Web business Models helpful for digital marketing process

Web business models helpful to understand digital marketing process

1. WEB BUSINESS MODELS

2. Web Business Models
Valuing Contacts
Web Benefits to Firms

3. The Value of Customer
Contact
Web-based business models
fundamentally change the way
businesses interact with customers
Shift from occasional transactionto
continuous analysisof customer
behavior
Shift from value distributionto value
creation

4. Evaluating Customer Contact
Online customer contact comes in many
forms
Website visits
Banner advertising
Email promotions
Cell phone price checks

5. Web Chains
A Web chain is a click sequence
Can be as short as a single click
Can be as long as all possible choices on a
web site
•Decision points = event nodes
•Ending point = result node
Common Web chain starting points
»Company homepage
»Search engine or portal
»Banner ads

6. R1: Doesn’t Notice
Ad = $0 benefit
Offline Induced
Buyer (OIB)
R3: Offline Purchase =
(Ad brand + Web Site
brand + Offline profit)
No Notice
Rate (NNR)
E1: Views Page
with Paid Link
(1-CTR-NNR)
Click-through Rate (CTR)
R2: Notices Ad but
doesn’t click = Ad
brand impact
E2: Clicks Through
to Company Web
Site = Prospects
BEGIN
(1-PCR)
Prospect Conversion Rate (PCR)
E3: Views Web Site
but Doesn’t Buy
E4: Visits Web Site and Buys
New
Customer
(1-RR)
(1-OIB)
R4: No Immediate
Purchase = (Ad brand +
Web Site brand impact)
Repeat
Buyer (RR) R5: New Customer
= (Ad brand +
Web Site brand +
Online profit +
Future lifetime
value)
E5: Loyal Customer
Offline Buy Rate (OBR) Online Only (1-OBR)
R7: Only buy online
= (Ad brand + Web
Site brand + Online
profit)
R6: Would have bought
offline anyway = (Ad brand +
Web Site brand + Online
profit –Offline profit)

7. Evaluating Web Chain
Web Chain Analysis calculates the
effectiveness of online strategies
Expected value of a contact: the unified contact
value
Expected value of a prospect: the unified visit
value
Expected value of a new customer
Expected value of a repeat buyer

8. Evaluating Web ChainsBehavior Rates Impact Values
Variable LevelVariable Level
Click-through rate 2.7% Ad-brand impact $0.00
No-notice rate 70% Web site brand
impact
$.0.30
Prospect conversion
rate
15% Offline profit $15.00
Repeat buying rate 90% Online profit $23.00
Offline-induced buy
rate
0.05 New customer LTV $125.00
Offline buy rate 0.30

9. Evaluating Web Chain
R1 NNR
R2 1-CTR-NNR
R3 CTR*(1-PCR)*OIB
R4 CTR*(1-PCR)*(1-OIB)
R5 CTR*PCR*(1-RR)
R6 CTR*PCR*RR*OBR
R7 CTR*PCR*RR*(1-OBR)

10. Web Chain Evaluator

11. Web Chain Benefits and Probabilities
Five Main Benefits Occur in the Chain
Online contribution: the incremental profit from
an online sale
Offline contribution: incremental profit from the
sale of products through the standard channel
Ad-brand impact: value to a visitor, who sees
the ad but doesn’t click through
Web site brand impact: value of a visit to the
Web site that results in benefits, but not a sale
Lifetime customer value: future value of profits
from a new customer

12. From Web Chains to Closed Loops
There’s a strong connection between Web chains
and closed-loop marketing
A Web chain is closed loop if:
The chain extends from the marketing offer to the
desired marketing response
Each step is trackable
The Internet can be used to close the loop on
traditional media advertising if unique identifiers
are included with the ad:
Dell newspaper ads contain a unique code

13. Closed Loop Marketing
Marketing
Reaction
Customer
Database
Creation
Customer
Action
Resource
Allocation
Customer
Value
Calculation
Customer
Database
Segmentation

14. The Impact of Closed Loop Marketing
Marketers want two results from user responses
They want consumers to make a choice that leads to
•information
•improved customer satisfaction
•a transaction
Marketers want to learn about visitors to their site
On the Internet
Nobody Knows
You’re A Dog

15. Customer Lifetime Value
The ability to track, store and analyze
individual behavior online allows firms
to calculate the present value of the
future cash flow attributed to the
relationship with any one customer
Not every customer is created equal;
high support costs can drive some
customer relationship below zero value

16. Customer Lifetime Value
Individual level profitability0
(1)1
1
, with
Customer j profit in period t,
Customer j retention rate in period j, 01,
interest rate to discount future profits.
jt
t
T
t
j
ikjk
t
jt
jt jt
LTV r
rr
i




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
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
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 
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

17. Example of Lifetime Value
Profit constant at $275 per year, Retention
rate constant at 90%.Discount rate constant
at 10%, 5 year horizon.2 3 4 5
5
275
(1.10)1
1
275275275275275
(1.1)(1.1)(1.1)(1.1)(1.1)
275.90
275*.9*(.9*.9)*(.9*.9*.9)*(.9*.9*.9*.9)*(.9*.9*.9*.9*.9)
275.00225.00184.09150.62123.23100.83$783.77
t
t
kjk
t
LTV

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

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

18. Customer Lifetime Value

19. Web Benefits to Firms
Business models can be based on:
Improvement Processes
Efficiency and Effectiveness
Brand Enhancement
Category Building
Quality Improvement
Directly on generating revenue

20. Build brand (Disney)
Build category (Intel, BP
Solar)
Enhance quality (NPR)
Reduce costs (CISCO, UPS)
Free trial (Encyclopedia
Britannica)
Improvement-Based Biz
Models
Enhancement Efficiency
•Supply chain coordination
(Dell)
•Support dealers (GM)
•Support suppliers (GE)
•Collect information
(DoubleClick)
Effectiveness

21. Revenue Benefits
Online capabilities create new revenue
opportunities
Incremental benefits
Advertising last-minute tee times for a
reduced price (lastminutegolfer.com)
Entirely new streams of revenue
Selling music by the song at iTunes
Enhanced products drive revenue
At Science, online content helps drive the
magazine’s print sales

22. Sponsorship
Alliances
Banner advertising
Prospect fees
Sales commissions
Product sales
Pay-per-use
Subscriptions
Bundle sales
Revenue-Based Biz Models
Use the Net to Make Money
Provider Pays Customer Pays

23. Online Revenue Opportunities
Revenue Sources Examples
Channel Pays
Permision sponsorship Salon.com
Online advertising Facebook
Customer leads Google AdSense
Revenue sharing Amazon Associates
Purchaser Pays
Product sales iTunes
Subscriptiions Rhapsody
Versioning San Jose Mercury News
Bundled sales Science

24. Revenue Models
Factors in selecting payment structure:
Attitude toward risk
Ability to monitor performance
Current market emphasis
Negotiating power

25. Selecting a Payment Structure
Sponsorship
Fixed Payment
Banner Ads
Impressions
Prospect Fees
Click through
Commissions
Purchase
Increasingly Performance Based and Higher Rise for Web Site
Risk for Advertiser Risk for Ad Network
Sponsorship least risky: fixed payment
Banner Ads: payment depends on impressions
Prospect Fees & Sales Commissions: depend on success of site and
advertiser

26. Bargaining Power Determines
Who Bears Risk
•Powerfulsites shift risk to advertisers and
demand sponsorships
•Powerful advertisers demand accountability
and negotiate for prospect fees of a share of
transaction revenue

27. Are these Biz Models mutually
exclusive?
No
Companies try to generate revenues
any way they can
Multiple revenue models are
combined on the same site