DM ch.2

DIGITAL MARKETING
STRATEGY, IMPLEMENTATION AND PRACTICE

Seventh Edition
Part 1
Digital marketing fundamentals
Chapter 2
Online marketplace analysis:
micro-environment
Copyright © 2019, 2016, 2012 Pearson Education, Inc. All Rights Reserved
Chapter2 - Online marketplace analysis:
micro-environnement
Main Topics:
• Situation analysis for digital marketing
• Digital marketing environment
• Understanding customer in digital markets
• Consumer. Choice and digital influence
• Customer characteristics
• Competitors
• Suppliers
• New channel structures
• Digital business models for e-commerce
Learning objectives
• Identify the elements of an organization’s digital marketing

environment that have implications for developing a digital
marketing strategy.
• Evaluate techniques for reviewing the importance of

different players in the micro-environment: customers,
publishers, intermediaries, suppliers, and competitors, as
part of the development of a digital marketing strategy.
• Review changes to business and revenue models enabled

by digital markets.
Questions for marketers
- What are our capabilities for understanding our online marketplace?

- How can I develop a better understanding of the potential
significance of the behavior of players in the microenvironment to
the future of our business?
- How do I complete a marketplace analysis, and how does this
inform our digital marketing planning?
- How are customers’ needs changing as digital platforms develop,
and what are the implications of such changes?
- How do I compare our digital marketing with that of our competitors?
- How do we find suitable intermediaries at the planning stage of a
digital marketing strategy?
Introduction
The growth in the use of digital media and technology has led to
new:
Paths-to-purchase
The different sites, channels and devices, and information sources
that consumers use to inform their purchase decision for a product
or service. Also known as conversion pathways on a site.
Online marketplace
Exchanges of information and commercial transactions between
consumers, businesses, and governments are completed through
different forms of online presence, such as search engines, social
networks, comparison sites, and destination sites.
Introduction
Multi-screening
A term used to describe the simultaneous use of devices
such as digital TV and tablet.
eWOM (electronic word of mouth)

An extension of traditional face-to-face word-of-mouth,
whereby communication exchanges between individuals
take place in digital environments.
Situation analysis for digital marketing
Situation analysis: Collection and review of information about
an organization’s external environment and internal resources
and processes in order to refine its strategy.
What should be reviewed in situation analysis?

1. Customer
2. marketplace analysis
3. Competitors
4. Macro-environment
5. Internal review (SW)
Situation analysis for digital marketing
A- Customers. Digital marketing propositions and communications should be

based around the customer – their characteristics, technology usage, behaviors,
needs, and wants.
B- Marketplace analysis. Including intermediaries, influencers, and potential

partners. This involves identifying and reviewing the main online influences on
purchase behavior.
C-Competitors. It is essential to understand how organizations compete in a

particular marketplace.
D- Wider macro-environment. These are the broader strategic influences we

cover in Chapter 3, including social, legal, environmental, political, and
technological influences.
E- Internal review. involves an internal review of the effectiveness of existing digital

marketing approaches. This will include reviewing current results from digital
marketing by review of key performance indicators (KPIs) and dashboards and the
organizational capabilities and processes used to manage digital marketing,
summarised as strengths and weaknesses.
The digital marketing environments
The digital marketing environment involves two major

elements:
1)Micro-environment (operating environment) and
2)Macro-environment (the remote environment).
Micro-environment
The players (actors) and their interactions, which influence how
an organisation responds in its marketplace.
Macro-environment
Broad forces affect all organisations in the marketplace,
including social, technological, economic, political, legal, and
ecological influences.
Figure 2.1 The digital marketing environment
Environmental scanning
The process of continuously monitoring and analyzing events in
an organization’s environment(s) that have implications for
planning.
Click ecosystem
Describes the customer behavior or flow of online visitors
between search engines, media sites, and other intermediaries
to an organization and its competitors.
Online market ecosystem

Interactions between different online systems related to a
specific hardware or software technology, which may be
independent or developed by a particular brand.
APIs Application programming interfaces

Facilitate digital interactions by automatically sending and
receiving requests and responses electronically.
For example, Facebook uses APIs which enable

companies to create audience profiles and run digital
marketing campaigns. The various functions of these APIs
are to facilitate greater levels of automated interactions
between Facebook users’ newsfeeds and profile pages.
Understanding how customers interact with
digital markets
In the digital world, the online customer encounters many
more ‘touchpoints’ (digital triggers and influences), which
influence their decision-making (e.g., websites, social media
content, and blogs) before, during, and after a shopping
encounter.
It is the modern marketer’s job to make the best investments to

feature their brands and provide relevant content to support this
decision-making process at every stage of the customer journey.
The customer journey maps are increasingly used to help

understand customers’ interaction with physical and digital
touchpoints.
Figure 2.2 An example of a customer journey
map
Understanding how customers interact with
digital markets
To help understand the influences on online customer
journeys, it is useful to produce an online marketplace
map, as shown in Figure 2.3, which summarises how
target customer segments might be influenced by different
types of digital sites.
The main elements of the online marketplace map:

1. Customer segments.
2. Search intermediaries.
3. intermediaries, influences and, media or publisher sites.
4. Destination sites and platforms.
Figure 2.3 An online marketplace map
1. customer segments: identify different target segments, and

understand the target group’s online media consumption, behavior and
relevant types of digital content
2. Search intermediaries: The main search engines are typically

Google, Yahoo!, Bing™ and Ask™.
Share of search can be determined from web analytics reports from

the company site, which indicate the precise key phrases used by
visitors to reach a site from different search engines.
The audience share of Internet searches achieved by a particular

audience in a particular market.
3. Intermediaries, influences and media or publisher sites:

Media sites and other intermediaries such as individual
influencers, social networks, aggregators and affiliates are often
successful in attracting visitors via customer search or direct to
their websites.
Aggregators: An alternative term to price-comparison sites.

Aggregators include product, price, and service information
comparing competitors within a sector such as financial services,
retail, or travel. Their revenue models include affiliate revenues,
pay-per-click advertising, and display advertising.
Affiliates: Companies promoting a merchant typically through a

commission-based arrangement, either direct or through an
affiliate network.
Key online influencers: Celebrities, individuals well known in

their niche, or publishers to whom an online target audience
listens and interacts. Online influencer outreach or ‘blogger
outreach’ can help companies reach and engage a wider
audience. Recently video bloggers (‘vloggers’ or ‘YouTubers’)
have become popular among teenage audiences.
4. Destination sites and platforms: These are the sites that the
marketer is trying to attract visitors to, including transactional
sites by retail, financial service, travel, manufacturers, and other
companies or non-transactional sites like the brand or
relationship-building sites.
Customer analysis to understand the digital consumer
Customer behaviour analysis

In digital markets, this type of analysis involves research into the
motivations, media consumption preferences, and selection
processes used by consumers as they use digital channels
together with traditional channels to purchase online products
and use other online services.
Customer behaviour analysis can be considered from two

perspectives:
1. Demand and gap analysis. This involves understanding the

potential and actual volume of visitors to an online presence and
the extent to which prospects convert to tactical and strategic
outcomes, e.g., lead generation and sales.
Customer analysis to understand the digital consumer
2. Digital consumer behaviour. Here a marketer wants to

understand the needs, characteristics and digital experiences or
behaviours of target consumers. These variables are often
collectively referred to as customer insight.
Customer insight
Knowledge about customers’ needs, profile, preferences and digital
experiences from analysis of qualitative and quantitative data.
Customer segments
Groups of customers sharing similar characteristics, preferences and
behaviours that are meaningful in terms of various market propositions
and which are defined as part of target marketing strategy and
planning.
Demand analysis and conversion marketing
Demand analysis
Quantitative determination of the potential use and business
value from online customers of an organization. Qualitative
analysis of perceptions of online channels is also assessed.
Conversion marketing
Using marketing communications to maximise conversion of
potential customers to actual customers
Figure 2.4 Model Showing conversion between the
digital channel and traditional channels during the
buying process
Consumer choice and digital influence
Consumer choice and subsequent decision-making are crucial to the

purchasing process (online and offline) but digital media (and especially
Mobile digital media) now plays an increasingly important role in buying
decisions.
Figure 2.7 shows that when consumers first use the web, they tend to
limit its use to search for product information. Still, as they become
more confident, they are not only likely to involve the Internet at a
greater number of points in the purchasing process but are also likely to
increase the value of the products they buy and the frequency with
which they make purchases.
Figure 2.7 Development of experience in internet use
Influences on online purchasing in the UK
Customer characteristics
In this section we explore the actual consumer behaviour variables that

help build segmentation profiles.
1. Demographic variables.
2. Psychographic and behavioural variables.
Online customer experience
Customer interactions with an organization’s website create opportunities
for positive experiences that can lead to long-term relationship building.
Online experience consist of an important list of concepts that can positively

or negatively influence or motive the consumer to engage with a digital
offer:
1. Information processing (IP). This is shaping how a consumer deals

with available data and information that will form their future behaviour.
2. Perceived ease-of-use. The easier a website or mobile site is to use, the

more likely a customer will have a positive online experience.
3. Perceived usefulness. This refers to the extent to which the digital offer
fits with the customer’s daily life for instance, shopping, online booking train
tickets, banking.
Online customer experience
4. Perceived benefits. If a customer feels they will be rewarded in some positive
way by engaging with a digital offer, this is likely to generate support for an online
brand.
5. Perceived control. If a customer is a skilled users of digital technology, then

they will feel they are able to function successfully in this environment.
6. Skill. This refers to the customer’s ability to use the technology to achieve their
desired goals. It has been found that individuals learn by doing in the Internet
environment and build their skill set over time. For example, the more frequent the
visitor is to a website, the greater their exposure and the higher their ability to
engage with this digital content.
7. Trust and risk. Customers should be able to achieve their buying goals with or
without feeling exposed to undue risk (e.g., financial risk, social risk, personal risk).
Marketers should seek to find ways to limit the risk of engaging with their online
offers and seek to build trust through developing online relationships.
8. Enjoyment. This is an outcome of a positive online experience.
Figure 2.9 Framework for understanding online
customer experiences
Source: Rose and Hair (2011)
Social media and emotions
Social media is increasingly influential for capturing and sharing
consumer experiences and is a major channel through which
consumers share, recommend and give feedback on their products and
service, choices, and experiences.
Social media networks are giving access to personalized

recommendations in real time based on individual personal
experiences, which can be highly influential (positive and negative,
depending on the nature of the recommendations).
The capacity of social media networks to display our personal feelings

is extensive.
Consumer personas
Personas
Fictional profiles that represent a particular target audience, a
thumbnail summary of the characteristics, needs, motivations,
and environment of typical website users.
Personas are a tool that can help understand online customer

characteristics and behavior and then create communications
more relevant to your audience.
Creating personas is a powerful technique for developing

customer-centered online strategies, company presences, and
campaigns and forms part of marketplace analysis.
The buying process
According to Kotler et al. (2008), there are different stages in the

buying process. At each stage, the purpose (from both the buyer
and supplier perspectives) is a particular outcome:
1. awareness;
2. interest;
3. evaluation;
4. trial;
5. adoption.
The buying process
This set of outcomes has been considered in the digital market,

and Chaffey and Smith (2017) describe them as follows:
1. problem recognition;
2. information search;
3. evaluation;
4. decision;
5. action (sale or use of online service);
6. post-purchase.
Figure 2.10 A summary of how digital media can impact
on the buying process in a new purchase
Digital media support the consumer buying process as
follows:
1. Consumer: unaware. Company: generates awareness (of

need for product or service).
2. Consumer: aware of the need, develop specification.
Company: position features, benefits and brand.
3. Consumer: supplier search. Company: generate leads
(engage and capture interest).
4. Consumer: evaluate and select. Company: assist purchase
decision.
5. Consumer: purchase. Company: facilitate purchase.
6. Consumer: post-purchase evaluation and feedback.
Company: support product use and retain business.
Competitors
The shape and nature of online competitive markets Competitor
analysis and benchmarking.
An industry: is a group of firms that market products that are close

substitutes for each other.
The five competitive forces are:
• bargaining power of buyers;

• bargaining power of suppliers;
• threat of substitute products and services;
• threat of new entrants;
• intensity of rivalry.
Porter’s five focuses model
Competitor analysis and benchmarking
Competitor analysis
Involves identifying the companies that are competing for our
business and then reviewing what they are good at, what are
their strengths, where are their weaknesses, what are they
planning, where do they want to take the company and how do
they behave when other companies try to take their market
share.
Competitor benchmarking
A structured analysis of the online services, capabilities and
performance of an organisation within the areas of customer
acquisition, conversion, retention and growth.
Competitor analysis and benchmarking
Benchmarking of services has different perspectives that

serve different purposes:
 Internal capability
 Customer lifecycle
 Qualitative to Quantitative
 In-sector and out-of-sector
 Financial to non-financial measures
 From user experience to expert evaluation
Suppliers
Offer a wide range of specialist services: website development,

technology management and integration.
Key issues include the effect of suppliers on product price, availability

and features.
Digital marketing intermediaries
Marketing intermediaries: Firms that can help a company to promote,

sell and distribute its products or services. For example, publisher or
media sites, comparison sites, search engines, social networks and
blogs.
Destination sites
Sites typically owned by merchants, product manufacturers or retailers
providing product information.
Online intermediary sites

provide information about destination sites and are a means of
connecting Internet users with product information. It is Websites that
facilitate exchanges between consumer and business suppliers.
New channel structures
Channel structure is the way a manufacturer or selling organisation
delivers products and services to its customers. Traditionally, a
distribution channel will consist of one or more intermediaries, such as
wholesalers and retailers.
The relationship between a company and its channel partners can be

dramatically altered by the opportunities afforded by digital channels:
web, mobile and social media networks.
• Disintermediation: The removal of intermediaries such as

distributors or brokers that formerly linked a company to its
customers.
• Reintermediation: The creation of new intermediaries between
customers and suppliers providing services such as supplier search
and product evaluation.
Figure 2.12 New channel structures
Figure 2.13 New channel structures
Digital business models for e-commerce
The Business Model Canvas is a framework for summarizing

strategies for online businesses. The main sections of the canvas
are:
1. Value proposition. This is at the heart of what the business

offers its audiences and is arguably the most important to
success.
2. Customer segments. Different target audiences the value
propositions will appeal to.
3. Customer relationships. The types of relationships that will be
formed.
4. Channels. The methods by which an organization’s services will
be delivered, and the audiences reached.
5. Key partners. To exploit online and offline value networks.
6. Activities. The main activities that need to be performed to

deliver the value proposition to develop revenue.
7. Resources. Different types of processes and people to
complete the activities to create and deliver the value
proposition.
8. Cost structure. Different cost elements, which should be
checked against activities and resources
9. Revenue stream. This is the method by which a business
derives income.
Figure 2.14 Example of business model canvas
summary
Source: SmartInsights.com with permission.
However, the Business model canvas is missing a method of

specifying key performance indicators (KPIs) for evaluating the
performance of the business model.
The (KPIs) Metrics are used to assess the performance of a

process and/or whether set goals are achieved.
Online business model

A summary of how a company will generate a profit – identifying
its core product or service value proposition, target customers in
different markets, position in the competitive online marketplace
or value chain, and its projections for revenue and costs.
Figure 2.15 suggests a different perspective for reviewing alternative

business models. The three perspectives are:
1. Marketplace position perspective. The book publisher here

is the manufacturer, Amazon is a retailer and Yahoo! is both a
retailer and a marketplace intermediary.
2. Revenue model perspective. The book publisher can use
the web to sell direct, while Yahoo! and Amazon can take
commission-based sales. Yahoo! also has advertising as a
revenue model.
3. Commercial arrangement perspective. All three companies
offer fixed-price sales, but, in its place as a marketplace
intermediary, Yahoo! also offers alternatives.
Figure 2.15 Alternative perspectives on business
models
Digital revenue models
Revenue models: specifically describe different techniques for

generation of income.
For existing companies, revenue models have mainly been

based upon the income from sales of products or services.
This may be either for selling direct from the manufacturer or

supplier of the service or through an intermediary that will take a
cut of the selling price. Both of these revenue models are, of
course, still crucial in online trading.
Digital publisher and intermediary revenue
models
The main types of online revenue models are:
1. CPM display advertising on site

2. CPC advertising on sites
3. Sponsorship of site sections or content types
4. Affiliate revenue
5. Transaction fee revenue
6. Subscription access to content or services
7. Pay-per-view access to document
8. Subscriber data access for email marketing
1- CPM display advertising on site. CPM stands for ‘cost per
thousand’, where M denotes ‘mille.’ This is the traditional method
by which site owners charge a fee for advertising. The cost to
the advertiser (or the revenue received by the publisher) when
an ad is served 1,000 times.
2- CPC advertising on site (pay-per-click text ads). CPC

stands for ‘cost per click’. Advertisers are charged not simply for
the number of times their ads are displayed but according to the
number of times they are clicked upon.
3- Sponsorship of site sections or content types (typically
fixed fee for a period). A company can pay to advertise a site
channel or section.
4- Affiliate revenue (CPA, but could be CPC). Affiliate revenue

is commission based. Such an arrangement is sometimes known
as cost per acquisition (CPA). It stands for The cost to the
advertiser (or the revenue received by the publisher) for each
outcome, such as a lead or sale generated after a click to a third-
party site.
5- Transaction fee revenue. A company receives a fee for

facilitating a transaction.
6- Subscription access to content or services. A range of
documents can be accessed from a publisher for a fixed period. These
are often referred to as premium services on websites.
7- Pay-per-view access to documents. Here payment occurs for

single access to a document, video, or music clip that can be
downloaded. It may or may not be protected with a password or digital
rights management (DRM). To protect the distribution of digital
services, content, or data.
8- Subscriber data access for email marketing. The data a site

owner has about its customers are also potentially valuable since it can
send different forms of email to its customers if they have permission
that they are happy to receive email from either the publisher or third
parties.
Forecasting revenue for an online business
The ability to maximize revenue will be based on the following

factors:
• Number and size of ad units.

• Capacity to sell advertising.
• Fee levels negotiated for different advertising models.
• Traffic volumes.
• Visitor engagement.

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DIGITAL MARKETING

STRATEGY, IMPLEMENTATION AND PRACTICE

• Identify the elements of an organization’s digital marketing

• Evaluate techniques for reviewing the importance of

• Review changes to business and revenue models enabled

- What are our capabilities for understanding our online marketplace?

eWOM (electronic word of mouth)

What should be reviewed in situation analysis?

A- Customers. Digital marketing propositions and communications should be

B- Marketplace analysis. Including intermediaries, influencers, and potential

C-Competitors. It is essential to understand how organizations compete in a

D- Wider macro-environment. These are the broader strategic influences we

E- Internal review. involves an internal review of the effectiveness of existing digital

The digital marketing environment involves two major

Online market ecosystem

APIs Application programming interfaces

For example, Facebook uses APIs which enable

It is the modern marketer’s job to make the best investments to

The customer journey maps are increasingly used to help

The main elements of the online marketplace map:

1. customer segments: identify different target segments, and

2. Search intermediaries: The main search engines are typically

Share of search can be determined from web analytics reports from

The audience share of Internet searches achieved by a particular

3. Intermediaries, influences and media or publisher sites:

Aggregators: An alternative term to price-comparison sites.

Affiliates: Companies promoting a merchant typically through a

Key online influencers: Celebrities, individuals well known in

Customer behaviour analysis

Customer behaviour analysis can be considered from two

1. Demand and gap analysis. This involves understanding the

2. Digital consumer behaviour. Here a marketer wants to

Consumer choice and subsequent decision-making are crucial to the

In this section we explore the actual consumer behaviour variables that

Online experience consist of an important list of concepts that can positively

1. Information processing (IP). This is shaping how a consumer deals

2. Perceived ease-of-use. The easier a website or mobile site is to use, the

5. Perceived control. If a customer is a skilled users of digital technology, then

8. Enjoyment. This is an outcome of a positive online experience.

Source: Rose and Hair (2011)

Social media networks are giving access to personalized

The capacity of social media networks to display our personal feelings

Personas are a tool that can help understand online customer

Creating personas is a powerful technique for developing

According to Kotler et al. (2008), there are different stages in the

This set of outcomes has been considered in the digital market,

1. Consumer: unaware. Company: generates awareness (of

An industry: is a group of firms that market products that are close

The five competitive forces are:

• bargaining power of buyers;

Benchmarking of services has different perspectives that

Offer a wide range of specialist services: website development,

Key issues include the effect of suppliers on product price, availability

Marketing intermediaries: Firms that can help a company to promote,

Online intermediary sites

The relationship between a company and its channel partners can be

• Disintermediation: The removal of intermediaries such as

The Business Model Canvas is a framework for summarizing

1. Value proposition. This is at the heart of what the business

6. Activities. The main activities that need to be performed to

Source: SmartInsights.com with permission.

However, the Business model canvas is missing a method of

The (KPIs) Metrics are used to assess the performance of a