Digital Marketing

Karl Meyer

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Introduction

(i)

Page

Introduction

About the Author (iii)

Foreword (iii)

How to use this Guide (iv)

Additional Study Resources (v)

Section 1: The Digital Landscape

Chapter 1: Scope, Innovation and Opportunities

1.1 Introduction 1

1.2 Digital Technology Innovation 9

Chapter 2: The Benefits of Digital Marketing, Integration and

Customer Focus

2.1 The Benefits of Digital Marketing – Why Is It So Special? 29

2.2 The Integration of the Online and Offline World 38

2.3 Customer Focus for Effective Digital Marketing 50

Chapter 3: The Impact of the Digital Environment

3.1 The Rise in Online Consumer Power 61

3.2 Revenue Generation from the Internet 72

3.3 Digital Interaction and Online Customer Behaviour 80

Section 2: The Digital Toolkit

Chapter 4: The Digital Marketing and Digital Communications Mix

4.1 The Role of Digital Marketing Communications

within the Extended Marketing Mix 87

4.2 Digital Marketing Platforms – The Digital Communications Mix 98

Chapter 5: The Digital Hardware Landscape

5.1 Digital Hardware 111

5.2 Effective Coordination for Enhanced Customer Experience 117

Introduction

(ii)

Chapter 6: The Digital Landscape in Context

6.1 Technology Adoption and Diffusion 131

6.2 The Maturity of Digital Delivery Platforms and Their Different Contexts 138

6.3 Relationship Types and Transaction Contexts 146

6.4 Digital Selling Techniques and Technologies 154

Section 3: Digital in Action

Chapter 7: Developing Digital Activities to Support and

Enhance Multichannel Marketing

7.1 The Principal Actions of Digital Marketing Campaigns 169

7.2 Creative Online Tools to Generate Flexible and

Responsive Opportunities 180

7.3 The Advantages and Disadvantages of Multi-channel Marketing 184

7.4 Planning and Monitoring Online Marketing 188

7.5 The Immediacy of Digital Marketing – Opportunities and Risks 195

Chapter 8: Measuring Digital Campaigns

8.1 The Purpose of Measurement 199

8.2 Measurement Techniques and Technologies 214

8.3 Campaign Reviews – Measuring Performance 232

8.4 Analysing Customer Populations and Managing Digital Relationships 240

8.5 Summary – What is Digital Marketing? 242

Index 247

Introduction

(iii)

About the Author

Karl Meyer MBA

Karl Meyer, MBA, has worked for the past 20 years in the Internet Industry in both Technical

and Sales and Marketing Roles, and was Director of Channel Marketing Strategy for

WorldCom in EMEA. Clients included Ford UK, NASDAQ and the BBC. His roles took him

across most of Europe and the Middle East, culminating in working for King Hussein of Jordan.

Karl is currently Product Marketing Manager for Dante Ltd. His particular expertise is the use of

Web Analysis and Social Media to accurately target customers. He teaches the Digital

Programme and modules at Cambridge Marketing College, and is also joint author of the

Cambridge Marketing Handbook: Digital Marketing and author of the Cambridge Marketing

Handbook: Distribution for Marketers both published in 2015 by Cambridge Marketing Press.

Foreword

The internet, and digital communications generally, have been the most disruptive family of

technologies ever in the history of modern business and commerce. From the ability to buy

and sell goods around the world with minimal investment in infrastructure, to enabling traders

in currency, stocks and shares to work from their back bedrooms betting thousands on

exchanges half way around the world.

Digital communications has generated entirely new businesses (WhatsApp, Facebook,

YouTube) or changed the face of existing business models entirely. From car boot selling to

EBay trading or from independent bookstore to Amazon few business activities have

remained unchanged. But these changes (and many more like them) are merely the

publicly visible element of the digital iceberg.

Digital Marketing is notable by the scale and scope of changes it has experienced in the

past 20 years. Virtually no industry has changed so much and so rapidly. Any book, or course

will, by default, be almost out of date before it hits the bookshelves and so independent

research of the latest news and techniques is essential alongside this Guide which provides

guides and insights into the key technologies and methodologies within the digital marketing

sector.

In particular the division between digital business and digital marketing is particularly blurred

with marketing now taking an even greater role in the overall business strategy. Marketing is

no longer an ‘add-on’ activity but arguably can become the driver for business strategy. This

Guide therefore will provide insight into how marketing and business have become

integrated in the digital age.

Introduction

(iv)

How to Use this Guide

This Guide has been written specifically to assist marketers who are involved in both studying

and implementing digital marketing. It includes examples and activities to help reinforce your

learning, and recommended reading and website links for additional information. We

recommend that you work through the Guide from beginning to end undertaking the

exercises and supplementary reading included.

The Guide is part of a set, all written by professional marketers and tutors, designed to

provide clear and easy to read introductions to key marketing topics. The other Guides in this

set are: Marketing, Communications, and The Customer.

Within the Guide you will find the following icons used:

This icon defines a key learning concept within this topic area.

This icon identifies additional reading resources that can be used to gather extra

information or to reinforce learning about a particular concept.

This icon identifies tasks that are useful in widening your knowledge and applying

the concepts to your own organisation.

This icon identifies real-life examples that illustrate the key issues discussed.

This icon identifies websites with further information on the key issues discussed.

Introduction

(v)

Additional Study Resources

This Guide has been designed to provide you with all the core knowledge and skills you need

for this topic. However, marketing is a constantly changing discipline and in order to be a first

class marketer you must keep up-to-date with what is going on around you. Consequently

we strongly recommend that you read widely around the subject for this (and every) topic.

CMC Tutor Blog, Scoop.it! and YouTube Channel

Tutor Blog: www.marketingcollege.com/blog

Scoop.it!: http://www.scoop.it/u/charles-nixon

YouTube Channel: www.youtube.com/channel/UC0_uEMPBTxuUr8hH1Ikl70w

Magazines and Journals

We strongly recommend that you read around the subject from the daily and weekly press

and marketing journals and widen your studies by looking at key trade magazines that serve

the industry. These include:

Ad Age www.adage.com

Cambridge Marketing Review www.marketingcollege.com/blog/cambridge-

marketing-review/

Campaign www.campaignlive.co.uk

Marketing www.marketingmagazine.co.uk

Marketing Week www.marketingweek.co.uk

Media Week www.mediaweek.co.uk

Cambridge Marketing Handbooks

Cambridge Marketing Handbooks: Digital Marketing, Distribution for Marketers, Law for

Marketers, Marketing Communications, Marketing Philosophy, Marketing Planning, Pricing for

Marketers, Product Marketing, Research for Marketers, Services Marketing, and Stakeholder

Marketing, 2015, Cambridge Marketing Press

Recommended Books

Ryan D and Jones C, (2012), Understanding Digital Marketing: Marketing Strategies for

Engaging the Digital Generation, 2nd edition, London, Kogan Page

Chaffey D and Smith P R, (2012), Emarketing Excellence: Planning and Optimizing Your Digital

Marketing, 4th edition, Abingdon, Routledge

Charlesworth A, (2014), Digital Marketing: A Practical Approach, 2nd edition, Abingdon,

Routledge

Ryan D, (2014), The Best Digital Marketing Campaigns in the World II, 2nd edition, London,

Kogan Page

Introduction

(vi)

Recommended Articles

Collins, Katie, Tapp, A, Pressley A, (2010), Social Marketing and Social Influences: Using Social

Ecology as a Theoretical Framework, Journal of Marketing Management, 26, 13-14, 1181-1200

Bell D R, Choi J, Lodish, L M, (2013), What Matters Most in Internet Retailing, MIT Sloan

Management Review, 54, 1, 27-33

Barnett M, (2011), Online Brands Set Off on New Marketing Journey, Marketing Week, 15-18

Kumar V, Mirchandani R, (2013), Increasing the ROI of Social Media Marketing, MIT Sloan

Management Review, 54, 1, 55-61

Fernandez J, (Nov-2012), Social Advertising, Research, 558, 32-33

Moll M, (May-2012), Engage Through Augmented Reality, ADMAP, 30-31,

Woods A,(09-Nov-2011), The Great Ecommerce Opportunity, Marketing, 41-43,

Useful Websites

The Chartered Institute of Marketing

www.cim.co.uk CIM website with information and access to learning

support.

www.cim.co.uk/insight/tools-

and-templates/study-resources/

Direct access to information and support materials for all

levels of CIM qualification (available to CIM Members).

www.cim.co.uk/cuttingedge Weekly roundup of marketing news (available to CIM

members), awards and forthcoming marketing events.

www.cim.co.uk/insight/marketin

g-library-resources/

EBSCO, Emerald, iLibrary and more.

Publications on line

www.ft.com Extensive research resources across all industry sectors,

with links to more specialist reports. (Charges may apply).

www.economist.com Useful links, and easily-searched archives of articles from

back issues of the magazine.

www.mad.co.uk Marketing Week magazine online.

www.brandrepublic.com Marketing magazine online.

Introduction

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Sources of useful information

www.esomar.org/ European Market Research Association.

www.asa.org.uk/asa/ Advertising Standards Association – useful for the Codes

of Practice.

www.marketresearch.org.uk The Market Research Society. Contains useful material on

the nature of research, choosing an agency, ethical

standards and codes of conduct for research practice.

www.statistics.gov.uk Detailed information on a variety of consumer

demographics from the Government Statistics Office.

www.data.gov.uk/publisher/ce

ntral-office-of-information

Government News.

www.quickmba.com/ Quick reference website for business models.

Exhibitions to Attend

Technology For Marketing www.t-f-m.co.uk/

Online Marketing Fair www.onlinemarketingshow.co.uk/

Social Marketing www.socialnetworking-forum.com/

Wikipedia – A note on its use

Wikipedia is a good place to start any research on a new subject. Whilst content now goes

through some review to remove obvious errors of fact, the encyclopaedia is not definitive

and can be incorrect. Always check any information with a second source. Wikipedia is a

good source for other sources.

Introduction

(viii)

Digital Marketing

SECTION 1

THE DIGITAL LANDSCAPE

Chapter 1: The Scope, Innovation and Opportunities of Digital Marketing

Digital Marketing 1

Chapter 1: Scope, Innovation and Opportunities

The expected learning outcomes for this chapter are that you will understand the

scope, innovation and opportunities associated with digital marketing offered by new

technologies including:

The internet of things

Location-based marketing

Big data

Data mapping and mining

Crowdsourcing

Misalignment of international development

Kurzweil’s law of accelerating returns

1.1 Introduction

Digital systems have allowed businesses of every type to dramatically restructure their

operations. Call Centre staff can now be located anywhere in the world (and even at home)

enabling both massive economies of scale and also the ability to operate 24*7 without the

need to have expensive night shifts (or, as in many cases, to off load the expensive nightshift

staff to an economy where anti-social hours of working are not considered a problem). The

ability to control business operations remotely allows supply chains to be absorbed where

needed or ancillary parts of the organisation to be hived off depending on what offers the

best returns on capital at the time.

Money and, most importantly, ownership of assets, can be legally separated from

core business activities allowing businesses to be run as tax efficiently as possible (or

to avoid tax, depending on your point of view)

Distance is no longer a barrier – if you wish to play poker with a Frenchman and a

German then what does it matter if the servers are located in the UK or Gibraltar (for

the players it makes no difference, for the company and the tax authority this

complexity generates a new range of opportunities and headaches respectively)

Section 1: The Digital Landscape

2 Digital Marketing

Time no longer has the same meaning within a digital world. Whereas banks worked

a 5 day 9:30 to 3:30 operation with downtime overnight to batch process

transactions, the always connected world now expects access and most importantly

control of money 24*7. Decisions that once took days are now expected in minutes.

Wonga.com makes a virtue of being able to decide on a loan and transfer money in

a matter of minutes. Whether this is a good or bad thing is left to the reader to

decide

Within the news cycle the concept of ‘stopping the press’ is increasingly irrelevant. Users now

expect the electronic version of their newspaper to provide minute by minute updates of

football scores not a 12 hour out of date summary of yesterday’s news.

The time available to make decisions is also reduced. Planning cycles are now constrained

by the need to adapt to the faster pace. Before, a lengthy business lunch was needed to

get to know the client, now the client expects the first prototype to be released and market

tested before their coffee is cool enough to drink. The ability to react quickly is now more

important than ever.

Digital communications now offer a virtually perfect marketplace for goods and information.

It is increasingly hard to offer overpriced goods or to sweep bad product reviews under the

carpet. In a digital world where everything is permanently available, yesterday’s news is no

longer today’s chip wrapper but is always available to be viewed, shared and dissected.

Even the longevity of businesses is in doubt. The decline of physical businesses (from

Woolworths in the UK to Sears in the USA and Canada) can be attributed to the rise of digital

commerce. The high street travel agent is no longer the ‘go-to’ option for most holiday

makers.

However, it is not only physical businesses that have suffered. Yahoo, which was once the

most powerful search engine businesses in the world with a market capitalisation of $97 billion

at its peak, saw that fall to less than $12bn in only 2 years. The number of digital businesses

that have been touted as rising stars, burned through $billions then faded just as quickly is

huge (Bebo, Myspace, Friends Reunited, pets.com). In this new digital landscape no-one is a

sure-fire winner and even winning last year is no assurance of success (or even survival) this

year. The digital marketplace is one where barriers to entry are minimised and market niches

can open and close in rapid succession making change and uncertainty the only certainties

(Porter, 2008).

So, in a world where everyone is your competitor, no-one can overprice goods, everyone

knows your secrets, service is expected 24*7 and taking 10 or 20 minutes to agree a price

could mean the difference between winning or losing the contract, how can a business

adapt, survive and thrive?

Within the marketing landscape, uncertainty is even more acute. Every managing director

wants you to produce the next YouTube sensation yet no one knows how to do that. The

qualitative differences between a viral video achieving millions of views for virtually no cost

and a carefully crafted $multi-million, multi-national campaign which achieves no

measurable benefit are tiny.

Chapter 1: The Scope, Innovation and Opportunities of Digital Marketing

Digital Marketing 3

Just as Mark Twain said:

“A lie can travel half way around the world while the truth is putting on its shoes.”

The inadvertent digital slip-up of an overtired and undertrained support desk operator on

Twitter can spread around the world far faster than the most elegant press release ever will.

One only needs to review the parody posters created from Conservative and UKIP election

materials to recognise that the internet can easily prick any marketing bubble and create far

more damage than benefit.

What can be learned?

One of the first lessons to be learned about digital business and digital marketing is that the

landscape has radically changed and that most of the agreed norms are no longer valid.

The previous paradigm was of a hierarchical, top down, structure with strong central

management pushing messages and controlling the lower levels. Message direction was

largely one way – If the message was not getting through, simply shout louder. The modes of

communication were also well understood, well controlled and small in number. The number

of variables could be understood and controlled.

Within the digital marketplace, none of these exist. Marketing communications is now a two-

way process. Users can speak, want to speak and demand to be heard. With free access to

information the organisation can no longer control the message – if the first 5 results for your

product on Google are negative reviews then your marketing will not only fail but has

already failed. No longer are there a restricted number of media channels which can be

effectively managed or controlled but a virtually infinite array of bloggers, commentators,

reviewers or just plain interested parties who are not under any form of control.

Pre-digital Post-digital

Structure Top down hierarchical Flat peer to peer

Communication Push Two way

Modes Few, well controlled Effectively infinite, uncontrolled

Table 1.1 The pre-digital and post-digital world

The key lesson to learn from this change is that there needs to be a shift in

emphasis from Marketing (and) Communication to Marketing through Communication.

Section 1: The Digital Landscape

4 Digital Marketing

Marketing has become, and will continue to develop into, an increasingly two-way,

conversational, activity. Responsiveness and reactivity will be essential. Customers will need

to consider companies as, if not friends, then trusted partners. Customers can, if managed

carefully, become advocates of the business. The relationship will need to become less

hierarchical and more about the meeting of equals.

Like all relationships these will need maintaining and nurturing over time.

In essence, marketing has suddenly become much, much more complex. Life will never be

the same again.

The digital environment

This Guide will provide insights into the key drivers of this new ‘marketing through

communication’ paradigm and offer a means to understand the opportunities and risks in

this digitally enabled marketing environment.

This digital environment covers not only the raw technologies used but also the ways these

technologies have changed the attitudes and activities of businesses and customers.

Digital communications – breaking down barriers

Porter explains very clearly the pressures organisations face from both within their chosen

industry and from external organisations (Suppliers, Customers, New entrants, and New

Services) (Porter, op.cit.).

Figure 1.1: Porter’s five forces

Chapter 1: The Scope, Innovation and Opportunities of Digital Marketing

Digital Marketing 5

The emergent digital environment has disruptively affected all these areas in virtually every

sector outside large scale mass production and raw material production or processing.

Across the majority of the commercial environment, digital communications have removed

barriers to entry through a combination of processes and increased access to information.

Let’s have a look at how each of these forces has affected an example organisation.

1. New entrants

The clearest example of this disruptive force is probably the growth and emergence of

Amazon at the expense of both independent book sellers and even large established

organisations such as Borders. Amazon is often used as an example of predatory pricing

forcing existing suppliers out of the marketplace but the deep discounting was a

consequence of their business model rather than the driver behind the model. Amazon was

able to leverage existing businesses and new technologies to reduce their cost base

dramatically.

For the most part, small bookshops would order very small volumes of each title (with the

exception of major ‘blockbuster’ titles) – usually no more than 2-3 of each title at a time.

Book warehouses then already had to have processes in place to allow picking and packing

of small quantities of individual books and shipping those to stores.

Equally at the launch of Amazon, many carriers and postal services (particularly federal or

government owned postal services) which offer door to door deliveries were starting to suffer

losses and were seeking new high volume contracts to support their infrastructures. They were

then willing to offer Amazon very attractive bulk volume deals (particularly for pre-sorted mail

items).

These two factors allowed Amazon to look to remove the ‘middle man’ of bookstores and

pick and ship directly to end users. By doing this Amazon was able to remove a huge capital

cost from their business model (the stores) and replace them with a digital sales model.

In this example the digital element (the website) is actually a relatively minor part of the

digital transformation of the business model – without the ability to link-in the warehousing

and delivery activities into a coherent whole, the business model would not be able to

support deep discounting.

Amazon, by replacing stores with a parcel delivery service, changed the bookstore business

model from a capital intensive, fixed cost based structure to one with a much lower fixed

cost and a variable cost base.

Since this first breakthrough Amazon has of course diversified into a wide range of other

services (including marketplaces, computer hosting and cloud services) but the original

disruptive model was not predicated purely on inserting digital communications into an

existing business but instead succeeded because it was based on understanding how digital

communications supported a new business model.

2. Switching products and services

Within this sector, two examples stand out. iTunes and Netflix.

Section 1: The Digital Landscape

6 Digital Marketing

iTunes

For Apple, the development of an entire eco-system of devices and digital delivery has

enabled it to dominate the digital music delivery market and arguably directly cause the

slow demise of both physical media and the high street stores. In 2013 there were fewer than

300 record stores in the UK. Figure 1.2 shows the huge decline in CD sales in the US.

Figure 1.2: US CD sales volumes (millions) Source: www.airbeats.com

However it is interesting, in context of the changing digital environment, to note that Apple

launched the iPod 18 months before the iTunes store. For that first 18 months it was necessary

to purchase physical media, copy that onto your Apple (windows software only appeared in

mid-2002) then copy that onto the iPod. Prior to the launch of the iTunes store, less than

1,000,000 iPods were sold yet once the ecosystem was completed with the store the sales

volumes accelerated rapidly with 11 million sold in the next 14 months and 31 million sold in

2005 (Apple, 2015). From this distance it is uncertain why Apple delayed the launch of the

iTunes Store for 18 months compared to the iPod but it is clear that it was this disruptive

change that triggered the huge shift in purchasing and consumption of digital content. The

recognition that the paradigm of the music format being crucial disappeared to be

replaced by the concept of the music itself being crucial.

It is notable that sales of dedicated iPod devices are now rapidly falling as the functions are

incorporated into many other Apple devices. However the delivery infrastructure will

continue to deliver content (of a wider range of types) and so the replacement or dropping

of the iPod device is unlikely to affect the overall ecosystem.

Netflix

Netflix is an interesting example of an organisation that has been able to utilise the rapid

changes in the digital environment to adapt its own business model and thrive through the

first two generations of internet technologies.

Chapter 1: The Scope, Innovation and Opportunities of Digital Marketing

Digital Marketing 7

At launch in 1997, Netflix used a traditional DVD rental model with its use of the internet

limited to that of a website ‘selling’ its services. In this model it was (like Amazon) using the

mail services as a replacement and proxy for the physical distribution model of Blockbuster.

In 1999 it adapted its model from a per rental fee plus postage to that of a monthly fee and

free returns to reflect the changes in both usage and also to migrate its occasional use (and

therefore potentially disloyal) customer base into a more secure repeat revenue based

(creating a barrier to entry for competitors by ringfencing its customers). This change to a

repeat revenue model was instrumental in its successful Initial Public Offering (IPO) in 2002.

Up to this time Netflix was not doing anything ‘special’. There was no secret to its success and

there would have been very few barriers to entry for another organisation but the next

change to their model was dramatic: Video Streaming.

In 2007 Netflix began offering a video streaming option – removing the delivery of physical

media and allowing a video-on-demand service to users. This service relied on the

implementation of effective broadband internet speeds to its customer base. This change in

business model has moved Netflix from the DVD rental space into an area closer to

cable/satellite TV providers. They have been able to use the secure revenue stream from one

business to leverage access to another. By the end of 2011 Netflix had over 24 million

monthly subscribers in the USA.

International expansion has been solely through the video streaming route – this has avoided

the capital costs of creating physical distribution in new territories and has enabled a faster

expansion rate than would otherwise have been possible.

The core difference between Apple and Netflix is within the ownership of the content. Apple

sells you the content whereas Netflix ‘lends’ you the content for a single use. Partially this is a

reflection of the technical difficulty of storing HD quality movie length videos in a home

environment, but largely due to the different consumption modes of the content. Whereas

most listeners will listen to music many times, the number of movies which are watched on a

short repeat cycle is much lower.

This demonstrates that the business model selected needs to be a combination of both

technology and understanding the user – and the ability to understand users is crucial.

Technology can enable change and even drive change but in the end the business needs

to meet the customers’ needs.

3. Supplier driven competition

Despite the opportunities offered by disintermediation there has been relatively little

significant impact of supplier side business innovation in the B2C sector. The reason for this is

uncertain but is probably due to the recognition that there is considerable value add

provided by many existing providers. As in the previous examples, (books, music and video)

the publishers themselves can offer a less complete offering to the users (being restricted to

their own material), and so the increased transaction cost incurred by searching through

multiple suppliers would outweigh any possible price reductions available by cutting out the

retailers.

A recently emerging trend has been the growth in self-publishing with authors and musicians

publishing work through Amazon and iTunes and so by-passing the traditional publishing

houses. The most notable success story in this would be the “Fifty Shades” series of books

which were originally self-published as eBooks. However the books only became financially

Section 1: The Digital Landscape

8 Digital Marketing

successful once adopted by a publisher and produced as a physical book. This

demonstrates the continued value of intermediaries such as both publishing houses and

retailers (Kingston University, 2013).

Within the B2B marketplace there have been some examples of supplier driven

disintermediation. The most notable would be within the food industry with farmers now

being able to sell produce direct to processors (sometimes even on the futures markets) and

avoiding the traditional merchants (Green et al, 2008). The growth in digital marketplaces

and the ability for producers to communicate directly and efficiently has enabled this

process. This activity is still in its early stages.

Another example would be crowdsourced funding – both for business to business funding

(www.fundingcircle.com) which focuses on providing lower cost borrowing and enhanced

returns for investors, or new business investment such as www.kickstarter.com offering a route

to funding avoiding the normal venture capital routes. These two examples also

demonstrate customer entry into markets.

4. Customer entry into marketplaces

Leaving aside the role of services such as EBay, possibly the best examples of Customer Entry

are within the real estate marketplace. The internet allows sellers to bypass (almost)

completely the use of estate agencies and dramatically reduce costs. In some countries

(particularly Scotland) the legal structures prevent such arrangements and there is still a

great deal of customer resistance to direct buying and selling.

Other examples of this phenomenon are the rapid growth of eBay selling and of the

resource/asset sharing economy highlighted by concepts such as AirBnB for rooms, ZOPA for

per-to-peer lending and Crowdcube for equity financing.

Customer resistance and inertia are the biggest factors preserving the status quo and also

reducing the levels of competition between existing players

5. Inter-business competition

Porter indicates that businesses will tend toward the position of oligopoly with a minimal

number of players acting in concert (either formally or informally) in order to preserve their

positions and revenues (McCall, 1982). No player will act in such a way that risks retaliatory

behaviour from another. The best example of such behaviour is that of the UK power supply

industry. Since 2013, 6 main players control 95% of all consumer power supply contracts.

Prices between these ‘big 6’ vary only marginally and, due to the variability in contract terms

and terminology, it is often very hard to identify compelling reasons for switching. Prices tend

to rise across all suppliers in what appears to be a very co-ordinated manner. Each supplier

appears to take turns in being the cheapest and most expensive provider so that switching

between suppliers seems to be a largely pointless task. As a result over 60% of customers

have not switched supplier (Consumer Focus, 2013).

In this area it would appear that there is substantial opportunity for digital communications to

break this oligopoly. Digital switching sites (www.uswitch.com) offer the ability to compare

services from a range of providers and to help with the process of moving supplier.

Chapter 1: The Scope, Innovation and Opportunities of Digital Marketing

Digital Marketing 9

One of the consequences of this has been the growth of a small group of migrant customers

moving rapidly between suppliers on a regular basis with a substantial majority of customers

never moving. This serves two purposes. Firstly the ‘big 6’ are assured of a continual revenue

stream from the inertia laden customers with a minor variation as customers move in and out.

Secondly, because the market of active switchers is much smaller than the total market, new

entrants are not able to gain substantial customer numbers and so cannot reduce their

prices enough (a vicious cycle).

Here, digital communications should work to help break down this market. Full access to

information (predicated by the internet) and simplified process would, in theory, create a

perfect market. However this does not happen due to human factors.

Inertia and FUD (Fear, Uncertainty and Doubt) lead to market imperfections. Put simply, most

users consider the transaction costs (time and effort) to be too great and then justify their

indecision using FUD – “I’ll probably get it wrong and end up paying more”, “Even if I do get

it right what’s to say that decision will be correct in 3 months’ time and I’ll have to do it all

over again”, “It’s all a big con and no-one ever saves any money anyway”.

The same processes apply in other similar markets such as Insurance and Banking and

demonstrate again that technology and access to information via technology is only a small

part of the marketing process and much more consideration of the human factors needs to

take place.

Effective understanding of the interface between technology and customers is

key to managing risk within the digital environment.

1.2 Digital Technology Innovation

Over the past 20 years, the Internet has provided a sea-change in the way that the majority

of Europeans work, connect and collaborate. From the early days of dial-up modems and

connection speeds of less than 10kbit/s to the current generation of always-on, multi-

megabit, mobile enabled connectivity that we have come to consider as a utility like

electricity or water, the Internet is virtually un-recognisable. As the technologies have

developed, the networks and the applications have changed radically. As the number of

tablets, smartphones and wireless devices grows then the number of systems connected to

the Internet is greater than the number of people on the planet. The EU predicts that by 2015

there will be 25 billion wirelessly connected devices globally – more than 8 devices for every

person. By the end of 2012, Cisco estimated the data volumes from all these devices

reached 885 petabytes (885 million gigabytes) per month.

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Figure 1.3 Growth of connected devices Source: CISCO, 2013

This increase in user numbers and data volumes will only escalate as newer technologies

arrive. The so-called Internet of Things (IoT) will drive a large proportion of this growth.

1.2.1 The internet of things

The Internet of Things

Until recently the majority of growth in the number of connected devices (devices

connected to the internet) has been from equipment that is used by humans. However

from 2013 the growth patterns have changed so that ‘things’ have been the growth area.

These are devices, computers, remote sensors even traffic lights and street lights that are

connected to the internet and are sending and receiving data with very little human

input. This internet of things (IoT) is a significant change in the dynamics of the internet.

With IoT more and more autonomous devices will be connected to the Internet. These range

from traffic lights and bus stop signs through to stress sensors on buildings, bridges and wind

turbines. These devices will report on their status and their surroundings continuously allowing

for a connected ‘smart city’ which will manage many aspects of the environment without

human interaction. The next generation of electricity and gas meters will be ‘smart devices’

able to transmit readings, predict costs and ultimately switch suppliers based on usage

patterns. NEST are now selling smoke alarms and home thermostats that are connectable to

the internet and can be controlled by smartphones. The next generation of devices is likely

to focus on the healthcare market with the ageing generations looking to maintaining

independence through the use of technology.

The Internet of Things will radically change users’ relationship with data and also how business

relates to users.

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Consider how many internet connected devices exist in your home. Consider the

opportunities for internet enabling other equipment and devices in the home.

Figure 1.4 The Internet of things

Within this web of devices the relationship between users and data will change radically.

During the first generations of the internet, users would connect to the internet for relatively

short periods of time, usually at work or in the home and transact with companies essentially

under their own terms. Within the Internet of Things users will have the opportunity to interact

much more frequently from a wider variety of devices and from virtually any location (even

on planes). However this will not be the most significant change – this is primarily a case of

doing more of the same.

The most important change will be that these devices, and more, will be communicating

independently of the user and will be providing businesses and government more and more

detailed information.

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Outside retail environments, connected devices are being used to monitor and measure

traffic volumes across the motorway and trunk roads and provide this information not only to

roadside signs but also to transport companies (http://trafficmaster.co.uk/). ANPR

(Automated Number Plate Recognition) is used to track specific vehicle movements in and

out of areas and even some airport car parks are beginning to use this to allow prepaid

vehicles access. The next step of using this to pay for high street parking cannot be far away.

1.2.2 Location-based marketing

Location-based Marketing

From the early stages of internet marketing it has been possible to target marketing based

on the location of the user. Even crudely identifying the country or city of the user can add

value to the marketing offering. The capability of mobile devices to use GPS can fine tune

this location sensitivity to the street or even store offering marketers even greater control

and customisation.

With all these devices recording information and transmitting it for central analysis, the era of

location based marketing is fast approaching.

Your mobile phone already has the capability to track your position and businesses are

beginning to use this to track how shoppers move through shopping centres (Gallagher,

2011). Currently this information is anonymised, but the next steps to being able to push

targeted advertising and offers to the user as they pass near a shop is already being planned

(Path Intelligence, 2015). Major retailers are working to develop systems that will use face

recognition to enable targeted advertising, and combining the two technologies would be a

logical next step (AdAge, 2015).

Coupling this real-time information with historical information from loyalty cards would enable

businesses to provide highly tailored marketing information to users. The next question is how

these campaigns will be delivered.

The almost ubiquitous access to smartphones would allow adverts and even offer codes to

be sent to the device for immediate use.

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Figure 1.5 Sample mobile voucher including location based services

The emerging push for smart watches and particularly the opportunities for devices such as

Google Glass (Google-enhanced Internet connected spectacles) will offer increased

opportunities for push marketing. Just as phone prices are subsidised by data contracts,

concepts like this may require devices to be subsidised by users agreeing to accept

advertisements and location and context sensitive adverts would be particularly attractive

both to senders and, to a lesser extent, receivers. The use of location information leads to

issues of Data Privacy and Security.

Data privacy and security

As the news of data snooping from organisations such as the NSA and GCHQ demonstrates,

the quantity of information produced by users is immense. Commercial use of intercepted

data is clearly illegal but there are substantial data protection and privacy issues with the use

of any data.

All personally identifiable data must of course be collected, managed and used in

accordance with the relevant laws but there are significant concerns relating to the use of

anonymisation and pseudoanonymisation of data (Kapur, 2015).

Many organisations claim that pseudoanonymisation of data will protect the privacy of users

whilst still allowing valid market research on the data. The difficulty with this approach is that

a variety of techniques (either deliberate or accidental) can reinstate personal tracking of

data (Ritchey et al, 2013). This reinstatement of Personally Identifiable Information (PII) has

been demonstrated in both theory and to an extent in practice.

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GCHQ in the UK is mandated to store only email headers (containing the sender,

recipient and subject) and domain level browser history. If an insurance company were to

be able to discover that your computer had been used to access on-line medical

directories, chat forums on medical websites and then medical insurance quote sites then

this may influence their decision making process for offering cover. It may seem that this is

an unlikely scenario but if you consider the advertising features on sites such as

www.outlook.com or www.theguardian.co.uk you will notice that adverts are closely

related to recent browsing history on the device. These sites use services such criteo.com.

These services state that data is anonymous but with the growth of web based social

media sites provides a wealth of browser information which could be linked.

Visit www.criteo.com. Think about the opportunities this type of service offers and

the potential risks associated. How would this lend itself to your organisation?

Another notable aspect of privacy is the willingness of users to allow data sharing on their

behalf. A primary example of this data sharing is the use of Facebook, Twitter and Google+

ids as common sign-in identities on a wide variety of sites. Within this process significant

amounts of PII have been shared and when coupled with the information on the destination

site can provide very detailed profiling data.

There is often a disconnect between the level of information marketers would

like to gather and process about customers and the level of information that those same

individuals would themselves be willing to share with others.

If you use Social Media sites, investigate their data privacy policies. Look through

your past history of interactions. What information can you capture about your lifestyle,

interests, politics, shopping habits?

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1.2.3 Big data

The growth in usage of the internet has dramatically accelerated in the past 10 years. Back

in 2010 Google Chief Executive, Eric Schmidt, noted that the amount of data collected since

the dawn of humanity until 2003 was the equivalent to the volume we now produce every

two days.

In 2013 internet data, mostly user-contributed, accounted for 1,000 exabytes

Every day we create 2.5 quintillion bytes of data

90% of the data in the world today has been created in the past two years

Every minute 100,000 tweets are sent globally

Google receives two million search requests every minute

At present much of this growth in data is being generated by users but over the next few

years this will be overtaken by data generated by machines – the so-called ‘internet of

things’ which we have already touched on. These devices (often embedded in other

machines or acting as remote sensors) generate data continuously – this data needs to be

transmitted, stored, analysed and acted upon and this puts huge demands on the network

infrastructure and the ability to store, analyse and use this data.

Within a marketing environment there are two areas of interest within the scope of ‘Big

Data’:

Personal Information

Business/impersonal Information

The marketing use of personal information is straightforward to understand. If we can identify

(through passive data from personal devices or via data actively shared by the user with the

business) we can understand more about how the customer acts and interacts both with our

organisation and other organisations. By examining the Social Media output of a user it is

possible to identify which businesses they use, like and dislike. By interacting via forums it is

possible to use customers as an extended survey audience or focus group.

The business information that can be gained from ‘Big Data’ takes many forms and is usually

(though not exclusively) less personalised and of higher volumes. This could take the form of

traffic flows on nearby roads, power consumption data, or even recycling waste data. This,

taken individually, is usually lower quality data but the sheer volumes of this data and the

power of techniques such as data mapping and data mining, mean that significant patterns,

trends and insights can be discovered.

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For example if traffic data outside a large out-of-town shopping centre is

available (either from services such as trafficmaster or even the car park barriers) this could

be linked to the sales volumes of the stores. Coupled with weather information and

information on local school holidays, this raw information could provide predictive insight

to the business on likely sales volumes (and so staffing levels), product mix and even

timings of busy and quiet periods.

Taking information from one location of current sales volumes compared to a range of

data sources and indicators could help determine strategies for other store locations. For

this to be successful the process needs to be robust and statistically valid.

Analysing ‘big data’

There is an often quoted phrase that “Correlation does not prove causation” – it is vital that

any data analysis exercise is designed to ensure that false causations are not identified. Just

because sales data from June and July shows that sales increased as temperatures rose

does not mean sales will always increase with temperature or that the temperature had any

effect. It could simply be a result of an improved layout in the store just before a warm spell.

All data analysis needs to ensure that the data is fully representative and also that variables

are considered in closely understood groups so that accurate predictions can be made.

In a widely studied example, numerous epidemiological studies showed that

women who were taking combined hormone replacement therapy (HRT) also had a

lower-than-average incidence of coronary heart disease (CHD), leading doctors to

propose that HRT was protective against CHD. But randomized controlled trials showed

that HRT caused a small but statistically significant increase in risk of CHD. Re-analysis of the

data from the epidemiological studies showed that women undertaking HRT were more

likely to be from higher socio-economic groups (ABC1), with better-than-average diet and

exercise regimens. The use of HRT and decreased incidence of coronary heart disease

were coincident effects of a common cause (i.e. the benefits associated with a higher

socioeconomic status), rather than cause and effect, as had been supposed (Lawlor et al,

2004).

The techniques used to analyse this huge volume of data are variously called Data Mapping

and Data Mining.

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1.2.4 Data mapping and data mining

Data Mapping

Most organisations store data about customers in a wide variety of different places and

formats. Individually it can be hard to marry these up unless organisations can link these

disparate sources. Data Mapping allows organisations to form an holistic view of customer

interactions to improve their understanding of the business.

Data mapping involves the correlation of different data sources in order to extract or

manage the data. It can also be used to allow the transfer of data from one system to

another.

Used effectively, this process can offer organisations the ability to transfer information

between legacy and new systems or transfer data to suppliers or downstream organisations

to improve the effectiveness of the business. It can offer significant marketing insights by

linking different sales and marketing systems (for example website and physical store data or

loyalty card information).

Figure 1.6 Schematic of data mapping

As can be seen from the figure above, data fields from one data source (FirstName,

LastName, ZIP) can be correlated with fields in another source. This would then allow other

information to be linked – purchase history, payment preferences (PayPal or credit card) can

then be aggregated. This mapping example uses PII but with sufficient data it would be

possible to link ‘anonymised’ data sources with personal data.

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Data Mining

With the vast quantities of data stored in organisations it can be extremely hard for

companies to identify links and trends in data. Data Mining provides a set of techniques to

help companies develop greater knowledge about their business and its processes.

Data mining is also known as data discovery and knowledge discovery. The major steps

involved in a data mining process are:

Extract, transform and load data into a data warehouse

Store and manage data in a multidimensional database

Provide data access to business analysts using application software

Present analysed data in easily understandable forms, such as graphs

The first step in data mining is gathering relevant data critical for business. Company data is

either transactional, non-operational or metadata. Transactional data deals with day-to-day

operations like sales, inventory and cost, etc. Non-operational data is normally forecast, while

metadata is concerned with logical database design. Patterns and relationships among

data elements render relevant information, which may increase organisational revenue.

Organisations with a strong consumer focus deal with data mining techniques providing

clear pictures of products sold, price, competition and customer demographics.

For instance, the retail giant Wal-Mart transmits all its relevant information to a

data warehouse with terabytes of data. This data can easily be accessed by suppliers

enabling them to identify customer buying patterns. They can generate patterns on

shopping habits, most shopped days, most sought for products and other data utilising

data mining techniques.

Both of these techniques can be considered to be part of the process of Business

Intelligence.

Business intelligence

Business intelligence (BI) is the use of computing technologies for the identification, discovery

and analysis of business data – like sales revenue, products, costs and incomes.

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BI technologies provide current, historical and predictive views of internally structured data

for products and departments by establishing more effective decision-making and strategic

operational insights through functions like online analytical processing (OLAP), reporting,

predictive analytics, data/text mining, benchmarking and Business Performance

Management (BPM).

The vital aspect is that data mapping and data mining techniques are only of value if the

raw information and data they manage is combined with a level of business understanding.

This combination of information and insight is commonly known as Knowledge Management.

Knowledge management

Knowledge Management, is a concept and a term that arose in the early 1990s.

Quite simply one might say that it means organising an organisation's information and

knowledge holistically.

Very early on in the Knowledge Management movement, Davenport offered the still

widely quoted definition:

"Knowledge management is the process of capturing, distributing, and effectively using

knowledge." (Davenport, 1994).

This definition has the virtue of being simple, stark, and to the point. A few years later, the

Gartner Group created a second definition of Knowledge Management, which is perhaps

the one most frequently cited

"Knowledge management is a discipline that promotes an integrated approach to

identifying, capturing, evaluating, retrieving, and sharing all of an enterprise's information

assets. These assets may include databases, documents, policies, procedures, and previously

un-captured expertise and experience in individual workers." (Duhon, 1998).

Knowledge Management focuses primarily on the information stored and managed within

an organisation. However now that many organisations are ‘virtual organisations’ the

information may be located across many companies in many different countries both within

wholly owned subsidiaries or, increasingly, external business partners. The real challenges now

exist in being able to collect and collate this disparate information.

The technical challenges of this are dramatically reduced by the internet and by cloud

based management information services but there remain significant legal issues with sharing

information collected in one country under one legal structure with another company which

may operate under a very different data protection structure.

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Where Does Your Data Live?

The ‘tax efficient’ structures of multi-national organisations such as Google and Amazon

are well known and have often been criticised. However, one area of these complex

structures that is not often discussed are the data ownership and protection issues.

For example, all users who are not residents of the United States or Canada have a

contract with "Facebook Ireland Ltd", located in Dublin, Ireland. Under European law

Facebook Ireland is the ‘data controller’ for Facebook.com, and therefore,

Facebook.com is governed by European data protection laws. This offers users outside the

USA arguably enhanced data protection than those within the USA.

Other organisations may have different legal structures and so it can be very difficult to

assess exactly what data resides under what jurisdiction. It is potentially possible for some

services contracted with a company to be under different legal structures to others

depending on where individual business units are legally based.

Furthermore the legal jurisdiction may differ from the physical location of the data.

Although EU Facebook users have contracts within the EU, the data may either be stored

on servers based in the USA or the USA may be a transit point for the data. This could bring

that data into the domain of US government organisations.

With the latest developments in the use of Virtual Machines (multiple logically divided

servers located on common hardware) and even Virtual Data Centres (where a logical

data centre may itself be distributed across hardware located in many different sites

across different countries) it may actually be virtually impossible to state definitively

‘where’ your data is stored and therefore what data protection laws need to be

considered.

When undertaking these data mining or mapping activities it is important to understand, as

far as is practical, where data is stored and under what jurisdiction it was collected. The

temptation is of course to assume that the structures are similar enough for these distinctions

not to matter but this is a potentially very dangerous assumption. Again assuming that

because you have been given access to the data gives permission to use and process this

data can have serious consequences.

Understanding the potential risks arising from these factors is a vital first step when planning

marketing activities using customer data.

1.2.5 Business development in the digital age

The internet has not only changed the way that businesses operate but has also changed

the way that businesses can be created and has opened a huge new variety of modes in

which a business can be launched, funded and managed.

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The internet has, in its relatively short history, many examples of businesses started by two or

three college friends in a student bedroom which have become huge $multi-billion

organisations. From Apple and Microsoft to WhatsApp and Tumblr this well-trodden path is

etched into the collective consciousness as the route to unimaginable riches.

What is less known about this development path are the processes and planning required to

reach even the start-up phase. Also un-reported are the dozens of failed businesses for every

$multi-billion success.

Business success factors

There are a number of crucial success factors within any business but they can be grouped

into eight main areas:

Market Identification – it is vital that any business can clearly and accurately identify

its target market and be able to communicate this both internally and externally to

customers and funders. The internet itself can, of course, provide copious statistics on

overall market size and segmentation of that market, both in terms of geography but

also demography. Given that the initial uptake of the internet was primarily by the

young (18-30) and relatively rich (AB and C1) it is unsurprising that the first waves of

business were focused on reaching this market. As these users reach saturation with

little real-term growth in numbers increasingly businesses will need to seek alternative

(and possibly, initially, less attractive) segments in order to avoid competition.

Needs Identification – is the service offered needed by the market identified? The era

of “Build it and they will come” has long passed (if indeed it ever existed) so it is

important to identify what the potential customers need and from that what the

product or service needs to offer (both in terms of benefits and features)

Delivery – once the market and the service have been identified and specified can

the service be created and delivered? It may be possible to identify a need to deliver

HD video on demand to rural areas not covered by cable TV but is it possible to

create such a service cost effectively and to a standard and price that the market

will bear?

Scalability – every business wants success but what if that success is unaffordable? Do

costs scale smoothly with market or does the service model have substantial step

changes in technology/cost that make growth hard to sustain? If 10,000 customers

costs X does 10,001 cost 2X? These step changes have hampered many businesses

as the cashflow out of the business may not match the income during the growth

phases

Affordability – can the business afford to start and grow? Amazon’s business

leveraged existing delivery companies meaning that much of the cost of the business

scaled linearly with customer numbers. However, businesses such as Cable and

Satellite TV have had upfront costs that must be spent before even the first customer

is acquired. Can the business afford to ‘burn’ money during this period and will

investors be prepared to wait?

Repeatability/ Specialness – is what the company does repeatable by any other

company or does it rely on anything ‘special’ or secret? The area of patents and

Intellectual property is beyond the scope of this Guide but any organisation planning

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a new business venture will need to examine both the opportunities for protecting the

business and the risks of using technologies or techniques that have already been

protected by other organisations.

Profit – can the business turn a profit? Is there a clear breakeven point (or points) and

are these realistic and achievable? Many businesses can afford long periods of loss-

making provided the funders can identify clear routes to eventual profit.

Exit – in the first dotcom boom many organisations had fairly clear exit strategies – be

bought by Microsoft, Intel or Cisco. Now the market is much more diffuse with

Google, Facebook, Microsoft, Yahoo and many more all being potential acquirers of

interesting companies (or technologies and patents).

Funding opportunities

All businesses need money. That is one of the only givens within any business plan. There will

always be a period where the business will be spending more money than it is earning. This

period may be relatively short or very extended but an external source of funding will always

be required.

In the early stages of the internet the excitement engendered by the huge potential led to

an entire industry of venture capitalists wishing to use money from established ‘old world’

business and fund these new opportunities. These ‘angels’ were willing to fund businesses

quite substantially until public share offerings allowed them to recoup their investment (with

profit) and cycle it back into new ventures. The success of the VC IPO VC loop was

driven by what appeared to be an insatiable desire from investors for internet based stocks.

Figure 1.7 Venture capital funding cycle

Of course not all businesses succeeded to IPO stage and unless a buyer could be found the

venture capitalists would lose their money. What maintained this cycle was the hugely

inflated launch prices for IPO shares which ensured sure a positive return from the successful

companies that the failure rate could be tolerated.

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However, after the dotcom bubble burst in 1999-2001 and the financial crash of 2008, this

level of funding has been progressively harder to access. VC companies became much

more reluctant to fund speculative businesses and preferred to wait until the business had

become established before stepping in to fund the expansion cycle. With the rates of return

on offer from the successful companies being so much lower, VCs could tolerate fewer

failures and so were not willing to fund business until a level of success was assured.

In addition, most major banks are unwilling to lend money to small speculative business

opportunities due to the high risks of failure and extremely risk averse lending criteria imposed

following the financial crash.

For digital businesses this has been a particular issue as these business types tend to have

fewer assets to secure borrowing on and also tend to have more substantial periods of

negative cash flow requiring funding.

Figure 1.8 Typical cashflow comparisons between digital and traditional business

types

This has caused major issues for businesses wishing to launch or seek funding for new

ventures.

Since the 2008 crash there has been an interesting development within the field of business

finance – the concept of crowdsourcing.

1.2.6 Crowdsourcing

Crowdsourcing is a process where organisations use the reach of the internet

and the ability to communicate rapidly with large numbers of people in order to raise

funding for projects.

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Crowdsourcing can be seen as a reaction to two drivers following the 2008 global crash:

Extremely low savings rates

Negative sentiment towards major multi-national organisations

With central bank interest rates averaging at less than 1%, most commercial banking

organisations have no need to borrow money from individual savers and so are offering

interest rates approaching zero. This means that many net savers (who in almost all countries

outnumber borrowers) are seeking means to earn improved rates on their savings.

Crowdsourcing seeks to cut out the ‘middlemen’ of both banks and Venture Capitalists and

link potential investors with businesses seeking funding.

Crowdsourced funding is typified by services such as Kickstarter.com and FundingCircle.com.

Kickstarter and other similar organisations act much more like miniature venture capital

operations with funding being based around specific project activities (either creative

activities or the development of prototype technologies) whereas FundingCircle type

organisations act more typically like business loan providers.

Unsurprisingly, crowdsourced funders such as FundingCircle tend to focus on the financial

returns on offer (many offering rates of return around 5-10%) whereas kickstarter type

businesses focus much more on the creative opportunities available and the chance to own

early versions of technology.

Both of these services differ from venture capital funding in that neither service type acts to

transfer shares or ownership of the business to the funders. VC activities were focused on

equity as the return offered for funding. These VC ventures were extremely highly leveraged

with substantial percentages of the ownership being transferred in return for funding.

Crowdcube among others is beginning to change the landscape here by offering individuals

the opportunity to invest in a similar way, and at a similar stage, to a VC but with very much

smaller investment levels and risk.

1.2.7 The unique nature of digital businesses – the law of accelerating returns

One of the defining characteristics of digital businesses is the growth potential available. A

successful business can achieve growth rates unimaginable by a physical (off-line) business

model. The figure below demonstrates the potential.

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Figure 1.9 User growth rate

This graph shows two types of businesses. The dotted line shows a business starting out with a

reasonable user base serviced by 10 outlets. The business then grows at 20% per quarter

compounded.

The solid line shows a business starting out with only one outlet (and so 1/10th of the customer

base) yet because this is a digital business with a potentially global reach and no need to

roll-out physical infrastructure, it can double in size every quarter. As can be seen, the off-line

business, even though it started 10 times bigger, is overtaken by the on-line business half-way

through the third year. By the end of the fourth year the online business has dramatically

outstripped the physical business. This type of growth is available through two factors:

The ‘law’ of accelerating returns

The reduction of the limitations on growth

The ‘law’ of accelerating returns is often attributed to Kurzweil who postulates that the

measure of the rate of technological progress doubles every ten years (Kurzweil, 2001). This

doubling in every fixed period of time produces the classic exponential growth curve as seen

in Figure 1.9 and it is this growth that is virtually unique to digital businesses.

This exponential growth rate is particularly recognisable within many ‘pure play’ digital

businesses such as Social Media and on-line content businesses. Within these organisations

the concept of the ‘networked’ industry applies (Shy, 2011).

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What Does Networked Industry Mean?

A networked industry refers to the concept of an industry that relies upon networks of

customers and/or suppliers all agreeing to the use of common platforms or standards.

Examples of these range from agreement on common fax standards which enabled all

buyers of any fax machine to interoperate. Without a ‘network’ effect, a proliferation of

standards would have prevented the use of faxes becoming commonplace in the 1970s

and 80s.

Another example would be the domination of VHS tapes over the arguably technically

more advanced Betamax. The manufacturers of VHS ensured the capability existed for

simple and cost effective duplication of pre-recorded tapes. This helped generate a

network effect that produced a positive feedback loop. As more tapes became

available the demand for machines increased meaning producers were more willing to

invest in producing content on the VHS format in preference to Betamax (or videodisc) so

reinforcing the dominance of the format.

In all networked industries the initial growth rates can be quite slow as momentum needs

to build before the positive feedback effect kicks in. As a result substantial marketing effort

may be required at an early stage (far in excess of that which the user base may suggest)

but this can often then be reduced as the user volumes grow.

A modern physical example could be considered the electric car marketplace. The

market is currently constrained by a lack of charging facilities – this results in slow take-up

of vehicles which then makes the charging facilities expensive and poorly used. The

manufacturers are therefore having to undertake substantially more marketing on these

vehicles than the market would normally support and provide significant front loaded

investment in anticipation of future market growth.

Within digital businesses the positive feedback cycle is particularly noticeable. As more users

select one organisation (say a Social Media site) then through their network of contacts and

contacts of contacts the site rapidly gains users. Examples of this include sites such as

FriendsReunited, LinkedIn and of course Facebook. But other sites also work in the same way.

YouTube succeeded because it became known as the place to view videos, and so when

an individual or business wanted to host a video itself, YouTube became the default choice.

Once momentum has built it becomes increasingly hard for new entrants in the market to

break this cycle and it requires a disruptive change to behaviour in order to gain traction.

This disruptive change can be seen in the relative fortunes of Facebook and FriendsReunited.

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Facebook vs FriendsReunited

FriendsReunited launched in 2000 with 3000 members and by the end of its first 12 months

had reached 2.5 million users rising to 15 million users by 2005 when it was valued at £120

million. The site initially focused on allowing old school friends to link up and share contacts

and memories. After a hugely successful launch and acquisitions and mergers of the

company, growth and users faltered until it was relaunched at the end of 2013 with an

estimated value of less than £6million.

Facebook launched in February 2004 with less than 500 users (most of those being profiles

acquired from other systems). Again focusing on allowing friends to connect and share

information. In contrast to FriendsReunited the site now has over 1 billion users and a value

of over $15billion.

So, why did one succeed and one fail to capture interest? There are two primary reasons

for the differing fortunes of these two companies. Interest and Interaction.

Interest - FriendsReunited focused on reminiscing - it was setup because its owner

wondered what an old school friend was doing after 10 years whereas Facebook was

always focused on the present and the future – letting friends know what they were doing

or planning to do. In this difference the first seeds of the success of Facebook were sown.

By definition the present and future offer greater opportunities for sharing and also require

users to continually connect and find out more. With FriendsReunited the temptation was

to visit once or twice, find out what your old school friends were doing and then….. leave.

Once the first investigations had been done there was little incentive to return or interact.

Interaction was then the second success factor. Because Facebook allowed and

encouraged continual updates and uploading of photos, videos, etc., users were

encouraged to keep connecting to see what their friends had uploaded and comment

and contribute themselves. Other friends then were encouraged by Facebook members

to join the site and so ‘join the party’ and this resulted in the snowballing of user numbers

and interaction.

These two factors turned Facebook into an active ‘networked’ business whereas

FriendsReunited became a relatively static directory site.

It is interesting to note that these two businesses launched either side of the (notional)

boundary between Web 1.0 and Web 2.0. Web 1.0 (FriendsReunited) was a relatively static

and hierarchical infrastructure with limited user interaction and contribution. Web 2.0

(Facebook) was typified by massively increased interaction and user content creation. This

change was the biggest disruptive change to the web since its launch in 1992.

Section 1: The Digital Landscape

28 Digital Marketing

1.2.8 Misalignment of international development

With the global reach of the internet and the ability for products and services to be

purchased, sold and shared worldwide it is often thought that the internet is an homogenous

whole and that services can be offered to a global audience without needing to consider

local conditions.

Barring the obvious legal restrictions there are still structural and cultural differences between

regions, countries and even sections of countries. These can dramatically affect both the

take-up of services and particularly the marketing required for services.

It is vital therefore that the market analysis and testing understands these differences and

reflects them within the marketing and communication plans.

Examine the different market profiles for the mobile phone markets worldwide.

The take-up of different phone types varies greatly between countries. Much of this can

be explained by the different contract models used. Many countries offer ‘free’ phones

alongside monthly contracts whereas others sell the phone separately from the contract.

In these countries, lower priced phones tend to predominate as users are less willing to pay

$100s extra for a particular phone. Equally in developing countries with low penetration of

personal bank accounts pay-as-you-go phones are more popular than contract phones

simply because many users cannot easily pay monthly direct debits.

The marketing of both phones and phone contracts therefore varies greatly.

Free Postage from China? How Do They Do That?

If you examine eBay you will find many products sold with very low or free postage even

though those items are being shipped from China. How is this possible? This is a legacy of

the international postal regulations. As part of these the postal service in the sending

country sets its own fees for postage and keeps all of this income. The receiving postal

company has to deliver the item in the destination country without charge.

When postal volumes were evenly matched and low and comprised mainly letters and

postcards then this structure was simple and avoided the complex contra-payments to

other postal services.

However this now skews the cost effectiveness of shipping goods between countries.

DIGITAL MARKETING

INDEX

Index

Digital Marketing 247

24*7 access ................................................... 37

7Ps of digital marketing ......................... 87, 88

—A—

Abandonment ........ 57-58, 128, 160, 174-177

Advertising online ......................................... 75

Advocacy .................................. 554, 211, 213

Affiliates ................ 154, 161, 166-167, 240-242

Analytics ........................... 40, 58, 76, 128, 138,

142, 223, 226-232, 239, 243

App(s) .......................... 38, 41-43, 48, 113, 188

Augmented reality ............................. 186-187

—B—

Big data ................................. 1,15-16, 214, 231

Blogs and discussion forums ..................... 121

Business success factors ............................. 21

—C—

Collaboration ............................. 104, 138, 143

Consumer power .................................... 8, 161

Conversion funnel ...................................... 155

Corporate trolling .................................... 50,54

CRM ........................... 72, 77-78, 151, 211, 232

Crowdsourcing ................................... 1, 23-24

Customer expectations ................. 38, 80, 83

Customer experience.................... 34, 38, 43,

66, 96, 111, 117, 127, 173, 179

Customer journeys ....................................... 57

—D—

Data mapping ...................... 1, 15-19, 78, 231

Data mining .............................................. 15-20

Data privacy ................................... 13-14, 222

Digital dashboards ..................................... 223

Digital environment.................... 4-6, 9, 61-85,

90, 95, 97, 147

Digital hardware ................................. 111-129

Digital interaction ......................................... 80

Digital technology innovation ..................... 9

Disintermediation ..................... 7-8, 61, 69-70,

147-148

Distance selling regulations ............... 176-177

—E—

Email .............................. 93, 142, 154, 161-167,

214-215, 227, 233

Engagement ....................... 138, 141-142, 186

—F—

Fear, uncertainty and doubt (FUD) ........... 9,

36, 205-206

Freemium services ................................... 52-53

Funding opportunities ................................. 22

—G—

Gaming ............................................ 98-99, 107

Government ................ 146, 148-149, 151-152

—H—

Heat maps ................................................... 128

—I—

Infomediaries .......................................... 72, 79

Integrated campaigns ...................... 184, 185

Internet of things .......................... 1, 10-11, 15

Interstitials .............................................. 180-182

—L—

Law of accelerating returns .............. 1, 25-25

Lingubots ............................................. 180, 183

Location-based marketing .................... 1, 12

Logfile analysis ............................ 216, 220-222

Logfile reporting ......................................... 218

Loyalty ............................. 12, 17, 31, 50-51, 65,

68, 70, 61, 85, 96, 105, 156, 158-159, 179,

188, 192, 210, 236, 242

—M—

M commerce .............................................. 113

Measuring .................................... 122, 199-243

Metrics .......................... 82, 138, 143, 199, 221,

223, 228, 231-234

Monitoring ................................... 188, 228-229

Index

248 Digital Marketing

Multi-channel marketing ................... 184, 188

—N—

Natural conversation banners ......... 154, 157

Near field communication enabled

adverts (NFC)........... 71, 113, 117, 187-188

Networked industry ................................. 25-26

—O—

Online support .............................................. 84

Online surveys ............................ 232, 236, 239

—P—

Pay per Click (PPC) .................. 52, 72, 75, 76,

119-120, 141, 143, 161, 165-167, 171-173,

192, 215, 222, 227, 230, 235

Photo, audio and video sharing sites ...... 99,

101

Planning .................................. 2, 188, 197, 243

Pop-ups ........................................ 174, 180-181

Porter’s five forces .......................................... 4

—Q—

QR codes ....................... 71, 93, 113, 117, 183,

186-188, 213

—R—

Real-time marketing ............................... 38-40

Reputation ................................... 80, 82-85, 96

Revenue generation ............................. 61, 72

RSS ...................................... 33, 98, 99, 105, 106

—S—

Sales funnel ................... 57, 155-157, 169-170,

177, 186, 190, 219

Scalability......................... 21, 55, 121, 138-140

Screen real estate ........................................ 44

Search engine optimisation (SEO) ......... 118,

125-127, 141, 144, 167, 220, 235

Shopping carts..................... 47, 154, 157, 174

SMS ........................ 99, 103-104, 114, 118, 154,

161, 163

Social media ........................................ 163-164

Social media marketing ..................... 99-100,

104, 144, 150, 186, 215, 230

Superstitials ........................................... 180-181

—T—

Tagging analytic solutions ........................ 221

Touchpoints ................................................. 145

Tracking ....................... 124, 161, 188, 214, 222

—U—

User generated content (UGC) ......... 30-31-,

101, 227

User forums and groups ............... 98, 99, 104

—V—

Viral marketing ............... 98-99, 109, 180, 184

—W—

Wearables ........................................... 111, 114

Websites ............. 104, 118, 142, 178, 186, 215

Widgets ...................................... 56, 98-99, 106

Wikis ........................................... 98-99, 104-105

Word of mouth ....................................... 50, 54