Internet marketing strategy and practice

Instructor’s Manual
Internet Marketing:
Strategy, Implementation
and Practice
Fourth Edition
Dave Chaffey
For further instructor material
please visit:
www.pearsoned.co.uk/chaffey
ISBN: 978-0-273-71742-3 (web)
 Pearson Education Limited 2009
Lecturers adopting the main text are permitted to download and photocopy the manual as required.

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© Pearson Education Limited 2009
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This edition published 2009
The right of Dave Chaffey to be identified as author of this work has been asserted by him in
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ISBN: 978-0-273-71742-3
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binding or cover other than that in which it is published, without the prior consent of the
Publishers.

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Contents
Chapters Pages
1. Introducing Internet marketing 5
2. The Internet micro-environment 17
3. The Internet macro-environment 31
4. Internet marketing strategy 40
5. The Internet and the marketing mix 52
6. Relationship marketing using the Internet 61
7. Delivering the online customer experience 70
8. Campaign planning for digital media 80
9. Marketing communications using digital media channels 89
10. Evaluation and improvement of digital channel performance 97
11. Business-to-consumer Internet marketing 104
12. Business-to-business Internet marketing 110

Chaffey, Internet Marketing, 4th Edition, Instructor’s Manual
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C H A P T E R 1
Introducing Internet marketing
One sentence overview
An introduction to Internet marketing and the book structure
Notes on using slides for the first chapter in lectures – lesson
plan
1. Marketing transformation. Slides 4–6. Generate interest through opportunities for new
business applications online. Ask what the success factors have been for these companies – see
Activity 1.1. Ask how Google has extended it’s proposition since 1998.
2. What is Internet marketing? Slides 7–15. Apply the CIM definition to e-marketing. Ask
students how it contributes to marketing. What is digital or e-marketing? Use the preface
Figure P.1 to explain the scope.
3. What are e-commerce and e-business? Slides 16 and 17. Ask students to write down
definitions. Then show Figure 1.5 to explain the distinction between buy-side and sell-side
e-commerce.
4. Introduction to digital marketing strategy. Slides 18–24. Applications of Internet
Marketing. Start by asking about the need for a digital strategy. Review 5 Ss for a company,
such as easyJet or NW. Different contexts of Internet marketing (Slide 14) and an example
of an innovative C2C site (Slide 15). Also note how this site is being used for advertising to
this audience.
5. Structured planning for Internet marketing. Slides 25–7. Discuss the need for structured
planning and relate to your course structure.
6. Introduction to digital marketing communications. Slide 28–31. Explanation of medium-
discipline-channel and vehicle. Illustrates key tools by a worked example, for example,
searching for a credit card.
7. Differences between digital media and traditional media. Slide 32–37 Review the 6 Is
using Slides 20–23 with references to case studies used earlier in lecture or Travel Republic.

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Activities
Activity 1.1 Innovation in Internet marketing
Purpose
To illustrate innovation in online business models and communications approaches
Questions
1. Think about the innovation that you have witnessed during the time you have used
the Internet and World Wide Web. What would you say? Are the main sites used in
your country that have been created which have changed the way we spend our time
or buy online? In Table 1.1, are the sites that we believe have had the biggest
influence on online business models in the US and Europe, with more emphasis on
the most recent ones?
Answer
Not relevant.
2. What do these sites have in common that you think has made them successful?
Answer
This is provided in the book – in error!
• All these sites are American, so the funding and publicity they can achieve is
significant.
• You will notice that many of these sites (other than Joost, Last.fm and Skype which
were founded in Europe) were originally developed in the United States, with the
majority now used around the world. But in each country, similar types of businesses
have evolved, for example, the search engines Baidu in China and Yandex in Russia.
• Meet a fundamental consumer need
• Clear revenue model
• Memorable branding and experience
• Initially they had a straightforward proposition – offering one service
• Generally they were first-movers
• Notable that many have taken several years before becoming widely known and used.

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Activity 1.2 What’s in a term – what do we call this ‘e-thing’
Purpose
To illustrate how different marketers perceive Internet marketing
There is a range of terms used to describe Internet marketing – it is called by different terms by
different people. It is important that within companies and between agency and client, there is
clarity on the scope of Internet marketing, so the next few sections explore alternative
definitions.
Question
One simple, but revealing, method of assessing how commonly these terms are used, is
to use the Google syntax which returns the number of pages which contain a particular
phrase in their body or title.
Type into Google the following phrases in double quotes or use in title: ‘phrase’ for these
phrases and note the number of pages (at the top right of the results page):
Phrase
(i) ‘E-business’
(ii) ‘E-commerce’
(iii) ‘Internetmarketing’
(iv) ‘E-marketing’
(v) ‘Digitalmarketing’
Answers to activities can be found at www.pearsoned.co.uk/chaffey
Answer
At the time of writing, the following table shows that of the marketing-related terms, ‘Internet
marketing’ is the most popular but this may change, as it is a misleading term, which omits
other electronic communication techniques. Companies that promote their services online will
often use keywords on the page, which reflect the words that are being searched for.
In the United Kingdom, specialist e-marketing agencies and the new media publications tend to
refer to digital marketing and their usage of the term will eventually have an influence.
Phrase Pages containing phrase Pages containing title
‛Digital marketing’ 2,640,000 119,000
‛E-marketing’ 7,750,000 360,000
‛Internet marketing’ 40,100,000 2,590,000
‛E-business’ 32,000,000 909,000
‛E-commerce’ 93,600,000 5,090,000

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Figures collected in December 2008 using Google 2005 syntax ‛phrase’ and intitle: and then
reviewing the numbers top right.
Additional terms for comparison:
SEO 263,000,000 13,800,000
PPC 49,500,000 3,260,000
‘E-mail marketing’ 14,800,000 582,000
‘Viral marketing’ 4,650,000 173,000
‘Social media’ 147,000 949,000
‛Digital marketing’ 560,000 14,000
‛E-marketing’ 4,500,000 123,000
‛Internet marketing’ 12,000,000 942,000
‛E-business’ 19,000,000 1,100,000
‛E-commerce’ 18,500,000 2,000,000
For comparison, figures collected in December 2005 using Google 2005 syntax ‛phrase’ and
intitle: and then reviewing the numbers top right.
Activity 1.3 Why are C2C interactions important?
Purpose
To highlight the relevance of C2C transactions to B2C companies
Activity
Consult with fellow students and share experience of C2C interactions online. Think of
C2C both on independent sites and organisational sites. How can C2C communications
assist these organisations?
Answer
Examples mentioned may include:
1. User-generated content (UGC), a feature of Web 2.0, for example, reviews of products,
either on the retailer site (e.g. www.ebuyer.com), or on third party review sites.
2. Online auctions, for example, eBay.

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3. Online forums are important for B2C publishers, for example, www.e-consultancy.com/
forums
4. Contributing to customer support sites. These are specialist models. C2C is mainly an aid
for support of technical products such as software (see www.symantec.com).
Activity 1.4 Innovation in Internet marketing
Purpose
To illustrate similarities and differences between digital and traditional media.
Instruction
Make two columns. On the left, write down different digital media channels and on the
right the corresponding communications disciplines, such as advertising, direct marketing
or PR which are most appropriate.
Answer
The digital media channels are based on Figure 1.9.
Digital media channel Traditional discipline
1. Search – SEO No direct comparison, although PR is important
and related to Advertising messages, but no
media investment.
2. Search – Pay Per Click Advertising
3. Online PR Public Relations
4. Online Partnerships – Affiliate Marketing No direct comparison, but Sales Promotion is
closest.
5. Interactive Ads Advertising
6. Opt-in e-mail Direct marketing
7. Viral Marketing Public Relations
Activity 1.5 Integrating online and offline communications
Purpose
To highlight differences in marketing communications introduced through the use of the
Internet as a channel and the need to integrate these communications with existing channels.

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Activity
List communications between a PC vendor and a home customer over the lifetime of a
product such as a PC. Include communications using both the Internet and traditional
media. Refer to channel-swapping alternatives in the buying decision in Figure 1.13 to
develop your answer.
The table below shows different forms of integration between the channels
Table: Examples of communications initiated by customer and company
Communication initiated by customer Communication initiated by Company
Phone call to company Advert to generate awareness, placed in
newspaper or PC magazine
Visit to web site to review prices and
specification
Phone call or e-mail by courier company to
arrange delivery of PC
Phone call or e-commerce purchase of PC Traditional mail-out or e-mail after 1 year to
describe upgrade service
Support call to solve problem Traditional mail-out or e-mail after 3 years to
describe new product offers
Complaint about repair Call to arrange visit (from sub-contracted
company)
Exercises
Self-assessment exercises
1. Which measures can companies use to assess the significance of the Internet to
their organisation?
Reference to Chapters 2 and 3 may assist with this question.
• Level of Internet access or media consumption of different types of services amongst
customer base.
• Sales influenced directly or indirectly by competitors.
• Suitability of product for sale online (Chapter 4).
• Competitor activity.
2. Why did companies only start to use the Internet widely for marketing in the 1990s,
given that it has been in existence for over 30 years?
The recent dramatic growth in the use of the Internet has occurred because of the development
of the World Wide Web. This became a commercial proposition in 1993, after development of
the original concept by Tim Berners-Lee, a British scientist working at CERN in Switzerland

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in 1989. The World Wide Web changed the Internet from a difficult-to-use tool for academics
and technicians to an easy-to-use tool for finding information and delivering web applications for
businesses and consumers.
3. Distinguish between Internet marketing and e-marketing.
The objectives of each are similar – to support marketing activities towards their goals, that is,
customer acquisition and retention, and cost reduction. E-marketing can be considered broader
since it includes the additional media of interactive digital TV and mobile networks. Internet
marketing refers to the web, e-mail and databases.
4. Explain what is meant by electronic commerce and electronic business. How do they
relate to the marketing function?
E-commerce refers to transactions for the trading of goods and services conducted using the
Internet and other digital media. E-business is broader, including electronically mediated
transactions, which are internal and with suppliers as well as those to buyers. They are both
methods of supporting the marketing function – e-commerce refers to customer facing web
sites, e-business also includes links with partners and suppliers through extranets and internal
marketing communications through intranets.
5. What are the main differences and similarities between the Internet, intranets and
extranets?
Internet is available to all; others are restricted to those inside a company (intranet) and
favoured third parties such as large customers, suppliers and distributors (extranet).
6. Summarise the differences between the Internet and traditional media, using the 6 Is.
• Interactivity – not solely a push medium (e-mail), but also pull (customers search for
information). Information can be collected from customers via web pages (direct response).
• Intelligence – can monitor customers’ interests and profile them.
• Individualisation – it is possible to tailor e-mail and web communications (personalisation).
• Integration – of off-line and off-line channels (?) remains important.
• Intermediation – new intermediaries can be used as a route to market and there is also the
opportunity to sell direct.
• Independence of location – possible to reach a wider marketplace.
7. How is the Internet used to develop new markets and penetrate existing markets?
What types of new products can be delivered by the Internet?
International markets can be targeted without the need for sales/promotional infrastructure.
Fulfilment methods must enable delivery with minimal need for local servicing. The Internet may
give opportunities for new market segments such as the youth market that may have been
difficult to target previously. For existing markets, the Internet can be used to increase
awareness, and add value to a company and its products.

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Essay and discussion questions
1. The Internet is primarily thought of as a means of advertising and selling products.
What are the opportunities for the use of the Internet in other marketing functions?
Refer students to pages 14 through 17 that discuss opportunities in the areas of:
• marketing research
• ‘below the line promotions’
• customer service
• relationship building/loyalty enhancing.
Prompt students by considering the 4 different types of sites mentioned on pages 14 to 17.
2. ‘The World Wide Web represents a pull medium for marketing rather than a push
medium’. Discuss.
Refer students to the 6 Is, some of which describe differences in traditional and digital media.
This is also discussed in more detail at the start of Chapter 8 where different communication
models are referred to.
The text covers the stresses, the pull nature of the medium, for example, where a consumer
uses a search engine to find a product, but the question is intended to highlight the options for
push such as personalised e-mail promotion, targeted messages on web sites and banner
advertising (Chapter 8).
3. You are a newly installed marketing manager in a company selling products in the
business-to-business sector. Currently, the company only has a limited website
containing electronic versions of its brochures. You want to convince the directors,
of the benefits, of investing in the website to provide more benefits to the company.
How would you present your case?
The framework presented in Figure 1.8 on p. 26 gives a good structure for developing a case
and this is expanded upon in Chapter 4. The main elements of this approach are as follows:
• Understand changes in media consumption – how do their prospective(?) and customers
use the web to inform their buying decision?
• Set objectives in terms of number of site visitors and leads generated.
• Formulate a strategy to develop relevant content, that is, more depth than electronic
brochures, to help customers decide on relevant products or complete their jobs.
• Develop a plan to promote the site.
The directors will be interested mainly in generating new enquiries. Students may mention the
following benefits:
• Reach new audiences, for example, smaller businesses through pull effect of search engines.

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• Provide a new method of generating leads through offering whitepapers to download – see
example of B2B Web Analytics provider, for example, www.omniture.com – it is best if
students choose examples or are given companies to consider.
• Provide customer services to existing customers and promote alternative products (cross-sell).
4. Explain the main benefits that a company selling fast-moving consumer goods could
derive by creating a website.
The intention of this question is to highlight that the web is not suitable for selling all products.
But digital media may be used for generating awareness and brand building. This can be
achieved through banner advertising on third party sites. For example, www.handbag.com for a
cosmetics company engaging a female audience or www.fhm.com for a male audience.
The case study at the end of Chapter 8 features examples of different FMCG companies; this
may provide some inspiration in terms of the benefits of engaging directly with customers, which
has been less readily possible with other media. This engagement can occur through micro
sites hosted by publishers or by the brand. Consumers can be encouraged to opt-into e-
newsletters or get involved in SMS promotions.
Examination questions
1. Contrast electronic commerce with electronic business.
Both involve financial and informational electronic transactions. E-commerce transactions are
related to selling and B2B purchases. E-business includes these, but also refers to internal
marketing and business partner communications.
2. Internet technology is used by companies in three main contexts. Distinguish between
the following types and explain their significance to marketers:
(a) intranet
(b) extranet
(c) Internet.
Internet available to all, others restricted to those inside a company (intranet) and favoured third
parties such as large customers, suppliers and distributors (extranet).
3. An Internet marketing manager must seek to control and accommodate all the main
methods by which consumers may visit a company website. Describe these methods.
Although these are introduced in this chapter, Figure 1.9 provides a good summary of the main
methods, which are as follows:
• Search engines
• Online PR
• Partner sites
• Online advertising

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• E-mail marketing
• Viral marketing.
• Traditional communications driving visitors to the web site.
4. Imagine you are explaining the difference between the World Wide Web and the
Internet to a marketing manager. How would you explain these two terms?
The Internet is the network or the physical media such as wires that are used to deliver the
information while the World Wide Web is the published information that is, read by those
accessing it. The Internet is the equivalent of a TV transmitter and the World Wide Web is
equivalent to the programmes on the channels.
5. What is the relevance of ‘conversion marketing’ to the Internet.
Conversion marketing is the monitoring of the hierarchy of response to marketing
communications. Assessing and improving response rates can achieve more online sales. For
example, we can increase the reach of the site to turn more web browsers into visitors; we can
increase the conversion rate of the site to encourage more site visitors to achieve action and we
can increase conversion of leads to sales to increase turnover.
6. Explain how the Internet can be used to increase market penetration in existing
markets and develop new markets?
To increase penetration in existing markets, the Internet can be used to reach a greater
proportion of the target market within an existing country or marketplace. It can also, in
combination with other communication channels, be used to assist in converting more potential
customers to sale.
To develop new markets, the Internet can be used not only to reach new geographical markets,
but also to enter new markets. For example, supermarket Tesco.com uses the Internet to sell
‘white goods’, which it did not previously sell (Case Study 4 pp. 267–269).
This is introduced in Chapter 1, but covered in more detail on pp. 234–235.
Case study 1. eBay thrives in the global marketplace
Question
Assess how the characteristics of the digital media and the Internet, together with
strategic decisions taken by its management team, have supported eBay’s continued
growth.
Students should be guided as to whether they review the whole eBay business or the core
business (the marketplace).
It is best to divide this question into two parts.
1. How the characteristics of digital media have supported eBay’s growth?
A suitable framework for reviewing the unique aspects of digital media is Table 1.2 – ‘The 5 Ss
of Internet Marketing’. An interpretation of the differences between the old and digital media’.

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Also, if this case study is used later in this book, the section at the start of Chapter 8 on ‘The
characteristics of digital media may be useful.
The particular characteristics of digital media compared to traditional media that are important to
eBay are straightforward. They are as follows:
• Change from a, one-to-many communication model to one-to-one or many-to-many
communication model.
• The ability to create user-generated content listing products is also related to the one-to-one
aspect and is also important.
• From Push to Pull – eBay offerings are often visible within search engines.
• From monologue to dialogue (a two-way information exchange for enquiries about products
facilitated by e-mail).
• Ratings for sellers are important to generate trust (although, there are methods of falsifying
these).
• Community – the sense that users are part of a community and additionally are bypassing
traditional retail channels will be important from some users.
2. How strategic decisions have supported growth.
As with other cases based on SEC filings, that is, United States Securities And Exchange
Commission submission, this case is useful for showing how growth is dependent not only on
exploiting the right opportunities, but also about managing risks successfully.
Students may structure strategic decisions in different ways according to the level of the course
they are following, but since the case is in the beginning of the book, they could be advised to
simply look for success factors. Alternatively, if they have completed Chapters 4 and 5 on
Strategy and the Marketing mix respectively, these then provide alternative frameworks.
Strategic success factors students may mention include the following:
• Branding – a distinctive brand – the earlier brand name was perhaps less appropriate
although more direct.
• First mover advantage – gaining a critical mass through the foresight of the owner.
• Security and fraud – realising that this is important to reputation so investing in managing
this and controlling PR related to this. eBay has developed ‘Trust and Safety Programmes’
to manage this.
• Partnerships and acquisitions, which fit/relate well to the service, that is PayPal and Skype
• Communication of customer value proposition – the case describes how eBay explains this.
• Revenue model – the market has judged that this gives a good balance for sellers,
purchasers and eBay. Setting fees at the right level has enabled eBay to scale for some
time.
• Process Efficiency – the case describes how eBay measures and then seeks to improve the
key areas of Acquisition, Activation and Activity.

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• Growth strategies – these are covered in Chapter 4 and include market development
(geographic) and product development (new categories for consumers and businesses).
• Technology scalability – not referred to in this chapter, but eBay has been successful in
deploying technology that has supported the companies’ rapid growth.

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C H A P T E R 2
The Internet micro-environment
Describes how the Internet differs from other media in terms of marketing communications.
Notes on using slides for the second chapter in
lectures – lesson plan
1. The scope of the micro-environment. Slide 4. Ask students to imagine they are an
e-marketing manager for an international brand like 3M or Durex. What are the micro and
macro issues they face from Figure 2.1? Which are the most important?
2. Marketplace analysis. Slides 5–6. Talk through the online marketplace map diagram
(Figure 2.2) from left to right using an example, for example, a Bank. Stress integration
with offline channels (channel chains later). Illustrate with use of tools such as Google
Keyword Tool and Google Insights for Search (http://www.davechaffey.com/SEO-Best-
Practice/google-marketing-complete-list-of-free-tools).
3. Customer analysis and consumer behaviour. Slides 7–10. Conversion modeling
(advanced). Explain the need to assess demand for use of different services and then to
create a conversion funnel model.
4. Evaluation of demand levels. Slides 11–17. Structure around 3 levels of access: Influence:
Transact as shown in Slide 11. Ask different groups of students in a class to analyse main
findings from graphs and implications.
5. Customer characteristics. Slides 18–25. Covers consumer and business characteristics.
6. Consumer buyer behaviour models. Slides 26–33. Review strengths and weaknesses of
each model.
7. Competitors. Slides 34–35. Ask students to review benchmarking criteria for different site
types introduced in Chapter 1. Brief section since covered in later chapters, for example,
Chapters 4, 5 and 6.
8. Intermediaries. Slides 36–9. Ask students to identify different types of intermediaries or
portals. Different types of intermediaries were introduced earlier in the chapter in the
section on marketplace analysis. Best to introduce in context of business and revenue
models which are covered in the next section.
9. Intermediary models. Slides 40–50. Covers value chain analysis, disintermediation,
reintermediation and countermediation.
10. Business and revenue models. Slides 51–54. Alternatives reviewed in Slide 17.

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Activities
Activity 2.1 Changes in consumer buyer behaviour caused by digital
channels
Question
Although the model shown in Figure 2.15 provides a useful starting point for assessing
buyer behaviour, it is right to remember that the Internet has changed behaviour and in
some ways the model is not an accurate reflection of reality. What do you think are its
main weaknesses? We would suggest:
Answer (provided in book)
Limitations with traditional model in new Web 2.0 age:
• Process not necessarily sequential.
• Process compressed – for low involvement products, the decision can be made straightaway.
• Process will often start with a search and is mediated through search engines throughout,
with the searches refined iteratively from generic to specific plus brand, for example
‘fridge’, ‘upright fridge’, ‘comets fridge’, ‘whirlpool fridge’, ‘whirlpool 20TB L4’.
• The participation on the web and the creation of user-generated content (UGC) such as
reviews and ratings on the retail site and comparison intermediaries such as Revoo
(www.revoo.com) are important in the decision process.
• Viral marketing, and online E-PR PR can be more important for generating awareness (refer
to the WillItBlend case at the end of Chapter 1).
• In a virtual environment, trust becomes important as we will see below, so the strength and
familiarity of brands will be important.
Activity 2.2 Kelkoo.com, an example of revenue models for new
intermediaries
Purpose
To provide an example of the services provided by cybermediaries and explore their viability as
businesses.

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Questions
1. Visit the Kelkoo web site (www.kelkoo.com) shown in Figure 2.24 and search for this
book, a CD or anything else you fancy. Explain the service that is being offered to
customers.
This is well summarised by the tag line/proposition, top right: Compare. Buy. Save. It provides a
way for searching for and reviewing individual products to identify the most appropriate product
and potential suppliers compared on the basis of price.
2. Write down the different revenue opportunities for this site (some may be evident
from the site, but others may not); write down your ideas also.
• Commission on sales
• Fee for merchants to register (not likely, but may receive preferential position)
• Fee for buyers to use service
• Advertising space for merchants or other organisations
• Sale of technology to other non-competitive companies.
3. Given that there may be other competing sites in this intermediary category such as
Shopsmart (www.shopsmart.com), assess the future of this online business, using
press releases and comments from other sites such as Moreover (www.moreover.com).
This business is now profitable in several European markets. The latest press release reads:
‘London, 12/08/2002 – Kelkoo, the leading pan-European shopping search engine, announces
record quarterly results. The European group as a whole achieved a revenue of €3m in Q2 of
2002, representing a 65 per cent year-on-year growth over Q2 of 2001. Confirming its position
as a leading pan-European e-commerce operator, Kelkoo now attracts over 2.6 million monthly
visitors. Across the eight European markets where it operates, Kelkoo sends 3.5 million
qualified shopping visits to its network of 1000 clients’.
Activity 2.3 Which are the top portals?
To see the most important portals in your region, visit Nielsen//NetRatings
(www.netratings.com) and choose ‘Top Rankings’. This gives the top 10 most popular sites
in the countries listed. You will see that the largest portals such as MSN and Google can be
used to reach over 50 per cent of the Internet audience in a country. The pattern of top
sites is different in each country, so international marketers need to ensure that they are
equally visible in different countries.
Answer
No answer is provided since it links through, as activity simply points readers at an example
information source for their country. Top sites are indicated together with variations in user
media consumption in the different countries.

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Activity 2.4. Assessing the impact of the Internet on competitive forces in
different industries
Purpose
To assess, how some of the changes to the competitive forces, caused by electronic
communications impact particular industries.
Activity
Referring to Table 2.2, assess the impact of the Internet on a sector you select from the
options below. State which you feel are the most significant impacts.
1. Banking
2. Grocery retail
3. Book retail
4. B2B engineering component manufacturer
5. B2B software services company selling customer relationship management software
6. Not for profit organisation such as hospital, local government or charity.
Suggested answer:
Table 2.10 summarises the solutions to this question. The main forces to debate are the shift in
power between the bargaining power of buyers and suppliers.
The role of intermediaries in changing the competitive forces (not explicitly part of Porter’s
model) should also be stressed. This enables products to be compared more readily.
Moneysupermarket.com is an example from the banking sector.
Activity 2.5 Revenue models at Yahoo!
Purpose
To illustrate the range of revenue generating opportunities for a company operating as an
Internet pure-play. Yahoo! (www.yahoo.com) is a well-known intermediary with local content
available for many countries.
Activity
Visit one of the local Yahoo! sites for your region, for example, www.yahoo.co.uk and
explore the different site services that generate revenue. Reference the investor relations’
reports to gain an indication of the relative importance of these revenue sources.

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Answer
The main revenue sources for Yahoo! are as follows:
• Advertising revenue from its sponsored 'pay per click' ads and display or banner ads
• Affiliate revenue from Yahoo! Shopping
Subscription revenue for access to services such as Yahoo! e-mail or content
Activity 2.6 Revenue models at online marketing portals
Purpose
To illustrate the range of revenue-generating opportunities for online publishers. This activity
shows how ad-based revenue models are calculated and indicates the amount of revenue
generated by looking at three alternative approaches for publishing referencing three different
types of portal.
Question
Visit each of the sites in this category. You should:
1. Summarise the revenue models which are used for each site by looking at the
information for advertisers and affiliates.
E-consultancy (www.e-consultancy.com)
• Online revenue models include annual subscription and pay per view access to articles.
The site has limited advertising on a fixed monthly term basis.
• Traditional revenue models include training courses and conferences related to E-business
iMediaconnection (www.imediaconnection.com)
• This makes more use of online advertising than E-consultancy, for example Google
AdSense for publishers programme. It does not have subscription.
• It runs showcase events for which it charges suppliers to promote their services.
Marketing Sherpa (www.marketingsherpa.com)
• This mainly offers a pay per view model for articles and reports. Surprisingly, it has limited
advertising, so as not to annoy site visitors. Some of its reports are syndicated from other
online sources, so this is a commission-based model.
2. What are the advantages and disadvantages of the different revenue models for the
site audience and the site owner?
This answer can be broken down by the different revenue models as shown in the table below.
Given the advantages and disadvantages of each, it makes sense to have several models to
maximise monetisation of site visitors.

22
Revenue model Advantage Disadvantage
Online subscription Continuous revenue stream Difficult to get visitors to
commit to an ongoing
agreement
Pay Per View Instant fulfilment likely to appeal
if article or reports meets
someones immediate need.
Reports often more specialised
and more immediate than books.
Difficult to provide
sufficiently compelling
unique content that is not
already freely available on
the web.
Advertising Relatively easy to setup,
particularly if an established
programme like Google AdSense
where no advertisers have to be
recruited.
Advertisers have to be
recruited and payments
managed. If this fails, then
online ad inventory may be
unsold and so wasted.
Affiliate Individual transactions can be
significant value.
Difficult to recruit affiliates
and work best with high
volume consumer markets
rather than business markets.
Revenue only generated if
sale is made. A cost per click
arrangement is better for
publisher.
3. Given an equivalent audience, which of these sites do you think would generate the
most revenue? You could develop a simple spreadsheet model based on the following
figures
Monthly site visitors: 100,000, 0.5 per cent of these visitors clickthrough to affiliate sites where 2
per cent go on to buy business reports or services at an average order value of €100
A commission percentage is required to calculate this, assume 25 per cent of average order
value.
Calculation:
Visitors Clickthrough
rate
Affiliate
site visits
Conversion
rate
Sales Average
order
value
(Euros)
Revenue at
25%
commission
100,000 0.50% 500 2% 10 100 250
Monthly page views. 1,000,000, average of 3 ads for displayed for different advertisers at €20
CPM (we are assuming all ad inventory is sold, this is rarely true in reality)

23
Calculation:
Monthly
page views
Ad units
per page
Inventory
sold
Total ads
served
Cost per 1000
(Euros)
Total revenue
1,000,000 3 100% 3,000,000 20 60,000
You can see that this model is more appealing for the publisher in terms of revenue earned.
Subscribers to weekly newsletter: 50,000. Each newsletter broadcast 4 times per month has 4
advertisers each paying at a rate of €10 CPM.
Newsletter
subscribers
Newsletters
per month
Advertisers Inventory
sold
Total ads
served
Cost per
1000
(Euros)
Total
revenue
50,000 3 4 100% 600,000 10 6,000
Exercises
1. Why is environmental scanning necessary?
At the macro-level, it is important to understand new constraints such as legal and technical
constraints on conducting business. These may also present opportunities. At the micro-level, it
is important to be responsive to customers’ needs and competitors’ actions.
2. Summarise how each of the micro-environment factors may directly drive the content
and services provided by a web site.
• social – localised content for different cultures
• legal – privacy statement
• economic – funding and awards may be possible from governmental sources
• political – funding and awards may be possible from governmental sources
• technological – the incorporation of personalisation.
3. What are the main aspects of customer adoption of the Internet that managers
should be aware of?
• Consumer access percentage
• Role in influencing sale and achieving direct sales
• Role of the Internet in influencing different members of the buying unit.

24
4. What are the main changes to channel structures that are facilitated through the
Internet?
• Direct selling – disintermediation
• New intermediaries – reintermediation
• Countering new intermediaries – countermediation.
5. What are the different elements and different types of business models?
This is referred to in Figure 2.34 They are marketplace position, revenue model and commercial
model.
6. How should a marketing manager benchmark the online performance of competitors?
You should have identified the need to distinguish between benchmarking criteria that define
the company’s marketing performance in the industry and those that are specific to web
marketing, as follows:
• Financial performance. Available from About Us, Investor relations and electronic copies
of company reports. This information is also available from intermediary sites such as
finance information or share dealing sites such as Interactive Trader International
(www.iii.com) or Bloomberg (www.bloomberg.com) for major quoted companies.
• Marketplace performance. Marketshare and sales trends and significantly the proportion
of sales achieved through the Internet. This may not be available directly on the web site,
but may need to use other online sources. For example, new entrant to European aviation
easyJet (www.easyjet.com) has achieved over two-thirds of its sales via the web site and
competitors need to respond to this.
• Business and revenue models. Do these differ from other marketplace players?
• Marketing communication techniques. Is the customer value proposition of the site
clear? Does the site support all stages of the buying decision from customers who are
unfamiliar with the company through to existing customers? Are special promotions used on
a monthly or periodic basis? Beyond the competitors’ sites, how do they make use of
intermediary sites to promote and deliver their services?
• Services offered. What is offered beyond brochureware? Is online purchase possible?
What is the level of online customer support and how much technical information is
available?
• Implementation of services. These are the practical features of site design that are
described in Chapter 7 such as aesthetics, ease of use, personalisation, navigation and
speed.
A variety of alternative approaches to benchmarking are possible. Different frameworks can be
identified to help group criteria for benchmarking. Alternatives include the following:
1. E-CRM egg.
2. Balanced scorecard/My model.
3. Customer journeys.

25
4. Marketing mix – develop a detailed version of this. Problem – this is not user-centred – but
the E-CRM egg is.
Marketing mix Criteria
Product (Customer needs and wants) Range of products
Online Services/value proposition
Core product
Sales levels
Extended product offering
Branding
Price (Cost) Differential pricing
Place (Convenience) Representation on third party sites
Co-branding and partnering arrangements
Promotion (Communications) Attraction efficiency (visitor volume, share of
search)
Reach
Process (Customer experience) Conversion efficiency to online marketing
outcomes – engagement, conversion to
opportunity, conversion of opportunity to sales
Retention efficiency
People (Customer experience) Response quality – e-mail, co-browsing, chat
Physical Evidence (Customer experience) Usability
Accessibility
Performance
Availability
7. Describe two different models of online buyer behaviour.
Behavioural traits for example, Lewis and Lewis (1997) identified five different types of web
users:
Lewis, H and Lewis, R. (1997). Give your customers what they want. Selling on the Net. Executive
book summaries, Vol 19, No 3. March.
• Directed information seekers.
• Undirected information seekers.
• Directed buyers.
• Bargain hunters.
• Entertainment seekers.

26
Hierarchy of response models of adoption of site (e.g. Breitenbach and van Doren, 1998) for
stages in the buying decision are as follows:
• awareness;
• interest;
• evaluation;
• trial;
• adoption.
Breitenbach, C., van Doren, D. (1998) Value-added marketing in the digital domain: enhancing
the utility of the Internet. Journal of consumer marketing. Vol 15, No 6. 559–575
8. How can the Internet be used to support the different stages of the buying process?
See the Breitenbach and van Doren, 1998 reference details given in the previous question.
Essentially, online and off-line promotion techniques described in Chapter 8 are used to raise
awareness of the company and its web site, and the content and services on the web site then
help users in selecting products. A web site can provide more depth of information than other
media and also interactive tools to help users select the best service for them. For example, a
cell-phone company could give a series of questions that suggest to customers the best tariff for
them.
1. Discuss, using examples, how the Internet may change the five competitive forces of
Michael Porter.
This is summarised in Table 2.10. Reference to the paper by Porter (2001) is essential to
answer this question.
2. ‘Internet access levels will never exceed 50 per cent in most countries’. Discuss.
Suggested approach: data sources referenced in the Chapter suggest that only in developed
countries will the level of access be high. For example, The International Telecommunications
Union (ITU) (http://www.itu.int/ti/industryoverview/index.htm) is a useful source of information. In
most countries, for the foreseeable future, it appears that access levels will be less than 50 per
cent in terms of PC access. Further into the future access through digital TV via satellite and
mobile access may increase this figure.
However, the access figure is now approaching 50 per cent in some developed countries
although PC access saturation is approaching.
3. What are the options, for an existing organisation, for using new business models
through the Internet?
Look at attacking new markets and developing new products – Figure 4.12, p. 235. Look at new
methods of revenue generation, particularly through creating or partnering with an intermediary.

27
4. Perform a demand analysis for e-commerce services for a product sector and
geographical market of your choice.
This involves assessing the ratio Access: Influence: Buy in a country using data sources
referenced at the end of this chapter. The weblogs for analyst Hitwise are particularly useful if
you search on a particularly creative site.
5. Perform competitor benchmarking for online services for an organisation of your
choice.
A framework for this is referred to in Question 6 for the Self-assessment exercises.
6. What are the alternatives for modified channel structures for the Internet? Illustrate
through different organisations in different sectors.
The three main choices are as follows:
• Direct selling – disintermediation
• New intermediaries – reintermediation
• Countering new intermediaries – countermediation.
1. What options are available to a supplier, currently fulfilling to customers through a
reseller, to use the Internet to change this relationship?
We are seeking awareness of the options of disintermediation (Question 1 of Self-assessment
exercises or Question 1 of Essay and discussion questions) from the student or retaining the
status quo to avoid channel conflict. Should state two options?
2. What types of channel conflicts are caused by the Internet?
See question 1 of Essay and discussion questions. Channel conflicts occur when services
traditionally performed by channel partners, such as agents, resellers, distributors or retailers
are taken back by the manufacturer/supplier. This process is disintermediation or 'cutting out
the middleman'. Conflicts may be caused by:
• Direct sales (leading to reduced revenue for channel partner)
• Direct customer service (leading to less utilisation of channel staff)
• Direct delivery (leading to less utilisation of warehousing/distribution infrastructure and staff).
Conflicts may also occur if channel partners are offering better services/offers to the manufacturer.
3. What are virtual organisations and how can the Internet support them?
It is an organisation which uses information and communication technology, to allow it to
operate without clearly defined physical boundaries between different functions. It provides
customised services by outsourcing production and other functions to third parties. The virtual
organisations enable new products and services to be developed by a range of collaborators.
The Internet provides a low-cost mechanism to help collaborators share necessary information

28
through e-mail, discussion databases and project management tools made available via
document databases or groupware such as Lotus Notes/Domino.
4. Name three options for a company’s representation on the Internet in different types
of marketplace.
There are two ways in which this question could be answered. This could be clarified by
referring to the location at which e-commerce occurs. The options then, are as follows:
• Vendor-side e-commerce (company sells from own web site).
• Supplier-side e-commerce (to sell, the company has to visit its customer's site to respond to
requests for tender).
• Intermediary-side e-commerce (brokers who bring buyers and sellers together and offer
e-commerce facilities on-site).
Representation could also be considered in terms of these services at different site locations:
• corporate web site for investor and partner information;
• main open consumer web site with transactional e-commerce facilities;
• micro sites or extranets within main sites with restricted access to key customers;
• versions of the corporate or main site in overseas markets;
• intranet web site for internal marketing communications;
• micro sites within partner sites such as intermediaries and distributors.
5. Explain the term 'virtual value-chain'.
The virtual value-chain has the same components as a physical value-chain in terms of
processes such as product selection, creation and distribution. However, the linkages between
the processes are achieved electronically, and may not need human intervention.
6. What are the three key factors that affect consumer adoption of the Internet?
• Cost of access technology.
• Proposition – how is the need for Internet services perceived?
• Fears – concerns about privacy and security.
7. Summarise how the bargaining power of buyers may be changed by the Internet for a
commodity product.
The greater price transparency enabled by price comparison tools and online auctions all
increase the bargaining power of buyers.

29
8. How can the internal value chain be modified when an organisation deploys Internet
technologies?
The internal value chain is made more efficient through the use of workflow to enable
information transfer, for example, by e-mail. Information can also be shared more readily in
operational processes such as new product development (collaborative intranet), customer
enquiries and post-sales support.
Case Study 2 Zopa launches the peer-to-peer lending model
Question
Imagine you are a member of the team at the investors, reviewing the viability of the Zopa
business. On which criteria would you assess the future potential of the business and
the returns on your investment, based on Zopa’s position in the marketplace and its
internal capabilities?
Students should be given guidance on the extent to which you require an analytic answer based
on a detailed revenue model or a consideration of the strategic issues.
If a detailed revenue model is required, then some additional information will be necessary or
students will need to state their assumptions. The relevant section in Chapter 2 that students
can be asked to refer is 'Demand analysis and conversion modelling' in the section on
understanding customers.
Essentially this question is about revenue models and costs, so it requires the students to the
consider total costs of driving visitors to the site and converting them to sale in comparison with
revenue sources. Profitability will also be dependent on the long-term capability of the company
to gain revenue customers.
Students should mention these elements of a conversion based revenue model including the
following:
• Total market size for these products based on the size of existing loans market. Sub-set of
market that would meet Zopa's lending criteria.
• Cost of customer acquisition – this is a competitive market and it may be difficult to attract
visitors to the site, for example, using search engine marketing or off-line advertising.
• Cost of servicing sales – to what extent are phone contacts needed to facilitate sales?
• Conversion rate from visitor to lead to sale.
• Average revenue earned from each new borrower, which is based on 'charging borrowers 1
per cent of their loan as a fee, and from commission on any repayment protection insurance
that the borrower selects’.
• Lifetime value from customers based on attrition rates – will borrowers continue to use Zopa
or will they use it as a one-off?
• Flexibility on revenue model – for example, after launch, Zopa has gained additional
revenue from lenders.

30
The section in Chapter 8 on 'Conversion marketing objectives' also covers many of these
concepts.
From a strategic perspective, the issues that students should consider are as follows:
• Proportion of total loans market that this service will appeal to;
• Proportion of savings and investments market, this model will appeal to. It is a lot of effort
compared to other savings and investments methods for a limited differential. As a result it
will only appeal to a limited number of investors.
• Will the number of lenders balance the number of borrowers dependent on the appeal of
the proposition as noted above?
• Business model scalability – can it be applied in other countries and to other financial
products or beyond?
• Technology costs and scalability.

31
C H A P T E R 3
The Internet macro-environment
A review of the constraints and opportunities placed on Internet marketing by the broader
environment, for example, legal and political.
Notes on using slides for the third chapter in lectures – lesson
plan
Introduce through learning outcomes and questions for marketers (Slides 2 and 3).
1. Reminder of key issues in managing the macro-environment (Slides 4–6). You can also
refer to SLEPT or PEST at this point. Ask students, which are the most important aspects of
the macro-environment that require management. In an e-commerce environment, we are
mainly referring to constraints such as privacy ethics and law. But these can represent an
opportunity, if executed well compared to competitors.
Also review Slide 5 to discuss the frequency with which micro and macro factors need to be
reviewed. Play strategic agility clip (search for LBS or Donald Sull at www.ft.com/video).
2. Social issues. Slide 7. Limited section since social issues covered as part of consumer buyer
behaviour.
3. Legal and ethical issues. Focusing on Privacy legislation. Slides 8–17. In-depth coverage
in the book introduced in lectures is through Slides 8–11. Slide 13 gives an interpretation of
the PECR law, which is the most important law for controlling spam and cookie privacy.
4. Introduction to digital marketing technology. Slides 18–21. This introduction was
originally in Chapter 1 in editions 1 through 3.
5. Mobile and IPTV technology. Slides 22–33. Discusses mobile/wireless and interactive
Digital TV. Get students to think about the balance between the proposition and the barriers
to adoption. Includes barriers to adoptions.
6. Economic factors. Slide 34 reflects the lower access and e-commerce adoption within some
countries. It can be suggested that these are mainly cultural, for example, southern European
countries use less direct marketing traditionally, for example, catalogue buying, so it is
more difficult to make the change to buying online.

32
Activities
Activity 3.1 Assessing new technology options
Purpose
To illustrate the process for reviewing the relevance of new technology options.
Activity
You work for an FMCG (fast-moving consumer goods) brand and are attending an
industry trade show where you see a presentation about the next-generation (3G) mobile
phones which are due to launch in your country in one year’s time. You need to decide
whether your organisation adopts the new phone and if so when. Complete the following:
A suitable brand might be a drink brand such as Tango.
1. How would you assess the significance of this new technology?
Some possible approaches are as follows:
• Find analyst estimates of the percentage of the target market that are likely to have the
device over future years.
• Assess proposition – what it offers over existing technologies – see subsequent text.
• Conduct focus group discussions on user opinions about receiving advertising and online
services/content over this channel.
• Read trade and public press reviews of likely adoption.
• Look at success of similar previous technologies (WAP, GPRS).
• Look at success of similar technologies overseas (e.g. iMode).
2. Summarise the proposition of the new access devices for both consumers and your
organisation.
Produce a summary of the proposition as shown in Table 3.3 on p.168. Use manufacturers'
sites such as Nokia (www.nokia.com) to gain an appreciation of the proposition.
3. What recommendations would you make about when to adopt and which services to
offer?
Given the limited adoption of WAP and GPRS services, a cautious approach can be
recommended. Possible services include:
• Marketing with multimedia messaging.
• Providing content relevant to consumers, for example, games, competitions and promotions.

33
Activity 3.2 Overcoming SME resistance to e-commerce
Purpose
To highlight barriers to exporting among SMEs and suggest measures by which they may be
overcome by governments.
Activity
For each of the four barriers to internationalisation given in Table 3.6, suggest the
management reasons why the barriers may exist and actions that governments can take to
overcome these barriers. Evaluate how well the government in your country
communicates the benefits of e-commerce through education and training.
The following table solution suggests answers to this activity.
Barrier Management issues How can the barrier be overcome?
Psychological. Will the investment be recouped?
Do we have the human resources?
Success stories of companies who
have become exporters can show the
contribution to revenue possible and
the expenditure necessary.
Operational. Do we need to translate web
content for language and cultural
differences?
How do we deal with country
specific laws and taxation?
How do we build e-services?
How do we make transactions
secure?
Highlight availability and cost of
specialists for legal advice, export
documentation and translation,
Publicity about the range of low-cost,
off-the-shelf solutions for
implementing e-commerce.
Organisational. Do we have the right structure
and responsibilities?
Do we need to open new overseas
sales offices?
Provide training on best practice for
organisational structure and
employee development.
Product/market. Which market do we target?
Do products or packaging require
modification for overseas
markets?
Benchmarking from other countries
can help address these issues.

34
Exercises
1. Summarise the key elements of the macro-environment that should be scanned by an
e-commerce manager.
The most important are as follows:
• Legal. For updates on e-commerce legislation, see Marketing Law (www.marketinglaw.co.uk).
• Social. Ethical issues can be assessed through articles in the general press, for example,
The Guardian’s online channel (www.guardian.co.uk/online).
• Economic. Government statistical sites such as www.statistics.gov.uk can be used to
monitor this.
2. Give an example of how each of the macro-environment factors may directly drive
the content and services provided by a website.
• Social. Localised content for different cultures.
• Legal. Privacy statement.
• Economic. Funding and awards may be possible from governmental sources.
• Political. Funding and awards may be possible from governmental sources.
• Technological. The incorporation of personalisation.
3. What actions should e-commerce managers take to safeguard consumer privacy and
security?
Privacy statements should explain the actions taken to the customers. Firewalls should be
maintained to minimise the risk of unauthorised access to customer data. Data should be
backed up such that it cannot be deleted. The relevant data protection act in the country should
be followed.
4. Give three examples of techniques websites can use to protect the users’ privacy.
Privacy protection is achieved through protecting the users’ data as follows:
• Firewalls.
• Backing up data.
• Login/password.

35
5. How do governments attempt to control the adoption of the Internet?
Governments attempt to control the use of the Internet through policies to promote its use and
through monitoring messages through ISPs and through lobbying groups that control the
Internet.
See pp. 137–139.
6. Suggest approaches to managing technological innovation.
• Frequent review of new opportunities;
• Achieving balance between adopting all new technologies and conservative non-adoption;
• Careful selection of technologies that will achieve competitive advantage.
1. You recently started a job as e-commerce manager for a bank. Produce a checklist of
all the different legal and ethical issues that you need to check for compliance on the
existing website of the bank.
Suggested approach is as follows:
• Data protection legislation – use the 8 principles;
• Privacy law including use of cookies and e-mail for direct marketing;
• Distance selling law;
• Specialist industry bodies for legislation, for example, Financial Service Authority.
Students should be asked to refer to their local government data protection/privacy information
site such as www.informationcommissioner.gov.uk to ensure coverage of all data protection and
privacy (e-mail, cookies) actions.
2. How should the e-commerce manager monitor and respond to technological
innovation?
• Best to base around the concept of diffusion of innovation.
• Contrast between the risks and benefits of the earlier adopter and late majority adopter.
• Give examples of technologies that have generated hype, but have not delivered, for
example, WAP.

36
3. Benchmark different approaches to achieving and reassuring customers about their
privacy and security using three or four examples for a retail sector such as travel,
books, toys or clothing.
Suggested approach:
• This is not a formal essay question. It is a web activity to visit the sites of different players to
review their privacy and security statements for differences and emphasis attached to them.
• Include reference to certification bodies.
4. Select a new Internet-access technology (such as phone, kiosks or TV) that has been
introduced in the last two years and assess whether it will become a significant
method of access.
• Determine current levels of access.
• Evaluate how well it meets the criteria of a successful access technology (the web) in terms
of cost, speed and ease of use.
1. Explain the different layers of governance of the Internet.
Dyson (1998) describes different layers of jurisdiction or governance. They are as follows:
• Physical space comprising each individual country where their own laws such as those
governing taxation, privacy and trading and advertising standards hold.
• ISPs – the connection between the physical world and virtual world.
• Domains name control (www.icann.net) and communities.
• Agencies such as Truste (www.truste.org), which promote good practice.
2. Summarise the macro-environment variables a company needs to monitor when
operating an e-commerce site.
These are referred to as the STEP or SLEPT factors in this chapter:
• Social. Social trends in levels of access and what is acceptable ethical use.
• Legal. Legal constraints.
• Economic. Changes to economy affecting viability of service.
• Political. Government incentives or restrictions.
• Technological. New technologies to enhance service.

37
3. Explain the purpose of environmental scanning in an e-commerce context.
Environmental scanning and analysis is the process of continuously monitoring the environment
and events and responding accordingly. It involves scanning the micro-environment including
competitor activity and customer demand. Its purpose is to ensure that the company is
compliant with the latest laws and innovations.
4. Give three examples of how web sites can use techniques to protect the user’s
privacy.
• Cookies linked to an individual machine.
• Firewalls to prevent unauthorised access to databases.
• Access control through user names and passwords.
5. Explain the significance of the diffusion–adoption concept to the adoption of new
technologies to:
(a) Consumers purchasing using technological innovations.
Managers should review the percentage of user base who can use/access their site using a
particular technology, for example, Flash plug in.
(b) Businesses deploying technological innovations.
Managers need to review the competitive advantage possible through early adoption of an
innovation.
6. What action should an e-commerce manager take to ensure compliance with ethical
and legal standards of their site?
Review data protection requirements in different countries.
Case Study 3. Boo hoo – learning from the largest European
dot-com failure
Questions
1. Which strategic marketing assumptions and decisions arguably made Boo.com’s
failure inevitable? Contrast these with other dot-com era survivors who are still in
business, for example, Lastminute.com, Egg.com and Firebox.com.
These are the assumptions that ultimately led to the downfall of Boo.com since in total they
made it unprofitable:
• Demand for online services would be higher, given the increase in adoption of the Internet.
Yet, many users were not comfortable/familiar with purchasing online.
• Cost of customer acquisition would be lower.
• Conversion rates would be higher for visitors.

38
• Technology would not cause so many barriers to sale that is, slow download times and
usability problems. These issues are wellknown now, but were not at the time then.
• Channel conflicts would be less – it was difficult for Boo to strike a deal with many brands to
sell direct online, thus limiting its product range.
In retrospect and with the benefit of hindsight, many of these seem obvious, but the owners of
the business did not have experience of this marketplace although they did have online
experience through www.bokus.com for a simpler proposition in a single geographical market.
2. Using the framework of the marketing mix, appraise the marketing tactics of
Boo.com in the areas of product, pricing, place, promotion, process, people and
physical evidence.
The marketing mix is covered in Chapter 5, so this part of the question should only be set if this
concept has been covered previously.
These are aspects of how Boo.com applied the mix that students may comment on:
• Product. Premium brands were used, leading to premium prices. Unclear on mix between
sportswear and high street fashion. Scope relatively narrow, limiting target audience.
• Price. As mentioned in the case, there were issues of pricing in different regions. No
mentions of discounting are made, consistent with the brands premium positioning.
However, competitive selective promotions are today commonly used by many e-retail
brands.
• Place. Boo.com had a worldwide distribution, which was good for achieving reach, but
added to the cost-base of the company, impacting on promotion. A global launch of a new
brand was ambitious and can be contrasted with the more conservative approach from the
likes of Amazon and eBay.
• Promotion. To build the Boo brand and drive visitors, it was reliant on online advertising,
which gave rise to a high cost per customer acquisition that ultimately led to the brands
failure. The use of PR was more effective and is one of the successes of Boo. The
magazine appears overambitious and did not pay for itself through sales generated. At the
time, the promotion through online marketing techniques such as search engine advertising
and affiliate marketing techniques was limited in its possibilities. Today, these are more
effective for companies.
• Process. people and physical evidence. It is well known that the technology was too
advanced for a time when the vast majority was accessing the web over dial-up modems.
This led to a ‘clunky’ experience that resulted in the low conversion rates referred to in the
article. It also seems likely that the cost of providing customer service was not factored into
the business model.
3. In many ways, the vision of Boo’s founders was 'ideas before their time'. Give
examples of e-retail techniques used to create an engaging online customer
experience which Boo adopted, that are now becoming commonplace.
These are some of the approaches used:
• Creation of a strong brand based on quality and service.

39
• Advanced product selection using 3D images. This approach is now used by Dell, for
example.
• Use of online customer service persona or avatar. This approach is now used by IKEA for
online sales support through their ‘Ask Anna’ facility.
• Integration of off-line newsletter/catalogue with web site to help build a brand. Today such
newsletters are more commonly delivered online.

40
C H A P T E R 4
Internet marketing strategy
An introduction to stages involved in developing an Internet marketing plan.
Notes on using slides for fourth chapter in lectures – lesson
plan
1. Where does the Internet strategy fit? (Slides 4–9). The slides introduce the essence of
Internet marketing strategy compared to other strategies.
2. The need for a separate/integrated strategy. Slides 10–14. It shows the problems if no
specific e-marketing strategy is required (slide 11).
3. Situation review. Slides 15–19. Stage models of internal situation. See classic Quelch and
Klein model and alternative model for e-business in slide 14. Note that stage models tend to
apply to transactional e-commerce sites. Ask students which stages are relevant for five
different types of sites (Chapter 1)?
4. Goal setting. Discuss the types of benefits and objectives on Slides 20–25. Again useful to
review in groups/pairs for examples of the five site types introduced in Chapter 1.
Slide 21 shows the value of mapping KPIs and illustrates this for a typical transactional web
site.
5. Strategy Decision 1. Market and product development. Slide 26. Illustrate this with respect
to the growth of a company such as easyJet or Smile
6. Strategy Decision 2: Business and revenue model strategies. Slide 27. It is covered at the
end of Chapter 2.
7. Strategy Decision 3: Target market strategy. Slides 28–33. Show common targeting
options – relate to a company like Dell, Tesco.com or Euroffice.
8. Strategy Decision 4: Positioning and differentiation strategy. Including the marketing mix.
Alternative positionings are shown in Slide 34. Online value proposition examples are
shown in Slides 35–37.
9. Decision 5: Multi-channel distribution strategy. Slide 38 shows the continuum between
online and off-line focus. Slide 39 summarises some of the main factors that assess
importance of online to a company. Illustrate with reference to easyJet.

41
10. Decision 6: Multi-channel communications strategy. A channel coverage map is shown in
Slide 40.
11. Decision 7: Online communications mix and budget. This is covered in more detail in
Chapter 8.
12. Decision 8: Organisational capabilities. (7S). Alternative forms of structure and
responsibilities for e-commerce are shown in Slides 41–45.
Activities
Activity 4.1 Situation analysis for an e-commerce operation
Purpose
To introduce the different types of Internet marketing analysis required as part of the situation
review.
Activity
You are a newly incumbent e-commerce manager in an organisation that has operated a B2B e-
commerce presence for two years in all the major European countries. The organisation sells
office equipment and has been an established mail-order catalogue operation for 25 years. The
UK, Germany, France and Italy each have their own localised content. List the e-commerce-
related questions you would ask of your new colleagues and the research you would
commission under these headings:
• internal analysis;
Should refer to current stage of adoption, key performance indicators such as unique visitors,
leads, sales and return on investment, web traffic analysis, staffing, budget for e-commerce,
outsourcing. See the performance measurement frameworks in Chapter 9.
• external analysis (micro-economic factors);
Reach of web site of competitors. Online marketing mix compared to competitors (see
Chapter 5). Customer demand for services.
• external analysis (macro-economic factors).
SLEPT or STEP factors, in particular legal and political constraints.
Activity 4.2 Competitor benchmarking
Purpose
To understand the characteristics of competitor websites it is useful to know how to benchmark
and to assess the value of benchmarking.

42
Activity
Choose a B2C industry sector such as airlines, book retailers, book publishers, CDs or
clothing, or a B2B sector such as oil companies, chemical companies, construction industry
companies or B2B exchanges. Work individually or in groups to identify the type of
information that should be available from the website (and which parts of the site you will
access it from) and will be useful in terms of competitor benchmarking. Once your criteria
have been developed, you should then benchmark companies and summarise which you
feel is making best use of the Internet medium.
You should have identified the need to distinguish between benchmarking criteria that define
the companies marketing performance in the industry and those that are specific to web
marketing as follows:
• Financial performance. Available from About Us, Investor relations and electronic copies
of company reports.
• Marketplace performance. Market share and sales trends and significantly the proportion of
sales achieved through the Internet. This may not be available directly on the web site, but
may need to use other online sources. For example, new entrant to European aviation
easyJet (www.easyjet.com) has achieved over two thirds of its sales via the web site and
competitors need to respond to this.
• Business and revenue models (see Chapter 2). Do these differ from other marketplace
players?
• Marketing communications techniques. Is the customer value proposition of the site clear?
Does the site support all stages of the buying decision from customers who are unfamiliar
with the company through to existing customers? Are special promotions used on a monthly
or periodic basic? Beyond the competitors' site, how do they make use of intermediary sites
to promote and deliver their services?
• Services offered. What is offered beyond brochureware? Is online purchase possible, what is
the level of online customer support and how much technical information is available?
• Implementation of services. These are the practical features of site design that are described
in Chapter 7 such as aesthetics, ease of use, personalisation, navigation and speed.
The marketing mix covered in Chapter 5 is an alternative framework for answering this activity.
A variety of alternatives approaches to benchmarking are possible. Different frameworks can be
identified to help group criteria for benchmarking. Alternatives include:
1. E-CRM egg
2. Balanced scorecard/My model
3. Customer journeys
4. Marketing mix – develop a detailed version of this. Problem – this is not user centred – but
the E-CRM egg is.

43
Marketing mix Criteria
Product (Customer needs and wants) Range of products
Online services/value proposition
Core product
Sales levels
Extended product offering
Branding
Price (Cost) Differential pricing
Place (Convenience) Representation on third party sites
Co-branding and partnering arrangements
Promotion (Communications) Attraction efficiency (visitor volume, share of
search)
Reach
Process (Customer experience) Conversion efficiency to online marketing
outcomes – engagement, conversion to
opportunity, conversion of opportunity to sales
Retention efficiency
People (Customer experience) Response quality – e-mail, co-browsing, chat
Physical evidence (Customer experience) Usability
Accessibility
Performance
Availability
Activity 4.3 Assessing the significance of digital channels
Purpose
To illustrate the issues involved with assessing the suitability of the Internet for e-commerce.
Activity
For each of the products and services in Table 4.5, assess the suitability of the Internet for
delivery of the product or service and position it on the grid in Figure 4.10 with
justification. Make estimates in Table 4.5 for the direct and indirect online revenue
contribution in 5 and 10 years’ time for different products in your country. Choose
specific products within each category shown.

44
Answer
The first step is to source an estimate for the current time or estimate this. Future estimates can
be compiled through assessing the balance of increasing consumer demand from online
channels compared to traditional channels.
Activity 4.4 Online value proposition
Visit the websites of the following companies and, in one or two sentences each, summarise
their Internet value proposition. You should also explain how they use the content of the
web site to indicate their value proposition to customers.
• Tektronix (www.tektronix.com)
• Handbag.com (www.handbag.com)
• Harrods (www.harrods.com)
• Guinness (www.guinness.com)
Places to evaluate the OVP are on the home page, About Us and where the company is asking
the visitor to sign up to an e-mail newsletter as is the case with a resource centre (e.g. MyTek on
www.tektronix.com).
Activity 4.5 Which is the best organisation structure for e-commerce?
Purpose
To review alternative organisational structures for e-commerce.
Activity
1. Match the four types of companies and situations to the structures (a) to (d) in
Figure 4.27.
• A separate operating company. Example: Prudential and Egg (www.egg.com).
• A separate business unit with independent budgets. Example: RS Components
Internet Trading Channel (www.rswww.com).
• A separate committee or department manages and co-ordinates e-commerce.
Example: Derbyshire Building Society (www.derbyshire.co.uk).
• No formal structure for e-commerce. Examples: many small businesses.
2. Under which circumstances would each structure be appropriate?
3. Summarise the advantages and disadvantages of each approach.

45
1. The organisation structures match as follows:
(a) Bullet 4. No formal structure for e-commerce.
(b) Bullet 3. A separate committee or department manages and co-ordinates e-commerce.
(c) Bullet 2. A separate business unit with independent budgets.
(d) Bullet 1. A separate operating company.
2 and 3 are best for the organisation. Some of the main advantages and disadvantages are
summarised in Table 4.8 on p. 260.
Exercises
1. Draw a diagram that summarises the stages through which a company’s website may
evolve.
Refer to Quelch and Klein (1996) model for services offered at different stages for a startup or
existing company or could be based on six levels of sophistication given at the start of the text
from:
• Level 0. No web site.
• Level 1. Company places an entry in a web site listing company names such as
www.yell.co.uk to make people searching the web aware of the existence of a company or
its products. There is no web site at this stage.
• Level 2. Simple static web site (brochureware).
• Level 3. Simple interactive site.
• Level 4. Interactive site supporting transactions with users.
• Level 5. Fully interactive site providing relationship marketing with individual customers and
facilitating the full range of marketing functions.
2. What is meant by the ‘Internet contribution’, and what is its relevance to strategy?
An assessment of the extent to which the Internet contributes to sales is a key measure of the
importance of the Internet to a company. It is a key measure used to control strategy since
companies can:
• use it to assess the current situation (their own percentage contribution) and that of their
competitors;
• use it to set future targets given the constraints of their marketplace;
• use it to measure whether targets achieved.

46
3. What is the role of monitoring in the strategic planning process?
Monitoring of visits to the site and marketing outcomes is part of the process since it indicates
whether strategic objectives have been achieved. How this can occur is discussed more in
Chapter 9.
4. Summarise the main tangible and intangible business benefits of the Internet to a
company.
Refer to section on potential business benefits within strategic goal setting, specifically Table 4.4.
The key benefits can be summarised as:
• Tangible: customer acquisition (new sales);
• Tangible: customer retention (incremental sales);
• Tangible: cost reduction;
• Intangible: image enhancement (corporate and brand).
5. What is the purpose of an Internet marketing audit? What should it involve?
The purpose is to assess the current marketing environment, internal and external. In particular,
market research must answer how effectively competitors are using the medium and how
customers are using it. The audit also considers use within the current company customer base.
6. What does a company need in order to be able to state clearly in the mission
statement its strategic position relative to the Internet?
Essentially, the relative significance of the Internet as a mechanism for delivering customer
service.
7. What are the market and product positioning opportunities offered by the Internet?
Refer to Figure 4.10. The matrix can be applied for the Internet to identify whether it will be used
to:
• promote/sell existing products to existing customers/markets (a common application);
• promote/sell existing products to new customers/markets, that is, sectors or geographically
(may readily open new international markets for products that can be delivered and
serviced remotely);
• promote/sell new products to existing or new customers/markets (new products give the
best opportunities for exploiting the new medium).
8. What are the distribution channel options for a manufacturing company?
Direct sales (disintermediation); through traditional distributors (wholesalers and retailers) and
through new online intermediaries (reintermediation).

47
1. Discuss the frequency with which an Internet marketing strategy should be updated
for a company to remain competitive.
This question is intended to highlight the impact of the dynamism of the Internet. It is not
referred to directly in the chapter, or in existing literature, but should encourage the student to
think about the following characteristics of the marketplace, which suggest that five-year
marketing plans or even one-year marketing plans are probably inappropriate:
• rapid growth in access levels of customer base in different countries may affect feasibility/
demand for Internet services;
• speed at which new entrants can enter market;
• speed at which Internet can change their online services in terms of price and features;
• changes in distribution channel/marketplace, for example, advent of business portals and
auction mechanism for purchasing;
• introduction of new tax/export legislation.
• These all highlight the need for careful monitoring of the marketplace and rapid response on
a monthly basis. Porter’s five competitive forces can be used as a framework.
2. ‘Setting long-term strategic objectives for a website is unrealistic since the rate of
change in the marketplace is so rapid’. Discuss.
This question requires discussion of similar issues to question 1 in the previous text.
3. Explain the essential elements of an Internet marketing strategy.
The framework presented in this chapter uses the elements of a classic strategic marketing plan
namely:
• Goal setting (develop Internet marketing strategy).
• Situation review (develop Internet marketing strategy).
• Strategy formulation (develop Internet marketing strategy).
• Resource allocation and monitoring (define Internet marketing plan and monitor).
For an answer to this question one can review each area as it is presented in Chapter 4 noting
specific requirements for the Internet, that is the role of the Internet contribution in goal setting
and the promotion/communications elements.
4. Summarise the role of strategy tools and models in formulating a company’s strategic
approach to the Internet.
This question gives the opportunity to apply traditional models such as the strategic marketing
planning framework, portfolio analysis and competitive forces and newer models presented in
this chapter such as those by Quelch and Klein, de Kare-Silver and Kumar.

48
1. When evaluating the business benefits of a website, which factors are likely to be
common to most companies?
Refer to section on potential business benefits within strategic goal setting. The key benefits
can be summarised as:
• Tangible: customer acquisition (new sales);
• Tangible: customer retention (incremental sales);
• Tangible: cost reduction;
• Intangible: image enhancement (corporate and brand).
2. Use Porter’s five forces model to discuss the competitive threats presented to a
company by other websites.
Students could be asked to give examples as below.
• Threat of new entrants. For example, Amazon, AutoBytel, Jungle.com.
• Threat of substitute products and services. MP3 music versus CD. Disintermediation.
• Bargaining power of customers. Use of intermediaries such as Yahoo! Shopping that
enables product price comparisons.
• Power of suppliers. This is a relatively minor factor in terms of Internet marketing.
• Extent of rivalry between competitors. Increased rivalry since price comparison is more
readily possible and new products, services and ways of selling or business models will
rapidly occur using the Internet.
3 Which factors will affect whether the Internet has primarily a complementary effect or
a replacement effect on a company?
Kumar (1999) suggests:
• customer access to the Internet (high = replacement);
• the Internet can offer a better value proposition than other media (leads to replacement);
• product can be delivered over the Internet (leads to replacement);
• product can be standardised and user does not usually need to view to purchase (leads to
replacement).
4. Describe different stages in the sophistication of development of a web site, giving
examples of the services provided at each stage.
Refer to Quelch and Klein (1996) model for services offered at different stages for a startup or
existing company or could be based on six levels of sophistication given at the start of the text
from:

49
• Level 0. No web site.
• Level 1. Company places an entry in a web site listing company names such as
www.yell.co.uk to make people searching the web aware of the existence of a company or
its products. There is no web site at this stage.
• Level 2. Simple static web site (brochureware).
• Level 3. Simple interactive site.
• Level 4. Interactive site supporting transactions with users.
• Level 5. Fully interactive site providing relationship marketing with individual customers and
facilitating the full range of marketing functions.
5. Briefly explain the purpose and activities involved in an external audit conducted as
part of the development of an Internet marketing strategy.
The external audit should consider the state of the market in terms of customers and competitors.
Pertinent factors for the Internet include:
• the size of the market, in terms of potential customers who have access to the Internet;
• the type of marketplace (are customers purchasing through price comparison services?);
• how the market share varies across different countries and for different products and
services.
The way competitors of a company use the Internet medium should also be assessed. This
should include:
• how competitors make use of intermediaries on the Internet and for fulfilment;
• how the channel of competitors makes use of the Internet.
Should also include reference to the economic, political, fiscal, legal, social, cultural and
technological factors usually referred to by the SLEPT or STEP.
6. What is the importance of measurement within the Internet marketing process?
Monitoring of visits to the site and the marketing outcomes in terms of sales, customer
acquisition and retention is part of the process since it indicates whether strategic objectives
have been achieved. How this can occur is discussed more in Chapter 9.
7. Which factors would a retail company consider when assessing the suitability of its
product for Internet sales?
Students should refer to the ES test characteristics of de Kare-Silver.
1. Product characteristics. Does the product need to be physically tried, or touched before it is
bought? (Can it be standardised?)
2. Familiarity and confidence. Considers the degree the consumer recognises and trusts the
product and brand.

50
3. Consumer attributes. These shape the buyer’s behaviour – are they amenable to online
purchases with respect to access to the technology, skills available and whether they no
longer wish to shop for a product in a traditional retail environment?
8. Explain what is meant by the online value proposition, and give two examples of the
value proposition for web sites with which you are familiar.
The IVP is a unique feature or offer of the site for a customer, it may be based on existing
product differentiation based on quality or product features or cost. Ideally, the Internet web site
should have an additional value proposition to further differentiate the company’s products or
services. It can be defined in terms of some elements of the 7Ps.
Companies such as Amazon do this well stating they are ‘the world’s largest’ or ‘rapid delivery’
or ‘up to 40 per cent discounts’.
Case study 4. Tesco.com uses the Internet to support its
diversification strategy
Question
Based on the case study and your own research on competitors, summarise the
strategic approaches, which have helped Tesco.com achieve success online.
The strategic decisions covered in this chapter provide a useful framework for summarising the
strategic approaches adopted by Tesco.com.
• Decision 1: Market and product development strategies. Tesco has used the Internet to
extend its market into new product markets such as financial services, white goods and
DVD rental. While these are promoted through the store, the web provides a wider choice of
products, more detailed information about products and a method of purchase. The Internet
can also support entry into new geographical markets.
• Decision 2: Business and revenue model strategies. New revenue sources are available
through extending the product range online as explained above, but also with new digital
revenue streams such as those for music downloads and e-Diets. Tesco also supports
advertising on its site of related product such as financial services.
• Decision 3: Target market strategy. Tesco.com has a broad market of customer types, so it
less relevant for them to use online to selectively target these with communications.
However, the article explains how Tesco has used the web and e-mail channel to target
more closely through targeting different lifecycle groups – these are customers who are
grouped according to their level of adoption of online service. Tesco also uses the web to
target specific requirements such as diets and financial services through search engine
marketing.
• Decision 4: Positioning and differentiation strategy (including the marketing mix). Tesco
offers some unique online promotions and lower online prices for selected products such as
financial services, which could attract a percentage discount when purchased online. It
appears not to use the service elements of the mix for positioning beyond the slogan ‘You
Shop, We Drop’. But attention has been paid to improving the customer experience through
usability activities and reduction of download times.
The marketing mix, which is covered in Chapter 5, is also suitable for assessing some of
the tactical elements of Tesco.com strategy.

51
• Product.
• Price.
• Place.
• Promotion.
• Process, people and physical evidence.
• Decision 5: Multi-channel distribution strategy. This is straightforward. Tesco.com has taken
the decision to distribute Internet orders via stores unlike some rival such as Ocado
(www.ocado.com) who have setup distribution channels.
• Decision 6: Multi-channel communications strategy. This is not referred to in the article –
this describes the mix between online and off-line communications tools for driving visitors
to the site. Off-line communications in store and through direct mail are clearly important for
attracting visitors to the site.
• Decision 7: Online communications mix and budget. Again, this is not mentioned, although
the importance of e-mail marketing for customer communications is apparent.
• Decision 8: Organisational capabilities (7S). Tesco has achieved focus online by creating a
separate ‘Tesco.com’ brand and a separate division headed by Wade Gery.

52
C H A P T E R 5
The Internet and the marketing mix
A review of opportunities that the Internet provides for varying the marketing mix.
Notes on using slides for the fifth chapter in lectures – lesson
plan.
1. Introduction to the marketing mix. Introduce through Slides 4 to 8.
2. Product. Introduce through Slide 9, looking at some examples of implications for core
product (Slide 10) and extended product (Slide 11). Examples are given in Slides 13
through 15. Methods for marketing research are featured in Slide 12. Slide 16 shows the
long tail, which shows the diversity of customer behaviour in selecting products.
3. The Internet and branding. Introduction to brands (Slide 17), online implications (Slide
18) and examples (Slides 19 and 20). Slide 21 shows impact on brand perception.
4. Price. Implications (Slide 22). Slide 23 shows the importance of brand online. Differential
pricing is summarised in Slide 24. B2B reverse auction is summarised in Slide 25. Purchase
method – digital products – is described in Slide 26. Pricing options – in Slides 27 and 32.
Examples of price-comparison site given in Slide 28 and 29. Slides 30 and 31 explain
alternative pricing mechanisms.
5. Place. (i) Place of purchase (Slide 33); Evans and Wurster model (Slide 34); (ii) New
channel structures (Slide 35 – Figures in Chapter 2); (iii) Channel conflicts (Slide 36) and
(iv) Virtual organisations (Slides 37 and 38).
6. Promotion. This is not covered at length in this chapter, since it is the main topic of
Chapters 8 and 9 (Slides 39–41).
7. People, process and physical evidence. People, process and physical evidence are
particularly important for service delivery. Options for supplementing people (Slide 42).
Process for managing inbound enquiries (Slide 43). See also Mini Case Study 5.4 on p 317.

53
Activities
Activity 5.1 How can the Internet be used to vary the marketing mix?
Purpose
An introductory activity that highlights the vast number of areas which the Internet impacts.
Activity
Review Figure 5.1 and explain the two most important ways in which the Internet gives
new potential for varying the marketing mix for each of product, price, promotion, place,
people and processes. State:
• new opportunities for varying the mix;
• examples of companies who have achieved this and
• possible negative implications (threats) for each opportunity.
Suggested Answers
Product
There are many alternatives for varying the product when a company is developing its online
strategy. These often arise as a need to differentiate the product offering to help distinguish the
offer from that of customers. These questions might include the following:
• How do we differentiate? How can we make our online presence different from our
competitors?
• How do we migrate brand online? Do we use a brand variant? (See separate article on
companion website.)
• Do we become a portal or ISP?
• Do we offer an extranet for key customers? What are the facilities?
• Do we offer personalised services that help build relationships with customers?
• Are there any other features of extended product that we can charge a premium for? For
example, some online booksellers charge for a gift-wrapping service.
Price
The advent of price-comparison engines have increased price-competition and companies will
need to develop pricing strategies that are flexible enough to compete in the marketplace, but
are still sufficient to achieve profitability in the channel. Online booksellers may decide to offer

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