Chapter two

2. INTERNET MARKETING ENVIRONMENT

Environment consists of the actors and forces outside and inside marketing that affect the marketing
management’s ability to develop and maintain successful transactions with its target customers. The
marketing environment offers strength, weakness, threats and opportunities. All organizations operate
within an environment that influences the way in which they conduct business. Organizations that monitor,
understand and respond appropriately to changes in the environment have the greatest opportunities to
compete effectively in the competitive marketplace. The marketing environment consists of
Microenvironment and macro environment.

2.1. Microenvironment
Consists of forces close to the company that affect its ability to serve its customers. these are: the company,
suppliers, marketing channel firms, customer markets and competitors. Let us see one by one.

2.1.1 The Company: Constitutes the internal environment, Marketing is influenced by top management,
finance, research and development (R & D), purchasing, manufacturing and accounting and others. these
functions must ‘think customer’ and they should work together to provide superior customer value and
satisfaction. On online context the organization must be adaptable to new technology changes.

2.1.2. Customers: The company must study its customer markets closely i.e. Customers access level to
internet, interest to use and buy products or services online and online consumer behavior.

2.1.3. Supplier: Are an important link in the company's overall customer 'value delivery system. they
provide the resources or raw materials needed by the company to produce its goods and services. Suppliers
have effect on product price, availability and features. In the Internet contexts supplier Access level to
internet, interest to use and sell raw materials or resources online and integration with existing system.

2.1.4. Marketing Intermediaries: Marketing intermediaries are firms that help the company to
promote, distribute and sell its goods to final buyers. They include resellers, physical distribution firms,
marketing services agencies and financial intermediaries.

The best known online intermediaries are the most popular sites such as Google, MSN and Yahoo! Online
intermediary sites provide information about destination sites and provide a means of connecting Internet
users with product information. Consumer intermediaries such as kelkoo (www.kelkoo.com ) and Bizrate
(www.bizrate.com ) provide price comparison for products.

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These are types of intermediaries online:

Search engines (Google, Yahoo! Search).

Malls (now replaced by comparison sites such as Kelkoo and Price runner).

Virtual resellers (own inventory and sells direct, e.g. Amazon, CDWOW).

Financial intermediaries: offers digital cash and on-line payment services such as PayPal which is now part
of eBay).

2.1.5. Competitors: A firm’s competitive environment refers to the other companies selling similar
products and operating in the same market space. To be successful, a company must provide greater
customer value and satisfaction than its competitors do. To do so marketers must do more than simply adapt
to the needs of target consumers gain strategic advantage by positioning their offerings strongly against
competitors' offerings in the minds of consumers.

Unlike the case of traditional marketing, since it is difficult to easily know online competitors, companies
need to always review: Well-known local competitors; well-known international competitors; and new
internet companies local and worldwide (within sector and out of sector).

2.2. Macro environment

Macro environment consists of the larger societal forces that affect the whole microenvironment; these are
social, economic, and natural, technological, political, legal and cultural forces.

2.2.1. Social Factors (Socio-cultural): these include the influence of consumer perceptions in determining
usage of the Internet for different activities.

2.2.2. Legal and Ethical Factors – determine the method by which products can be promoted and sold
online. Governments, on behalf of society, seek to safeguard individuals’ rights to privacy.

2.2.3. Economic Factors – variations in the economic performance in different countries and regions affect
spending patterns and international trade (it is not about internal, which is micro level)

2.2.4. Political: national governments and transnational organizations have an important role in determining
the future adoption and control of the Internet and the rules by which it is governed.

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2.2.5. Technological Factor: changes in technology offer new opportunities to the way products can be
designed, produced and marketed.

2.3. E-commerce Business Models and Concepts

A business model describes the architecture for product, service, and information delivery and a description
of sources of revenues (revenue streams). A business model identifies the value chain elements of the
business such as inbound logistics, operations (or production), outbound logistics, marketing, service; and
support activities.

A business model doesn’t exist in a vacuum. A firm might select one or more business models as strategies
to accomplish enterprise goals. For instance, if the firm’s goal is to position itself as a high-tech, innovative
company, it might decide to use the internet to connect and communicate with its suppliers and customers.

The authors of internet business models and strategies suggest the following components as critical to
appraising the fit of a business model for the company and its environment.

 Customer value: - Does the model create value through its product offering that is differentiated in
some way from that of competitors?
 Scope: - Which markets does the firm serve, and are they growing? Are these markets currently
served by the firm, or will they be higher-risk new markets?
 Price:-Are the firm’s products priced to appeal to markets and also achieve company share and profit
objective?
 Revenue source:-Where is the money coming from? Is it plentiful enough to sustain growth and
profit objectives over time? Many dot.com failures overlooked this element.
 Connected activities:-What activities will the firm need to perform to create the value described in
the model? Does the firm have these capabilities? For example, if 24/7 customer service is part of
the value, the firm must be prepared to deliver it.
 Implementation: - The Company must have the ability to actually make it happen, which involves
the firm’s systems, people, and culture and so on.
 Capabilities:-Does the firm have the resource (financial, core competencies, etc) to make the
selected model functional?

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  Sustainability:-The e-business model is particularly appropriate if it will create a competitive
advantage over time. Will it be difficult to imitate and will the environment be attractive for
maintaining the model over time?

2.4. Eight Key Elements of a Business Model

If you hope to develop a successful business model in any arena, not just e-commerce, you must make sure
that the model effectively addresses the eight elements of business models. These elements are value
proposition, revenue model, market opportunity, competitive environment, competitive advantage, market
strategy, organizational development, and management team. Many writers focus on a firm’s value
proposition and revenue model. While these may be the most important and most easily identifiable aspects
of a company’s business model, the other elements are equally important when evaluating business models
and plans, or when attempting to understand why a particular company has succeeded or failed. In the
following sections, we describe each of the key business model elements more fully.

2.4.1. Value Proposition

A company’s value proposition is at the very heart of its business model. A value proposition defines how a
company’s product or service fulfills the needs and wants of customers. To develop and/or analyze a firm’s
value proposition, you need to understand why customers will choose to do business with the firm instead of
another company and what the firm provides that other firms do not and cannot. From the consumer point of
view, successful e-commerce value propositions include personalization and customization of product
offerings, reduction of product search costs, reduction of price discovery costs, and facilitation of
transactions by managing product delivery.

For instance, before Amazon existed, most customers personally traveled to book retailers to place an order.
In some cases, the desired book might not be available, and the customer would have to wait several days or
weeks, and then return to the bookstore to pick it up. Amazon makes it possible for book lovers to shop for
virtually any book in print from the comfort of their home or office, 24 hours a day, and to know
immediately whether a book is in stock. Amazon’s Kindle takes this one step further by making e-books
instantly available with no shipping wait. Amazon’s primary value propositions are unparalleled selection
and convenience.

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2.4.2. Revenue Model

A firm’s revenue model describes how the firm will earn revenue, generate profits, and produce a superior
return on invested capital. We use the terms revenue model and financial model interchangeably. The
function of business organizations is both to generate profits and to produce returns on invested capital that
exceed alternative investments. Profits alone are not sufficient to make a company “successful”. In order to
be considered successful, a firm must produce returns greater than alternative investments. Firms that fail
this test go out of existence.

Although there are many different e-commerce revenue models that have been developed, most companies
rely on one, or some combination, of the following major revenue models: the advertising model, the
subscription model, the transaction fee model, the sales model, and the affiliate model.

1. Advertising revenue model: a company that offers content, services, and/ or products also provides a
forum for advertisements and receives fees from advertisers. Yahoo, for instance, derives a significant
amount of revenue from display and video advertising.

2. Subscription revenue model: a company that offers content or services charges a subscription fee for
access to some or all of its offerings.

3. Transaction fee revenue model: a company receives a fee for enabling or executing a transaction. For
example, eBay provides an auction marketplace and receives a small transaction fee from a seller if the
seller is successful in selling the item.

4. The sales revenue model: companies derive revenue by selling goods, content, or services to customers
online. Companies such as Amazon (which sells books, music, and other products), LLBean.com, and
Gap.com all have sales revenue models.

5. The affiliate revenue model: companies that steer business to an “affiliate” receive a referral fee or
percentage of the revenue from any resulting sales. For example, MyPoints makes money by connecting
companies with potential customers by offering special deals to its members.

2.4.3. Market Opportunity

The term market opportunity refers to the company’s intended market space (i.e., an area of actual or
potential commercial value) and the overall potential financial opportunities available to the firm in that

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market space. The market opportunity is usually divided into smaller market niches. The realistic market
opportunity is defined by the revenue potential in each of the market niches where you hope to compete.

2.4.4. Competitive Environment

A firm’s competitive environment refers to the other companies selling similar products and operating in the
same market space. It also refers to the presence of substitute products and potential new entrants to the
market, as well as the power of customers and suppliers over your business. The competitive environment
for a company is influenced by several factors: how many competitors are active, how large their operations
are, what are the market share of each competitor, how profitable these firms are, and how they price their
products.

Firms typically have both direct and indirect competitors. Direct competitors are companies that sell
products and services that are very similar and into the same market segment. For example, Priceline and
Travelocity, both of whom sell discount airline tickets online, are direct competitors because both
companies sell identical products—cheap tickets.

Indirect competitors are companies that may be in different industries but still compete indirectly because
their products can substitute for one another. For instance, automobile manufacturers and airline companies
operate in different industries, but they still compete indirectly because they offer consumers alternative
means of transportation.

2.4.5. Competitive Advantage

Firms achieve a competitive advantage when they can produce a superior product and/or bring the product
to market at a lower price than their competitors. Firms also compete on scope. Some firms can develop
global markets, while other firms can develop only a national or regional market. Firms that can provide
superior products at the lowest cost on a global basis are truly advantaged. There are four types competitive
advantages:

1. Asymmetry: exists whenever one company in a market has more resources than other companies. The
resources may be financial backing, knowledge, information, and/or power than other companies.

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2. first-mover advantage: a competitive market advantage for a firm that results from being the first into a
marketplace with a serviceable product or service. If first movers develop a loyal following or a unique
interface that is difficult to imitate, they can sustain their first-mover advantage for long periods.

3. Complementary resources: resources and assets not directly involved in the production of the product
but required for success, such as marketing, management, financial assets, and reputation.

4. Unfair competitive advantage: occurs when one firm develops an advantage based on a factor that other
firms cannot purchase. For instance Brands are built upon loyalty, trust, reliability, and quality. Once
obtained, they are difficult to copy or imitate, and they permit firms to charge premium prices for their
products.

2.4.6. Market Strategy

No matter how tremendous a firm’s qualities, its marketing strategy and execution are often just as
important. The best business concept, or idea, will fail if it is not properly marketed to potential customers.
Market strategy is the plan you put together that details exactly how you intend to enter a new market and
attract new customers. For instance, Twitter, YouTube, and Pinterest have a social network marketing
strategy that encourages users to post their content on the sites for free, build personal profile pages, contact
their friends, and build a community. In these cases, the customer becomes part of the marketing staff.

2.4.7. Organizational development

Organizational Development is plan describes how the company will organize the work that needs to be
accomplished. Typically, work is divided into functional departments, such as production, shipping,
marketing, customer support, and finance. Jobs within these functional areas are defined, and then
recruitment begins for specific job titles and responsibilities.

For instance, eBay founder Pierre Omidyar started an online auction site, according to some sources, to
help his girlfriend trade Pez dispensers with other collectors, but within a few months the volume of
business had far exceeded what he alone could handle. So he began hiring people with more business
experience to help out. Soon the company had many employees, departments, and managers who were
responsible for overseeing the various aspects of the organization.

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2.4.8. Management Team

Management team is describes as employees of the company responsible for making the business model
work. A strong management team gives a model instant credibility to outside investors, immediate market-
specific knowledge, and experience in implementing business plans. Eventually, most companies get to the
point of having several senior executives or managers. How skilled managers are, however, can be a source
of competitive advantage or disadvantage. The challenge is to find people who have both the experience and
the ability to apply that experience to new situations.

 Summary of the eight key elements of a business model

Value proposition: Why should the customer buy from you?

Revenue model: How will you earn money?

Market opportunity: What market space do you intend to serve, and what is its size?

Competitive environment: Who else occupies your intended market space?

Competitive advantage: What special advantages does your firm bring to the market space?

Market strategy: How do you plan to promote your products or services to attract your target audience?

Organizational development: What types of organizational structures within the firm are necessary to
carry out the business plan?

Management team: What kinds of experiences and background are important for the company’s leaders to
have?

2.5. Categorizing E-commerce Business Models

Our approach is to categorize business models according to the different major e-commerce sectors—B2C
and B2B—in which they are utilized. You will note, however, that fundamentally similar business models
may appear in more than one sector. For example, the business models of online retailers (often called e-
tailers) and e-distributors are quite similar. However, they are distinguished by the market focus of the
sector in which they are used. In the case of e-tailers in the B2C sector, the business model focuses on sales
to the individual consumer, while in the case of the e-distributor, the business model focuses on sales to

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another business. Many companies use a variety of different business models as they attempt to extend into
as many areas of e-commerce as possible. We look at B2C business models and B2B business models.

2.6. Major business-to-consumer (B2c) e-commerce business models

1. E-tailer: Online version of retail store where customers can shop at any hour of the day or night without
leaving their home or office. Eg. Amazon, iTunes and Bluefly. Online retail stores, often called e-tailers
come in all sizes, from giant Amazon to tiny local stores that have Web sites.

2. Community Provider: Sites where individuals with particular interests, hobbies, common experiences,
or social networks can come together and “meet” online.eg. Social Medias (Facebook, Twitter, viber and
telegram etc).

3. Content Provider: these are Information and entertainment providers such as newspapers, sports sites,
and other online sources that offer customers up-to date news and special interest how-to guidance and tips
and/or information sales.eg.bbc.com, CBSSports.com, CNN.com, ESPN.com

4. Portal: offers users powerful search tools as well as an integrated package of content and services all in
one place: news, e-mail, chat, music downloads, video streaming, calendars, etc. Seeks to be a user’s home
base. Eg. Yahoo, AOL, MSN and Facebook

5. Transaction Broker: Processors of online sales transactions, such as stockbrokers and travel agents that
increase customers’ productivity by helping them get things done faster and more cheaply. Eg. E*Trade,
Expedia, Monster, Travelocity, Hotels.com and Orbitz.

6. Market Creator: Businesses that use Internet technology to create markets that bring buyers and sellers
together and display products, search for products, and establish a price for products.eg. EBay, Amazon and
Priceline.

7. Service Provider: Companies that make money by selling service to users online, rather than a product.
Eg. VisaNow.com, Carbonite and Rocket Lawyer.

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2.7. Major business-to-business (B2B) e-commerce business models

1. E-distributor: Companies that supply products and services directly to individual businesses. These are
Single-firm online version of retail and wholesale store; supply maintenance, repair, operation goods;
indirect inputs. Eg. Grainger.com, Partstore.com

2. E-procurement: e-procurement firms create and sell access to digital electronic markets. Firms created
software that helps large firms organize their procurement process by creating mini-digital markets for a
single firm. E.g. Ariba and Perfect Commerce.

3. Exchange: an independent digital electronic marketplace where suppliers and commercial purchasers can
conduct transactions. Exchanges are owned by independent, usually entrepreneurial start-up firms whose
business is making a market, and they generate revenue by charging a commission or fee based on the size
of the transactions conducted among trading parties.

4. Industry Consortia: Industry consortia are industry-owned vertical marketplaces that serve specific
industries, such as the automobile, aerospace, chemical, floral, or logging industries. In contrast, horizontal
marketplaces sell specific products and services to a wide range of companies.

2.8. Value and Revenue in E- commerce

As part of its e-business model, an organization describes the ways in which it creates value for customers
and partners. This description is in line with the marketing concept, which suggests that the social and
economic justification for an organizational existence is the satisfaction of customer wants and needs while
meeting organizational objectives. Business partners might include supply chain members such as suppliers,
wholesalers and retailers or firms with which the company joins forces to create new brands. Firms deliver
stakeholder value through e-business models by using digital products and processes. Whether online or
offline, the value proposition involves knowing what is important to the customer or partner and delivering
it better than other firms.

Value: It encompasses the customer’s perceptions of the product’s benefits, specifically its attributes, brand
name, and support services. Subtracted from benefits are the costs involved in acquiring the product, such as
monetary, time, energy, and psychic costs.

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 Like customers, partners evaluate value by determining whether the partnership provides more benefits
than costs. This concept is shown as follows:

Value= benefit-cost

Information technology usually but not always increase benefits and lowers costs to stakeholders. E-
marketing strategies capitalize on the internet’s properties to add many general benefits, thus increasing
stakeholder value. Conversely, they can decrease value when websites are complex, information is hard to
locate, and technical difficulties interrupt data access or shopping transactions.

2.9. Business process level in E-business models

These are the business processes levels to increase the firm’s effectiveness.

A. Customer relationship management (CRM): This involves retaining and growing business and
individual customers through strategies that ensure their satisfaction with the firm and its products. CRM
seeks to keep customers for the long term and to increase the number and frequency of their transactions
with the firm. In the context of e-business, CRM uses digital processes and integrates customer information
collected at every customer “touch point.” Customers interact with firms in person at retail stores or
company offices, by mail, via telephone, or over the internet. The results of the interactions at all these
touch points are integrated to build a complete picture of customer characteristics, behavior, and
preferences.

B. knowledge management (KM): Is a combination of a firm’s database contents, the technology used to
create the system, and the transformation of data into useful information and knowledge. KM systems create
a storehouse of reports, customer account information, product sales, and other valuable information
managers can use to make decisions.

C. Supply chain management (SCM): Involves coordination of the distribution channel to deliver products
more effectively to customers. For example, a user orders from certain web sites, FedEx’s computers
receive the instruction to pick up product from a warehouse and delivery it quickly to the customer.
Similarly, when consumers buy a product at the grocery store, the bar code scanner at the checkout tells the
store’s computer to reduce the inventory count by one and then automatically orders more cases of the
product from warehouses or suppliers if inventory in the back room is low.

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D. Community building: With community building, firms build websites to draw groups of special interest
users. In this model, firms invite users to chat and post e-mail on their websites with the purpose of
attracting potential customers to the site. Firms often gather e-mail lists of like-minded users from these
communities for future e-mail marketing campaigns. Through community building, marketers can create
social bonds that enhance customer relationships.

E. Affiliate programs: Occur when firms put a link to someone else’s retail website and earn a commission
on all purchases by referred customers. Amazon.com pioneered this e-business model. When viewed from
an Amazon affiliate’s perspective, it is operating as a selling agent for Amazon’s products.

F. Database marketing: Involves collecting, analyzing, and disseminating electronic information about
customers, prospects, and products to increase profits. It is one of the fastest growing strategies for e-
marketers. Database marketing systems can be a part of the firm’s overall knowledge management system.

G. Enterprise resource planning (ERP): Refers to a back-office system for order entry, purchasing,
invoicing, and inventory control. ERP systems allow organizations to optimize business processes while
lowering costs. ERP does not fall under the marketing function, but it is so important that it must be
included in this list.

H. Mass customization: Refers to the internet’s unique ability to customize marketing mixes electronically
and automatically to the individual level. Firms use this practice when they collect information from
customers and prospects, and use it to customize products and communication on an individual basis for a
large number of people.

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