Digital marketing first appeared as a term in the 1990s but, as mentioned above, it was a very different world then. was primarily static con- tent with very little interaction and no real communities. The first banner advertising started in 1993 and the first web crawler (called Webcrawler) was created in 1994 – this was the beginning of search engine optimization (SEO) as we know it. This may not seem a deep and distant past but when we consider that this was four years before Google launched, over 10 years before YouTube, and that social media was not even a dream at this point, it shows just how far we have come in a short time. Once Google started to grow at pace and Blogger was launched in 1999 the modern internet age began. Blackberry, a brand not connected with innovation any more, launched mobile e-mail and MySpace appeared. MySpace was the true beginning of social media as we define it today, but it was not as successful as it could have been from a user experience perspec- tive and ultimately that is what led to its downfall. Google’s introduction of Adwords was their real platform for growth and remains a key revenue stream for them to this day. Their innovation, simple interface and accurate algorithms continue to remain unchallenged (although Bing have been making some good steps forward in recent years). Cookies have been a key development and also a bone of contention over recent years with new regu- lation and ongoing privacy debates. Whilst cookies have played a role in the ongoing privacy concerns of digital technology, they have also been a key development in delivering relevant content and therefore personalizing user experience.was a term coined in 1999 by Darcy DiNucci but not really popularized until Tim O’Reilly in 2004.
With there was no over- haul of technology as the name might suggest, but more a shift in the way that websites are created. This allowed the web to become a social place, it was an enabler for online communities and so Facebook, Twitter, Instagram, Pinterest, Skype and others were born. One trend that has certainly appeared in the last 10 years is an increase in buzzwords. There seems to be a new word or phrase for everything. From ‘big data’ to ‘dark social’, new terms arrive all the time. At nearly every marketing conference I attend these days there is one speaker who is trying to socialize a new phrase they have coined. Whilst these buzzwords can inspire us and open our eyes to new ways of thinking they rarely change the underpinning strategic planning of an effective marketing-led organization – and so below we will review some of the established models, with one eye on the digital perspective.
The 4 Ps of marketing
● Product ● Price ● Place ● Promotion
There have been quite a few variations on the Ps of marketing, including the 4 Ps and 7 Ps, but for this book we focus on the core 4 Ps of marketing – often referred to as the marketing mix. They are product, price, place and promotion. So let’s look at what each of these means and how they apply to digital.
This may be a physical product or it may be your service proposition. The key here is that something is developed that people actually want to buy. Some businesses begin with a product and then try to force that on an audience. If there is no demand for your product and no one is interested then you will not be able to create demand.
Pricing is the second P and one that can be more of a science than an art. Understanding price elasticity and competitive positioning are angles to consider but we won’t go into the economics of this here – the key factor is whether you are asking for a price that people are willing to pay. The ‘willing to pay’ element of that does of course have many factors behind it such as your brand value, online reviews, product quality and others but there are also numerous tactics that can be employed here.
Location, location, location. Building your shop in the wrong place decreases footfall and ultimately means fewer sales. Having your shop in the right place but not having the stock in the shop is even worse. Having your pro- duct in the shop in the right location but then not displaying it correctly – so people cannot find it – is also a factor of ‘place’.
Promotion is what most people think of when they hear the word market- ing. Your TV campaign, your press advertising, your display banners. This is often the first time that people will have any relationship with your brand and sometimes, certainly in below-the-line marketing, this can be a personal relationship. As we all know, first impressions are very important so getting your promotion right is vital.
What does this mean for digital marketing?
The key considerations here from a digital perspective are around whether your product can/will sell online. What channels are open to you for your product or proposition? Are there opportunities to make it flexible to be more appropriate for the online or mobile audiences? Does it provide real value for the consumer and is it differentiated from your competitor offer- ings? Is it being updated, serviced, maintained effectively to keep it strong? Are there features of it that can be added or should be excluded for the digital customer and is it fair to do this? An example might be a music album. Three people buy an album. John buys a CD, Maria downloads the album and Robin streams it. All are different consumer behaviours and each person will use your music in a different way. John may proudly display the album on a shelf as he is a loyal fan. Maria may delete some other music from her phone to free up space for the new album. Robin may put the tracks into separate playlists in order to cultivate his collection according to genre or mood. Understanding the different motivations and usage habits for these products is vital to getting your marketing right in the digital age.
What does this mean for digital marketing?
Discounts and offers are certainly not new to digital marketing but the con- cept of fast price comparison and the introduction of cashback and voucher sites have certainly changed consumer behaviours. Businesses can take advantage of this through affiliate marketing programmes. Affiliate market- ing is where you promote your products through a third-party website in exchange for paying a commission or fee to the website when an action is taken.
This is very common in the comparison, voucher and cashback space as it is very easy to directly track sales and therefore attribute value to the relationship. Commissions are often paid on sales but can be paid on click-throughs or other actions.
marketing has existed for a long time but has a poor reputation. This is due to a lack of clarity around measurement and genuine sales. The industry has improved greatly over the last 10 years, however there is still a need to maintain this channel and it can be resource intensive as a result. One example of this is the need to review sales reports and track them against customer acquisitions to ensure that the customers for whom you are paying for the affiliate website have joined your business. It is good practice also to ensure that your agreement with the affiliate website states that the customer must stay with you for a period of time, where this is relevant to your industry, before you pay the commission. This reduces the risk of fraudulent sales numbers. Affiliate marketing customers will often be deal hunters, due to the nature of how they have been acquired, and so it is important to understand that they may not be the most loyal customers you have and will likely be more price sensitive than your average customer. You may need a specific CRM strategy for these customers to encourage them to stay.
Threat of substitute products or services This first force is the existence of another similar product in another industry. An example for the digital age might be landline phones versus mobile phones or, more specifically, mobile phones versus smartphones. Were a new smart- phone to be launched that charges via a pod in the home and that has specific benefits for home use, it may attract customers who have always been land- line users and so this is a substitute product threat to landline providers. There are a number of factors to consider when determining if a product is a substitute threat according to this definition.
- Those factors are: ● Switching cost: if the switching cost is low then there is a high threat. ● Pricing: if the other product or service is relatively low in price then again the threat is high. ● Product quality: if the potential substitute product or service is of superior quality then the threat is high. ● Product performance: if the other product is superior in performance then the threat is again high. What does this mean for digital marketing? This threat is ever present in the digital age as companies continue to innovate. Tablets have threatened the laptop market and phablets have in turn threatened the tablet market.
Digital Marketing Strategy
Threat of new entrants This threat is fairly obvious. A new entrant to a market can be direct com- petition and therefore threaten the success of an established business. There are many examples of this from the digital age, not least Google, Amazon, eBay and Twitter. Google entered the search market and quickly became the leader above many established players due to the accuracy and speed of the results. Amazon grew quickly, defeating more established players through excellent customer focus and introducing innovations in personalization that gave them a distinct advantage. Although eBay was not the first auction site it was very simple and easy to use. Finally, Twitter entered the social media space with a new micro-blogging approach that created a very simple method of sharing new thoughts and insights.
Barriers to entry: for example patents, regulation. High entry barriers are attractive to established businesses as they stop new businesses entering easily. Also low exit barriers help businesses to leave the industry, which is also attractive. In other words, it is easy for your established competition to leave but difficult for new competition to enter.
- Economies of scale: new entrants are highly likely to be smaller than established businesses and so may not be able to profitably compete on pricing. ● Brand equity: established businesses have brand equity – a level of trust that comes with being a recognized brand. Although it is true that new entrants do not have this, it can be quickly established with significant above-the-line marketing spend. ● Industry profitability: if the industry is generally highly profitable then it is likely to attract a large volume of new entrants and vice versa. ● Government policy: there might be government policy in place that limits the ease with which new entrants can join specific industries. There are many other factors such as location, expected retaliation, tech- nology and distribution and these should all be thoroughly researched and understood in order for strategy to be robust.
Bargaining power of suppliers Suppliers of products or services to companies are another factor in the competitive nature of an industry. The bargaining power of suppliers directly affects the ability for companies to make a profit and therefore compete. Strong suppliers are able to control pricing and product quality, which lessens a company’s ability to make profit. Weak suppliers on the other hand can be controlled or influenced more by the buyer and so the buyer can retain competitive advantage. Some of the factors that can lead to high bargaining power for suppliers and therefore increased competition are:
- Few suppliers: if there are fewer suppliers than buyers then suppliers retain more bargaining opportunity. ● Buyer switching costs: if changing supplier is expensive then the advantage again lies with the buyer. ● Forward integration: if the supplier is able to produce the product or service themselves then again they are in a position of strength.
Bargaining power of buyers The bargaining power of buyers is the final force and is simply the ability of consumers to put pressure on companies to lower prices, change their products or improve customer service. Businesses can take a number of actions to reduce buyer power: for example, engagement strategies and loyalty programmes. Some of the factors that influence buyer bargaining power are:
- Buyer concentration: if there are few consumers and many companies then the buyer effectively has their choice of company. ● Switching costs: as with most of the other forces, switching costs are a factor. If it is easy for a buyer to switch then they retain the bargaining power. ● Backward integration: if buyers can produce the products themselves then they again retain the power.
Customer lifetime value Customer lifetime value (CLTV or sometimes LTV) is quite simply the value or profit attributed to a customer for their entire customer lifecycle. This can be relatively simple to calculate in some businesses and incredibly complex in others. Either way, one thing is true: there are many factors that influence it and many levers that can be pulled to alter it. Cost per acquisition (CPA) has long been used as a key metric in marketing and especially so in digital marketing due to tracking technology and the transparency of data. However, this has certainly been criticized as too simplistic a view. For ex- ample, if you know that a customer spends $100 buying a product from you that has a margin of $50 and it costs you $40 to acquire that customer then you can be happy that you have acquired them profitably. If that customer then leaves and never comes back then we have a simple model. If, however, the average customer comes back another 3.2 times and phones your call centre twice per purchase then you have additional income and expenditure for this customer that is not taken into consideration. The CPA model continues to be used in channels such as affiliate market- ing as it enables businesses to remove the risk of cost-per-click payments where conversions are not guaranteed. It would be far too complicated in most instances to ask affiliates to abide by your CLTV model as so many of the variables would be out of their control. CLTV can be used to determine which customers are the most profitable and to define segments based on this, which can then be targeted appropriately. We will look at segmentation and targeting below. Calculating CLTV There are several different ways to calculate CLTV but for the purpose of this book we focus on the simple approach. I would recommend understand- ing the different models in more detail to fully appreciate the complexities of CLTV and ensure you have a model or combination of models that is appropriate for your business. In order to calculate your CLTV using the simple method you need to have an understanding of the following two variables: 1) number of periods that a customer remains with you (customer lifetime); 2) average margin per customer in a period. In order to help understand these variables there are some common factors that need to be understood and these are therefore also the levers that can be pulled to improve your CLTV:
● Length of customer lifetime: – CRM programmes; – member-get-member schemes; – loyalty schemes; – service levels.
● Average margin per customer: – repeat purchases; – cross-selling and up-selling; – returns and refunds; – pricing and discounts; – operating costs; – conversion rates; – segmentation. The formula in simple terms is therefore as follows: CLTV = Lifetime × Avg Margin To give an example of this we can look at a retailer. This particular retailer manages to attract each customer to its store 3.9 times per week on average and those customers spend $21.69 on average during each visit. We therefore know that the customers are spending $21.69 × 3.9 = $84.59 per week. We want to understand our CLTV in terms of years so we can simply multiply by 52 to get an annual customer value of $4,399. We know that each customer has a profit margin of 10 per cent so we know that our profit per customer is actually $439. On average we know that customers stay with us for 15 years and so our CLTV is $439 × 15 = $6,585. That gives us a target figure to acquire customers. We know that we can spend up to $6,585 to acquire a customer over their lifetime.
Later in the book (Chapter 11) we will look at personalization, which is the ultimate goal of tailored communications and is far more possible than it was just 10 years ago. It is, however, still vitally important to understand segmentation as well. Consumers will always have similarities in their behaviours, demographics, buying patterns and other factors that enable you to group them into segments. This enables smarter, more appropriate targeting and messaging within your marketing communications. These groups will have different uses for products and varying perspectives on services. Their lifestyles will be inherently different as will be their needs, aspirations, opinions and much more. Five common forms of segmentation – geographic, demographic, beha- vioural, benefit and psychographic – are listed below, including the advantages and disadvantages of each alongside how businesses use these methods. Geographic Perhaps the simplest of all segmentation strategies, this is quite simply the location of the individuals being analysed. Businesses that have regional retail outlets will have some focus on this but it can also prove a useful tool to understand where to target your marketing. That could be outdoor or press advertising but from a digital perspective it may inform your geo-targeting or data selection for your strategy. The disadvantage is quite simply that this is very basic and tells you next to nothing about the individuals themselves. Demographic A very common form of segmentation, demographics includes factors such as age, race, gender, education, employment, income and economic status. It is therefore an area of segmentation that gives a reflection of the character- istics of a group of people.
segmentation is used by governments and a very broad range of organizations as it can answer questions such as ‘Who can afford to buy my product?’ and ‘Will this group of consumers be the right age range for my product?’ The disadvantage of this type of segmentation is that there is a large assumption that people with similar characteristics will behave similarly, which is far from the truth. If someone is a French, 45-year-old factory worker who has had a poor education will they behave the same way as all their colleagues in the factory who are of roughly the same age? No. They will have different passions, hobbies and much more. To understand this in more detail we need to understand behavioural segmentation.
Behavioural segmentation is becoming increasingly possible. It has histori- cally been difficult to understand consumer behaviour but in the big data world we are able to understand consumers a lot more, especially those in the digital space. This method groups consumers by buying patterns and usage behaviours. This is an excellent way of talking to individuals in a way that is highly likely to resonate with them. It is useful when talking about specific products or use occasions. Behavioural does not of course give such a black-and-white view as demographic segmentation and therefore is not an exact science. For example, behaviour can change with your lifestyle. Divorce, children and retirement are key examples of when life changes could result in behaviour changes. It is therefore vital to be working with data that is up to date. With behav- ioural segmentation you have the advantage of being highly relevant to your audience whilst also running the risk of missing the mark completely. Benefit Something that is vital to understand in marketing, and in fact business in general, is that perception is key. How you are perceived will impact your career – we all know the clichés about first impressions. Well, this form of segmentation is based around consumer perceived benefit. Many businesses use this to understand the consumer base and to inform product develop- ment and marketing opportunities. A good example of this is the fashion industry. If you imagine retailers of coats and jackets: some consumers will look for warm winter coats for their ski holidays, some for all-weather jackets for their outdoor lifestyle, some for lightweight jackets they can wear whilst exercising, some for smart coats for work and some purely for fashion. The perceived benefit of your coat will appeal differently to each different segment, so perhaps you need to change the perception of your coat or bring out a new range to appeal to a new segment. Psychographic Psychographic segmentation sounds exceptionally complex but it is simply an understanding of a consumer’s lifestyle. This includes studying activities, opinions, beliefs and interests. Understanding these elements can, similarly to behavioural segmentation, result in messaging and products that truly resonate with the individuals. For example, individuals may be environmen- talists, Buddhists, body builders or movie lovers (or any combination of these). Creating segments on this basis creates a more ‘real’ view of the individuals than geographic or demographic segmentation ever could.