companies can identify the opportunity for influencing and delivering sales online.
They can also understand the drivers to usage and barriers to increased usage and so
encourage adoption of online channels by emphasising the benefits in their communi-
cations and explaining why some of the barriers may not be valid. For example,
marketing communications can be used to explain the value proposition (see Chapter 4)
and reduce fears of complexity and security.
Surveys reported in the social factors section of the next chapter show that the fol-
lowing are important factors in governing adoption of the Internet:
1 Cost of access.
2 Value proposition.
3 Perception of ease of use.
4 Perception of security.
Assessing demand for e-commerce services
To set realistic strategic objectives such as leads or sales levels for online revenue contri-
butions for digital channels (as described in Chapter 4), e-marketing managers need to
assess the level of customer Internet access and activity for different markets and the
online market share that a particular organisation has achieved. For each customer seg-
ment and for each digital channel such as Internet, interactive digital TV or mobile we
need to work to assess the volume and share of customers who:
1 Have access to the digital channel;
2 Are influenced by using the digital channel but purchase using another channel as
part of the multi-channel buyer behaviour;
3 Purchase using the digital channel.
This can be simplified to the ratios: ‘Access : Choose : Buy’. This information can be
gathered as secondary research by the researcher by accessing published research for dif-
ferent sectors. Primary research can be used to better understand these characteristics in
the target market.
As part of situation analysis and objective setting, experienced online marketers build con-
version or waterfall models of the efficiency of their web marketing. Using this approach,
the total online demand for a service in a particular market can be estimated and then
the success of the company in achieving a share of this market determined. Conversion
marketing tactics can then be create as many potential site visitors into actual visitors and
then convert these into leads, customers and repeat visitors. A widely quoted conceptual
measurement framework based on the industrial marketing concepts of purchasing deci-
sion processes and hierarchy of effects models, which can be applied for conversion
marketing, was proposed by Berthon et al. (1998). The model assesses efficiency of offline
and online communications in drawing the prospect through different stages of the
buying decision. The main measures defined in the model are the following ratios:
Awareness efficiency: target web-users/all web-users.
Locatability or attractability efficiency: number of individual visits/number of seekers.
Contact efficiency: number of active visitors/number of visits.
Conversion efficiency: number of purchases/number of active visits.
Retention efficiency: number of repurchases/number of purchases.
CHAPTER 2 · THE INTERNET MICRO-ENVIRONMENT
determination of the
potential usage and
achieved from online
customers of an
Qualitative analysis of
perceptions of online
channels is also
maximise conversion of
potential customers to
This model is instructive for improving Internet marketing within an organisation
since these different types of conversion efficiency are key to understanding how effec-
tive online and offline marketing communications are in achieving marketing
outcomes. Figure 2.13 is an adaptation of the original model of Berthon et al. (1998)
from Chaffey (2001), which highlights the key conversion metrics of attraction effi-
ciency and conversion efficiency. It shows key traffic or audience measures (Q
and key conversion efficiency ratios. The model has been revised to reflect current
nomenclature. Also, the original work was focused on conversion to purchase – the
model is more widely applicable since it applies to any marketing outcome achieved on
site, whether this be a new lead from a potential customer, an e-mail registration from a
competition entrant or a sale. Additionally, it has been modified to distinguish between
first-time visitors (Q
) and repeat visitors (Q
). E-marketers need to know how conver-
sion effectiveness differs between first-time users and repeat users. An additional
important aspect of online buyer behaviour not shown in the figure is the site path or
clickstream for different audience types or segments.
Figure 2.14 shows an example of how measuring conversion rates can be used to
improve web marketing. Numbers are across a fixed time period of one month. If for a
particular market there is a potential audience (market) of 250000 (Q
), then if online
and offline promotion techniques (Chapter 8) achieve 100000 visitors to the site (Q
marketers have achieved an impressive conversion rate of 50%. The online marketers are
then looking to convert these visitors to action. Before this is achieved, the visitors must
be engaged. Data from log files show that many visitors leave when they first visit the
home page of a site if they do not find the site acceptable or they are not happy with the
experience. The number of visitors engaged (Q
) is 50000, which is half of all visitors.
For the visitors that are engaged, the next step is to convert them to action. This is
achieved for 500 visitors (Q
), giving a conversion rate (Q
) of 1%. If what is calcu-
lated (as is most common) is (Q
), this gives a conversion rate of 0.5%.
The sequence of clicks
made by a visitor to the
site to make a
Figure 2.13 A model of the Internet marketing conversion process
In this example, the organisation seems highly efficient in attracting visitors to the site,
but less efficient at converting them to action – future marketing improvements could be
directed at improving this. Some organisations will measure different conversion rates for
different segments and for different goals such as generating new leads, responding to a
sales promotion or signing up for a seminar. Analysis by Agrawal et al. (2001) suggests that
the strongest sites may have conversion rates from visit to sale for e-commerce sites as
high as 12%, as against 2.5% for average sites and 0.4% for poorly performing ones.
Clearly, measurement of the conversion rate and taking actions to improve this rate are
key e-marketing activities. The marketing communications techniques used to increase
these conversion rates are considered further in Chapters 7 and 8.
Evaluating demand levels
We will now review each of the following three factors that affect demand for e-com-
merce services in a little more detail, starting with consumers in the B2C marketplace.
1 Internet access
E-commerce provides a global marketplace, and this means we must review access and
usage of the Internet channel at many different geographic levels: worldwide and
between and within continents and countries.
On a worldwide basis, a relatively small proportion of the population has
access to the Internet. The compilation of statistics prepared by ClickZ
) suggests that despite rapid growth from the mid-
1990s to about one billion users by 2005–6 this only represents less than 20% of the
global population although there are initiatives such as the $100 PC that are intended to
If we look at individual countries, the proportion of consumers and businesses access-
ing the Internet is startling. If we take the United Kingdom, National Statistics (2005)
showed that by 2005 over 55% of households had access to the Internet. To look at the
scale of variation between different countries and continents complete Activity 2.4.
When you complete this activity, you will see that often growth will plateau in most
countries since there is a significant majority of the population who do not wish to or
CHAPTER 2 · THE INTERNET MICRO-ENVIRONMENT
Figure 2.14 An example of a conversion model
Target audience (Q
= 200000 surfers
= 100000 site visitors
Attraction efficiency (Q
Site visitors (Q
= 50000 active visitors
Engagement efficiency (Q
) = 50%
Active visitors (Q
= 500 take action
Conversion efficiency (Q
) = 1%
cannot afford to access the Internet. For example, Figure 2.15 shows that Internet access
is now increasing less rapidly in Europe. As we will see at the start of the next chapter,
there is a significant group that have no perceived need for the Internet.
Figure 2.15 Global variation in number of PCs per hundred population and percentage
Internet access in 2004
Source: ITU (www
Internet access %
PCs per 100 population
Global variation in Internet provision
Visit the web site of the International Telecommunications Union (ITU)
). Choose Internet indicators. This
presents data on Internet and PC penetration in over 200 countries. A summary of
the indicators for different continents is presented in Figure 2.15.
1 Find your country and compare the number of PCs per hundred population and percentage
Internet access compared with other countries in your region and on a global basis.
2 Now attempt to explain reasons for the disparity between your country and other countries.
3 Can you see your country equalling or exceeding the USA in terms of these indicators?
Note that PCs are recorded as PCs per hundred population. This figure may be skewed in
developed countries by people with more than one PC (e.g. at home and at work).
An additional factor relating to consumer Internet usage is the type of Internet access.
Some countries now have significant levels of high-speed, always-on, broadband access.
For example, in the UK, over a quarter of households have broadband access (which
exceeds dial-up access) and in South Korea over three-quarters of households have it.
Broadband access permits more sophisticated sites and streaming media such as music and
video. Usage of the Internet also tends to increase because of the ‘always-on’ connection.
Other digital access platforms
Although we focus on Internet usage in this book, technology offerings for consumers
are in constant flux, so e-marketers need to assess how well new technologies fulfil their
objectives. Already, interactive digital TV and mobile Internet access are used by more
people than the web (Figure 2.16). These technologies are studied in more detail in
2 Consumers influenced by using the online channel
Next we must look at the extent to which consumers are influenced by online media – a
key aspect of buyer behaviour. We saw at the start of Chapter 1 that many Internet users
now research products online, but they may buy through offline channels such as
phone or in store. Research summarised in the AOL-sponsored BrandNewWorld (2004)
study showed that:
1 The Internet is a vital part of the research process, with 73% of Internet users agreeing
that they now spend longer researching products. The purchase process is generally
now more considered and is more convoluted.
CHAPTER 2 · THE INTERNET MICRO-ENVIRONMENT
Figure 2.16 UK rate of adoption of different digital media
Source: MORI Technology Tracker, September 2006. See www
Use a mobile phone
Use Internet anywhere
Use digital TV
MORI Technology Tracker January 1997 – September 2005
Base: circa 4,000 interviews per month
* Jan 2001 question wording changes
2 The Internet is used at every stage of the research process from the initial scan to the
more detailed comparison and final check before purchase.
3 Consumers are more informed from a multiplicity of sources; price is not exclusively
the primary driver.
4 Online information and experience (and modified brand opinions) also translate into
There is also a wide variation in influence according to type of product, so it is impor-
tant to assess the role of the web in supporting buying decisions for a particular market.
Understanding the potential reach of a web site and its role in influencing purchase is
clearly important in setting e-marketing budgets. A different perspective on this is indi-
cated by Figure 2.17 which shows the proportion of people who purchase offline after
Calculating demand through search term volumes
Search engines are the primary method of finding information about a company and its
products. Research compiled by Searchenginewatch (www
shows that over 90% of web users state that they use search engines to find information
online. Savvy e-marketers use tools provided by search engine service providers such as
), Yahoo! (www
) and Miva (www
) to eval-
uate the demand for their products or services based on the volume of different search
terms typed in by search engine users (see Chaffey (2006) for a listing of these key-
phrase analysis tools). Hitwise also provides this type of information – Figure 2.18 shows
Figure 2.17 Percentage (by category) who bought offline after researching online
Source: BrandNewWorld (2004)
Financial products or services
Health and beauty products
Small home appliances
Large home appliances
% (by category) who bought offline after research online
that these types of tools provide an incredible opportunity to understand customer
search behaviour together with assessing a company’s success in reaching these cus-
tomers searching online. Through evaluating the volume of phrases used to search for
products in a given market it is possible to calculate the total potential opportunity and
the current share of search terms for a company. ‘Share of search’ can be determined
from web analytics reports from the company site which indicate the precise key phrases
used by visitors to actually reach a site from different search engines. We explore the
techniques of search engine marketing in more detail in Chapter 8.
3 Purchased online
The proportion of Internet users who will purchase different types of product online will
vary dramatically according to product type, as we saw at the start of Chapter 1. The
propensity to purchase online is dependent on different variables over which the mar-
keter has relatively little control. However, factors which affect the propensity to
purchase can be estimated for different types of products. De Kare-Silver (2000) devel-
oped a framework known as The Electronic Shopping Test in which he suggests that the
CHAPTER 2 · THE INTERNET MICRO-ENVIRONMENT
Figure 2.18 The most popular search terms typed into a search engine that resulted in
traffic to www
, four weeks ending 18.03.06
Source: Hitwise (www.hitwise.co.uk)
british airways flights
flights to malta
flights to new york
british airways executive club
Share of search
The audience share of
achieved by a particular
audience in a particular
criteria for purchase include product characteristics, familiarity and confidence and con-
sumer attributes. Typical results from the evaluation are: groceries (27/50), mortgages
(15/50), travel (31/50) and books (38/50). De Kare-Silver states that any product scoring
over 20 has good potential, since the score for consumer attributes is likely to increase
through time. Given this, he suggests companies will regularly need to review the score
for their products. The effectiveness of this test is now demonstrated by data for online
purchases in different product categories (Figure 2.19, page 70).
Understanding of customer buyer behaviour is important to designing a site and
other communications. Variations in behaviour are discussed later in this chapter.
Understanding the nature of customers is fundamental to marketing practice and it is
equally important online. We will see in Chapter 4 on strategy development that tradi-
tional segmentation approaches can be used successfully to understand the range of
audiences. A further technique that can be used as part of situation analysis is customer
scenario and persona analysis which is an online technique for user- or customer-centric
The ES Test was developed by de Kare-Silver (2000) to assess the extent to which consumers are likely
to purchase a retail product using the Internet. De Kare-Silver suggests factors that should be
considered in the ES Test:
1 Product characteristics. Does the product need to be physically tried, or touched, before it is bought?
2 Familiarity and confidence. Considers the degree to which the consumer recognises and trusts the
product and brand.
3 Consumer attributes. These shape the buyer’s behaviour – is he or she amenable to online purchases
(i.e. in terms of access to the technology and skills available) and does he or she no longer wish to
shop for a product in a traditional retail environment? For example, a student familiar with technology
may buy a CD online because they are comfortable with the technology. An elderly person looking for
a classical CD would probably not have access to the technology and might prefer to purchase the
item in person.
In his book, de Kare-Silver describes a method for ranking products. Product characteristics and
familiarity and confidence are marked out of 10, and consumer attributes are marked out of 30. Using
this method, he scores products as shown in Table 2.4.
De Kare-Silver states that any product scoring over 20 has good potential, since the score for
consumer attributes is likely to increase through time. Given this, he suggests companies will regularly
need to review the score for their products.
Mini Case Study 2.1
The Electronic Shopping or ES Test
Table 2.4 Product scores in de Kare-Silver’s (2000) Electronic Shopping (ES) potential test
web site design (see Chapter 7 for a discussion of this approach). This is an extension of
the traditional marketing approach of psychographic segmentation. See the box
‘Psychographic segmentation for transactional e-commerce’ for an example of this type
of segmentation applied to online purchase behaviour. Which profile do you fit?
Within each country, adoption of the Internet also varies significantly according to indi-
vidual demographic characteristics such as sex, age and social class or income. This
analysis is important as part of the segmentation of different groups within a target
CHAPTER 2 · THE INTERNET MICRO-ENVIRONMENT
A breakdown of
customers according to
Psychographic segmentation for transactional e-commerce
Market research firm BMRB (2004) has developed this segmentation which is used to
represent different attitudes to purchasing online.
1 Realistic Enthusiasts (14% 2004, 15% 1999) – characterised by an enthusiastic approach
toward e-commerce but they typically like to see the product in real life before making a
purchase and they often consider that finding the product to purchase is a difficult process.
Examples of this include a willingness to use the Internet for purchases in excess of £500;
they are prepared to purchase products from an unknown company and consider the
convenience of Internet shopping to be more important than price.
2 Confident Brand Shoppers(18% 2004, 16% 1999) – members of this group are happy to
use the Internet for the next time they want to make a purchase in excess of £500, with this
confidence stemming from the importance they lay on purchasing well-known brands and
the necessity to shop around.
3 Carefree Spenders (19% 2004, 15% 1999) – these consumers are prepared to purchase
from unknown companies and do not consider that purchases should be restricted to
well-known brands. Furthermore, they are willing to make the purchase without seeing the
4 Cautious Shoppers (14% 2004, 20% 1999) – these shoppers are not likely to purchase
goods through an online auction, have concerns over the quality of products they purchase
and would like to see the product prior to making a purchase.
5 Bargain Hunters (21% 2004, 16% 1999) – this group would buy from an unknown company
or any web site as long as it was the cheapest and is driven not by the convenience of the
medium but by price.
6 Unfulfilled (14% 2004, 17% 1999) – this group finds it too difficult to find the products they
wish to purchase on the Internet, they would not buy from any web site or through an
auction and they think it takes too long for products purchased online to be delivered.
Variations in attributes
of the populations such
as age, sex and social
Figure 2.19 Summary of demographic characteristics of Internet users
Source: (September 2003) MORI Technology Tracker. See www
Base: All GB public aged 15+ who use the Internet (2,249)
market. Since these factors will vary throughout each country there will also be regional
differences. Access is usually much higher in capital cities.
From Activity 2.5 it can be seen that the stereotype of the typical Internet user as
male, around 30 years of age and with high disposable income no longer holds true.
Many females and more senior ‘silver surfers’ are also active.
To fully understand online customer access we also need to consider the user’s access
location, access device and ‘webographics’, all of which are significant for segmentation
and constraints on site design. ‘Webographics’ is a term coined by Grossnickle and Raskin
(2001). According to these authors webographics includes:
Adoption of the Internet and other new media according
to demographic characteristics
To highlight variation in Internet access according to individual consumer characteristics. See
for up-to-date data on demographics in the UK.
1 Refer to Figure 2.19 opposite, which is typical for most countries with Internet use at more
than 50% of the population. What differences are there in the demographics compared to
those for the national population?
2 Now refer to Figure 2.20. Summarise the variation in different access platforms for digital
media across different social groups. Attempt to explain this variation and suggest its
implications for marketers.
Figure 2.20 Summary of variation in access to the digital media according to social
Source: (September 2005) MORI Technology Tracker. See www
use Internet anywhere
use a mobile phone
use digital TV
Base: All GB public aged 15+ (3,952)
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