can be found
at c:\ProgramFiles\Netscape\Users\Default\cookies.
Both Internet Explorer and Netscape now offer users the option of being
notified when a website wants to send them a cookie and allow them to
accept or reject the cookie.
Do you know what a web bug is? Are they similar in nature to the common
bugs found in our house? No, they are not as explained below.
Web bugs are tiny (1 pixel) graphic files embedded in e-mail messages and
on websites. Web bugs are used to automatically transmit information
about the user and the page being viewed to a monitoring server.
Web bugs are often clear or white-coloured, so they are not visible to the
recipient. You may be able to determine if a webpage is using web bugs by
using the View Source option of your browser and examining the IMG
(image) tags on the page. Web bugs are typically 1 pixel in size and contain
the URL of a server that differs from the one that served the page itself.
To get more information on cookies and web bugs, visit these websites:
http://www.cookiecentral.com/
http://w2.eff.org/Privacy/Marketing/web_bug.html
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These techniques are more powerful and far more precise and fine-grained than
the gross levels of demographic and market segmentation techniques used in
mass marketing media or by telemarketing.
(a) Databases
The first step in interpreting huge transaction streams is to store the
information systematically. A database is a software application that stores
records and attributes. For example, a telephone book is a physical
database that stores records of individuals and their attributes such as
names, addresses and phone numbers.
Let us look at the definitions given for these three important terms:
The data originate in many core operational areas of the firm, such
as:
(i) Website transaction logs;
(ii) Shopping carts;
(iii) Point-of-sale terminals (product scanners) in stores;
(iv) Warehouse inventory levels;
(v) Field sales reports;
(vi) External scanner data supplied by third parties; and
(vii) Financial payment data.
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The purpose of a data warehouse is to gather all the firms transaction and
customer data into one logical repository where it can be analysed and
modelled by managers without disrupting or taxing the firms primary
transaction systems and databases. Data warehouses grow quickly into
storage repositories containing terabytes of data (trillions of bytes) on
consumer behaviour at a firms stores and websites.
With a data warehouse, firms can answer questions such as:
(a) What products are the most profitable by region and city?
(b) What regional marketing campaigns are working?
(c) How effective is store promotion of the firms website?
According to a Data Warehousing Institutes survey of more than 1,600
companies, most found major benefits in the successful implementation of a
data warehouse, such as better segmentation and increased revenues
because business managers had a more complete awareness of customers
through data that could be accessed quickly.
Data mining is a set of different analytical techniques that look for patterns
in the data of a database or data warehouse, or seek to model the behaviour
of customers. Website data can be mined to develop visitors and
customers profiles.
SELF-CHECK 8.3
Let us look at the two approaches mentioned in the rule-based data mining:
For instance, female customers who purchased items worth more than
RM50 in an average visit and who viewed travel articles might be shown a
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Here, rather than have expert marketers make decisions based on their own
rules of thumb, experience, and corporate needs (a need to move old
inventory, for instance), site visitors collaboratively classify themselves
based on common selections. The idea is that people classify themselves
into aaffinity groups characterised by common interests.
A query to the database can isolate the individuals who purchased the
same products. Later, based on purchases by other members of the affinity
group, the system can recommend purchases based on what other people in
the group have bought recently.
For example, visitors who all purchased books on amateur flying could
pitch a video that illustrates small plane flying techniques. And then later, if
it was discovered that several members of this amateur flying interest
group were purchasing books on, say, parachuting, then all members
of the group would be pitched like those who were purchasing. This pitch
would be made regardless of the demographic background of the
individuals.
There are many drawbacks to all these techniques, not least of which is that
there may be millions of rules; many of them nonsensical, and many others
of short-term duration. Hence, the rules need extensive validation and
culling. Also, there can be millions of affinity groups and other patterns in
the data that are temporal or meaningless.
Specialised advertisement servers are used to store and send to users the
appropriate banner advertisements. All these systems rely on cookies, web bugs,
TOPIC 8 E-COMMERCE MARKETING CONCEPTS W 263
CRM systems also supply the analytical software required to analyse and
use customer information. Customers come to the firms not just over the web but
also through these mediums:
(a) Telephone call centres;
(b) Customer service representatives;
(c) Sales representatives;
(d) Automated voice response systems;
(e) Automated Teller Machines (ATMs) and kiosks;
(f) In-store point-of-sale terminals; and
(g) Mobile devices or m-commerce
In the past, firms generally did not maintain a single repository of customer
information, but instead were organised along product lines; with each product
line maintaining a customer list (and often not sharing it with others in the same
firm). In general, firms did not know who their customers were, how profitable
they were or how they responded to marketing campaigns.
For instance, a bank customer might see a television advertisement for a low-cost
auto loan that included a toll-free-number to call. However, if the customer came
to the banks website instead, rather than calling the toll-free-number, marketers
would have no idea how effective the television campaign was because the
customer contact data will go into a single system.
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CRMs, like the advertising network described above, are part of the firms
evolution towards a customer-centric and marketing-segment-based business,
and away from a product-line-centred business. Also, like advertising networks,
CRMs are essentially a database technology with extraordinary capabilities for
addressing the needs of each customer as a unique person. Customer profiles can
contain the following information:
(a) A map of the customers relationship with the institution;
(b) Product and usage summary data;
(c) Demographic and psychographic data;
(d) Profitability measures;
(e) Contact history summarising the customers contact with the institution
across most delivery; and
(f) Marketing and sales information containing programmes received by
the customer and the customer s responses.
Companies like Celcom and Maxis use these profiles from the CRM system for
the following reasons:
(a) To do personal communication such as greeting customers with their name
every time they call;
(b) Retaining customers by awarding rewards such as free SMS or airtime; and
(c) Sending personalised advertisements through SMS based on the package
subscribed by customers.
With these profiles, CRMs can be used for the following aspects:
(a) To sell additional products and services;
(b) Develop new products;
(c) Increase product utilisation;
(d) marketing costs;
(e) Identify and retain profitable customers;
(f) Optimise services delivery costs;
(g) Retain high-lifetime value customers;
(h) Enable personal communications;
(i) Improve customer loyalty; and
(j) Increase product profitability.
266 X TOPIC 8 E-COMMERCE MARKETING CONCEPTS
SELF-CHECK 8.4
EXERCISE 8.2
You can visit these websites to get more information on the technologies that
support online marketing:
Let us look at the market entry strategies for the following firms as illustrated in
Figure 8.5:
(a) New firms; and
(b) Existing firms.
In the E-commerce I era, the typical entry strategy was pure clicks/first mover
advantage strategy (refer below).
To prevent new competitors from entering the market, growing audience size
very rapidly became the most important corporate goal rather than profits
and revenue. Firms following this strategy typically spent the majority of
their marketing budget on building brand (site) awareness by purchasing
high visibility advertising in traditional mass media such as television, radio,
newspapers, and magazine.
If the first mover gathered most of the customers in a particular category (pets,
wine, gardening supplies, and so forth), the belief was that new entrants would
not be able to enter because customers would not be willing to pay the switching
costs. Customers would be locked in to the first movers interface. Moreover,
the strength of the brand would inhibit switching even though competitors were
just a click away.
Even though first movers are innovative, but they are usually lack of:
(a) Financial depth;
(b) Marketing and sales resources;
(c) Loyal customers;
(d) Strong brands; and
(e) Production or fulfilment facilities needed to meet the customer demands
once the product succeeds.
Traditional firms face some similar choices but they have significant
amounts of cash flow and capital to fund their e-commerce ventures over a
long period of time. For example, Barnes & Noble, the worlds largest book
retailer, formed Barnesandnoble.com, which is a fast follower site, when
faced with the success of upstart Amazon.com. The website was established
as an independent firm, a web pure play, although obviously making use of
the Barnes & Noble brand name.
Another possibility for new firms is to pursue a mixed clicks and bricks strategy
in which online marketing is closely integrated with offline physical stores.
However, very few new firms can afford the bricks part of this strategy.
Therefore, firms following this entrance strategy often ally themselves with
established firms that have already developed brand names, production and
distribution facilities and the financial resources needed to launch a successful
Internet business.
The most common strategy for existing firms is to extend their businesses and
brands by using the mixed clicks and bricks brand extender strategy. These
brand extension strategies saw the web as an extension of their existing order
processing and fulfilment, marketing, and branding efforts.
Each of the market entry strategies discussed above has seen its share of
successes and failures. While the ultimate choice of strategy depends on a firms
existing brands, management strengths, operational strengths and capital
resources, todays most firms are opting for a mixed clicks and bricks strategy
in the hope that it will enable them to reach profitability more quickly.
x Viral Marketing;
x Blog Marketing; and
x Leveraging Brands.
Amazon and e-Bay and other large e-commerce companies with affiliate
programmes typically administer such programmes themselves. Smaller e-
commerce firms who wish to use affiliate marketing often decide to join an
affiliate network (sometimes called an affiliate broker, which acts as an
intermediary).
The key benefit of affiliate marketing is the fact that it typically operates on
pay for performance basis. Affiliates provide qualified sales leads in
a p
return for pre-agreed upon compensation. Another advantage, however, is
the existence of an established user base that a marketer can tap into
through an affiliate immediately. For affiliates, the appeal is a steady
income potentially large that can result from such relationships.
The process of viral marketing can also involve users who do not know
each other. When a consumer decides to make a major purchase, such as a
new mountain bike, getting advice and opinions from people who own
such bikes is usually the first step. And with the Internet, it is fairly easy to
find and read reviews of various bike models written by knowledgeable
consumers.
Given the growth of this phenomenon which is over 50% a year in the past
few years and the novelty, blog marketing will likely show substantial
gains over the next several years. In 2009, blog advertising revenue is
estimated to be about $530 million, growing to about $746 million by 2012,
although this does not take into account the impact of recession (eMarketer,
2008f).
Do you know what a brand leveraging is? If you do not, refer below to seek
the correct definition of the term.
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For instance, while Tab was the first to discover a huge market for diet cola drinks,
Coca-cola ultimately succeeded in dominating the market by leveraging the Coke
brand to a new product called as Diet Coke.
In the online world, some researchers predicted that offline brands would not be
able to make the transition to the web because customers would soon learn who
was offering the products at the cheapest prices and brand premiums would
disappear (price transparency).
However, this has not occurred as can be seen in the following industries:
SELF-CHECK 8.5
EXERCISE 8.3
You can visit the following websites to get more information on online
marketing techniques:
In addition to the two different approaches to market research, there are two
types of data to be studied:
Online focus groups typically run for one hour and have participants log
into chat room, where opinions and ideas can be expressed within a group.
The advantage of focus groups is that many views and opinions can be
learned in a short period of time. However, extroverted individuals can
overshadow timid participants so that only a few opinions are heard. This
concern is less of an online issue because participants cannot see each other
and feel more confident expressing themselves through typing.
(c) Observation
Observation involves simply watching consumers as they make a purchase,
or while they engage in some activity that is being studied. Online
customer tracking is the Internet equivalent to observation. It involves of
simply observing rather than interacting with consumers as they navigate a
website and consider various purchase options. Using cookies and other
session monitoring tools, website marketers can easily collect data on
consumer preferences, dislikes, and challenges in order to improve future
experiences at the site.
Effective marketing begins with solid research which helps to define and target
the most lucrative market segments with a marketing message that encourages
customers to buy. However, research is not a one-time event, at least in
successful companies. Ongoing research assists in improving and refining
products, services, brand image, and marketing messages to continually improve
the sales results.
SELF-CHECK 8.6
EXERCISE 8.4
Visit the following websites for more information on some popular secondary
research tools: