Slide 2.

Chapter 2
Marketplace analysis for
e-commerce

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Learning outcomes

• Complete an online marketplace analysis to

assess competitor, customer and intermediary
use of digital technologies and media as part
of strategy development
• Identify the main business and marketplace
models for electronic communications and trading
• Evaluate the effectiveness of business and
revenue models for online businesses,
particularly online start-up businesses

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Management issues

• What are the implications of changes in

marketplace structures for how we trade with
customers and other partners?
• Which business models and revenue models
should we consider in order to exploit the
Internet?
• What will be the importance of online
intermediaries and marketplace hubs to our
business and what actions should we take to
partner these intermediaries?

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Plan of the chapter

 Basic concepts
 Marketplace map
 Location of trading (review of channels)
 Business models for e-commerce
 Revenue models
 Online startups!

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Figure 2.1 The environment in which digital business services are provided

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Online marketplace

• Online marketplace: Exchanges of information and

commercial transactions between consumers,
businesses and governments completed through
different forms of online presence such as search
engines, social networks, comparison sites and
destination sites.
 Destination site: Typically a retailer or manufacturer site with
sales and service information. Intermediaries such as media
sites may be destination sites for some.
 Online Intermediaries: Websites which help connect web users
with content they are seeking on destination sites. (search
engines, shopping comparison sites...etc).

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Market place ecosystems

• Click ecosystem: flow of online visitors or customer

behaviour between sites for an organization and its
competitors.

• Online market ecosystem: major online players

infrastructure which connects websites through data
exchange;
• Facebook platform API (no longer available); enabling other
site owners to incorporate information about consumer Facebook
interactions into their website. (Facebook Ads, Facebook Atlas,
Facebook Graph, and Facebook Marketing)
• Google’s Android ecosystem; search marketing and mobile

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Marketplace analysis process

• Analysis of online marketplace/ “marketspace” is

essential in developing a long term digital business
plan, or creating short term digital marketing
campaign.

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Figure 2.4 An online marketplace map

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Process of marketplace analysis

 The main elements of the online marketplace map

presented in Figure 2.4 which should be reviewed as
part of the process of marketplace analysis are:
 Customer segments
 Search intermediaries
 Intermediaries, influencers and media sites
 Destination sites.

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Customer segments

 The marketplace analysis should

identify and summarise different
target segments for an online
business in order to then understand
their online media consumption,
buyer behaviour and the type of
content and experiences they will be
looking for from intermediaries and
your website.

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Search intermediaries

 These are the main search engines in each

country. Typically they are Google, Yahoo!,
Microsoft Live Search and Ask, but others are
important in some markets such as China (Baidu),
Russia (Yandex) and South Korea (Naver).
 The Google Trends tool is a free tool for assessing site
popularity and the searches used to find sites and how
they vary seasonally.
 A vertical search engine focuses on a specific
segment of online content (e.g. shopping, the
automotive industry, legal information, medical information,
scholarly literature, job search and travel)

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Figure 2.5 Google Trends – useful for consumer interest in products

Source: [Link]

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Intermediaries, influencers and

media sites
 Media sites and other intermediaries
such as aggregators, affiliates and
influencers such as blogs are often
successful in attracting visitors via
search or direct since they are
mainstream brands. Companies need to
assess potential online media and
distribution partners in the categories
shown in Figure 2.4

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Intermediaries, influencers
and media sites
 (a) Mainstream news media sites or
portals. Include traditional, e.g. [Link]
or Times, or pureplay e.g. Google news,
an aggregator.

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Intermediaries, influencers
and media sites
 (b) Social networks, e.g. Facebook,
Google+, Twitter and LinkedIn.

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Intermediaries, influencers
and media sites
 (c) Niche or vertical media sites, e.g.
[Link],
[Link], [Link]
covering B2B marketing (offering services
for companies to execute B2B marketing).
 “vertical” in this case relates to the industry
your targeting. It’s usually limited to a single
industr. Vertical media tends to target a
particular demographic as well within the
vertical ( very specific).

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Intermediaries, influencers
and media sites
 (d) Price comparison sites (also known
aggregators), e.g. Moneysupermarket,
Kelkoo, [Link], uSwitch.

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Intermediaries, influencers
and media sites
 (e) Superaffiliates. Affiliates gain revenue
from a merchant they refer traffic to using a
commission-based arrangement based on
the proportion of sale or a fixed amount.
 They are important in e‑retail markets.

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Intermediaries, influencers
and media sites
 (f) Niche affiliates, influencers or
bloggers. These are often individuals, but
they may be important; for example, in the
UK, Martin Lewis of
[Link] receives millions
of visits every month. Smaller affiliates and
bloggers can be important collectively.

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Destination sites
 These are the sites that the marketer is
trying to generate visitors to, whether
these are transactional sites, like
retailers, financial services or travel
companies or manufacturers or brands.
 TheOVP is a key aspect to consider
within marketplace analysis – marketers
should evaluate their OVPs against
competitors’ as part of competitor analysis
and think about how they can refine them to
develop a unique online experience.

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Location of trading in the

marketplace - review
 Internet-based market has no physical
presence, this has an implication for the way
in which the relationships between the
different actors in the marketplace occur
 Many alternative virtual locations where marketers
need to position themselves.

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B2B and B2C interactions between an organisation, its suppliers and its
customers

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B2B and B2C characteristics

Characteristic B2C B2B
Proportion of adopters with Low to medium High to very high
access

Complexity of buying Relatively simple – More complex – buying

decisions individual and influencers process involves users,
specifiers, buyers, etc.

Channel Relatively simple – direct or More complex, direct or via

from retailer wholesaler, agent or
distributor

Purchasing characteristics Low value, high volume or Similar volume/value. May

high value, low volume. be high involvement.
May be high involvement Repeat orders (rebuys)
more common

Product characteristic Often standardised items Standardised items or

bespoke for sale

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Disintermediation
 A distribution channel will consist of one
or more intermediaries such as
wholesalers and retailers.

 Disintermediation: The removal of

intermediaries such as distributors or
brokers that formerly linked a company
to its customers.

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Disintermediation of a consumer distribution channel showing (a) the

Figure 2.7
original situation, (b) disintermediation omitting the wholesaler, and
(c) disintermediation omitting both wholesaler and retailer

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Reintermediation:
 Reintermediation:
 Thecreation of new intermediaries between
customers and suppliers providing services
such as supplier search and product
evaluation.

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Figure 2.8 From original situation (a) to disintermediation (b) and reintermediation (c)

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Implications of reintermediation
 First,
it is necessary to make sure that your
company is represented on the sites of relevant
new intermediaries operating within your chosen
market sector (integrate databases)
Second, it is important to monitor the prices of
other suppliers within this sector
 Third,it may be appropriate to create your own
intermediary (countermediation).
○ [Link] (established by 9 European airlines;
Airfrance, BA, KLM, and Lufthansa,

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Counter-mediation

• Creation of a new intermediary

• Example:
– B&Q [Link]
– Opodo [Link]
– Ford, Daimler ([Link]) (leading
Cloud platform for building digital identity
management, Internet of Things (IoT)
applications, and automotive and transportation
supply chains.)(acquired by opentext)

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Location of trading
 Position of trading and relative strength
between different players within the
marketplace:
 Seller-controlled
 Seller-oriented
 Neutral
 Buyer-oriented
 Buyer-controlled

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Location of trading
 Seller-controlled sites are the main
home page of the company and are
e‑commerce enabled.

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Location of trading
 Buyer-controlled sites are intermediaries
that have been set up so that the buyer
initiates the market-making.
 In procurement posting, a purchaser
specifies what they wish to purchase,
and a message is sent by email to
suppliers registered on the system and
then offers are awaited.
 E.g. [Link]

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Location of trading
 Buyer-oriented: Aggregators involve a
group of purchasers combining to
purchase a multiple order, thus reducing
the purchase cost.
 Neutral sites are independent evaluator
intermediaries that enable price and
product comparison.

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Multichannel marketplace
 Online purchasers typically use a
combination of channels as they follow their
“customer journeys”.
 Customer journey:
 A descriptionof modern multichannel buyer
behaviour as consumers use different media to
select suppliers, make purchases and gain
customer support.
○ They consume different media such as print, TV,
direct mail, and outdoor ads…etc.

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Channel chains
 Developing ‘channel chains’ to help us
understand multichannel behaviour is a
powerful technique

 A channel chain shows alternative

customer journeys for customers with
different channel preferences

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Example channel chain map for consumers selecting an estate agent to

Figure 2.9
sell their property

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Example
 Thomas and Sullivan (2005) give the example of
a US multichannel retailer that used cross-
channel tracking of purchases through
assigning each customer a unique identifier to
calculate channel preferences, results as follows:
 63% bricks-and-mortar store only,
 2.4% Internet-only customers,
 11.9% catalogue-only customers,
 11.9% dual-channel Customers and
 1% three-channel customers.

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Commercial arrangement for

transactions
 Markets can also be considered from
another perspective – commercial
arrangement that is used to agree a
sale and price between the buyer and
supplier.

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 Any new mechanisms?

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Commercial arrangements
 Each of the commercial arrangements is
similar to traditional arrangements.
 With the internet the relative importance
have changed!!
 For example, ability to publish new
offers and prices rapidly has increased
auctions importance!

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New commercial
mechanism?

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Summary:
Types of intermediaries
 Identifying different types of
intermediaries is important to promote
an online business.

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Business model

Timmers (1999) defines a ‘business model’ as:

An architecture for product, service and information
flows, including a description of the various
business actors and their roles; and a description of
the potential benefits for the various business
actors; and a description of the sources of revenue.

 Defining a clear online business model is essential

for a new start-up online business to be successful.

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Figure 2.10 Business Model Canvas example

Source: Smart Insights. With permission.

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Main section in the canvas

 The main sections of the canvas in a
logical order to consider them are:
 1 Value proposition. This is at the heart
of what the business offers to its
audiences and is arguably most
important to success.

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Main section in the canvas

 2 Customer segments. Different target
audiences to whom the value
propositions will appeal. In the Business
Model Canvas the alternatives
recommended are mass market, niche
market, segmented (broken down
further) or a range of diverse segments.

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Main section in the canvas

 3 Customer relationships. The types
of relationships that will be formed, for
example self-service, automated
services, communities or more personal
assistance. Co‑creation of content may
be part of this.

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Main section in the canvas

 4 Channels. The methods by which the
organisation’s services will be delivered
and the audiences reached.

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Main section in the canvas

 5 Key partners. To exploit online and
offline value networks, forming
partnerships gives an opportunity of
expanding reach and taking advantage
of existing organisations and online
influencers that have built an audience.

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Main section in the canvas

 6 Activities. The main activities that
need to be performed to deliver the
value proposition to develop revenue.

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Main section in the canvas

 7 Resources. Different types of process
and people to complete the activities to
create and deliver the value proposition.

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Main section in the canvas

 8 Cost structure. Different cost-
elements; these should be checked
against activities and resources. Costs
are classically broken down into fixed
and variable costs and economies of
scale.

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Main section in the canvas

 9 Revenue stream. This is the method
by which a business derives income.
Common online options are: ad
revenue, subscription fees, sales of
physical or virtual goods or affiliate-
based commission arrangements.
Licensing and leasing are other
alternatives.

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Figure 2.10 Business Model Canvas example

Source: Smart Insights. With permission.

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Criticism
 Missing a method of specifying key performance
indicators (KPIs) for evaluating performance of the
business model, specially for: revenue streams,
cost structure, and key activities.

 Doesn’t directly consider the impact of different

forms of competitors

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Perspectives to view a
business model
 Marketplace position perspective
 Revenue model perspective
 Commercial perspective

 Let’s take the example of a book

publisher, Amazon and Yahoo!

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Figure 2.11 Alternative perspectives on business models

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Perspectives to view a
business model
 1 Marketplace position perspective. The
book publisher here is the manufacturer,
Amazon is a retailer and Yahoo! is both
a retailer and a marketplace
intermediary.

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Perspectives to view a
business model
 2 Revenue model perspective. The book
publisher can use the web to sell direct
while Yahoo! and Amazon can take
commission-based sales. Yahoo! also
has advertising as a revenue model.

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Perspectives to view a
business model
 3 Commercial arrangement perspective.
All three companies offer fixed-price
sales, but, in its place as a marketplace
intermediary, Yahoo! also offers
alternatives.

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Revenue models
 Revenue models specifically describe
different techniques for generation of
income.

 Revenue models have mainly been based

upon the income from sales, either for
 selling direct from the manufacturer or supplier
 an intermediary that will take a percentage of the
selling price

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Revenue models online–publisher

example
1. Subscription access to content
2. Pay per view content access
3. CPM display advertising
4. CPC advertising on site
5. Sponsorship of sections, content or widgets
6. Affiliate revenue (CPA or CPC)
7. Subscriber data for e-mail marketing
8. Access to customers for research purposes.

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Revenue models
 1 CPM display advertising on‑site.
 CPM stands for ‘cost-per-thousand’ where M denotes ‘mille’.
 This is the traditional method by which site owners charge a
fee for advertising. (for example £50 CPM) according to the
number of times ads are served to site visitors.
 Ads may be served by the site owner’s own ad server or
more commonly through a third-party ad network service
such as DoubleClick (which is owned by Google).

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Revenue models
 2 CPC advertising on‑site (pay-per-click text ads).
 CPC stands for ‘cost-per-click’.
 Advertisers are charged not simply for the number of times their ads are
displayed, but according to the number of times they are clicked upon.
 These are typically text ads served by a search engine such as Google
([Link]) on what is known as its content network. Google has
its Adsense ([Link] programme for publishers which
enables them to offer text-or image-based ads typically on a CPC basis,
but optionally on a CPM basis.
 Typical costs per click can be surprisingly high, i.e. they are in the range
£0.10 to £4, but sometimes up to £20 for some categories such as ‘life
insurance’.
 The revenue for search engines and publishers from these sources can
also be significant: Google’s annual reports ([Link]
show that this is between a quarter and a third of Google’s revenue.

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Revenue models
 3 Sponsorship of site sections or content types
(typically fixed fee for a period).
 A company can pay to advertise a site channel or section.
 For example, the bank HSBC sponsors the Money section
on the Orange broadband provider portal
([Link]). This type of deal is often struck for a
fixed amount per year. It may also be part of a reciprocal
arrangement, sometimes known as a ‘contra-deal’ where
neither party pays.

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Revenue models
 4 Affiliate revenue (CPA, but could be CPC).
 Affiliate revenue is commission-based, for example I display Amazon books
on my site [Link] and receive around 5% of the cover price as
a fee from Amazon.
 Such an arrangement is sometimes known as cost-per- Acquisition
(CPA).
 Increasingly, this approach is replacing CPM or CPC approaches where the
advertiser has more negotiating power.
 For example, manufacturing company Unilever negotiates CPA deals with
online publishers where it is paid for every email address captured by a
campaign rather than a traditional CPM deal.
 However, it depends on the power of the publisher, who will often receive
more revenue overall for CPM deals. After all, the publisher cannot
influence the quality of the ad creative or the incentivisation to click
which will affect the clickthrough rate and so earnings from the ad.

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Revenue models
 5 Transaction fee revenue.
 A company receives a fee for facilitating a transaction.
 Examples include eBay and Paypal who charge a percentage of the
transaction cost between buyer and seller.

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Revenue models
 6 Subscription access to content or services.
 A range of documents can be accessed from a publisher for a fixed
period. These are often referred to as premium services on
websites.

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Revenue models
 7 Pay-per-view access to documents.
 Here payment occurs for single access to a document, video or
music clip which can be downloaded. It may or may not be
protected with a password or digital rights management.

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Revenue models
 8 Subscriber data access for email marketing.
 The data that site owner has about its customers are also
potentially valuable since it can send different forms of email to its
customers if they have given their permission that they are happy to
receive email from either the publisher or third parties.
 The site owner can charge for adverts placed in its newsletter or
can deliver a separate message on behalf of the advertiser
(sometimes known as ‘list rental’).
 A related approach is to conduct market research with the site
customers.

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Online start‑up companies

 Dot-coms; Businesses whose main trading presence is on
the Internet.

 Clicks-only or Internet pureplay; An organization with

principally an online presence.

 Bricks-and-mortar A traditional organization with limited

online presence.

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Valuing internet start-ups

 Traditional discounted cash flow techniques:
 1 The cost of acquiring a customer through marketing.
 2 The contribution margin per customer (before acquisition cost).
 3 The average annual revenues per year from customers and other
revenues such as banner advertising and affiliate revenues. These are
often measured as ARPU or average revenue per user.
 4 The total number of customers.
 5 The customer churn rate.

 Churn rate: The proportion of customers (typically

subscribers) that no longer purchase a company’s
products in a time period.

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Valuing internet startups

 Six criteria to assess the companies:
1. Concept
2. Innovation
3. Execution
4. Traffic
5. Financing
6. profile

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Slide 2.84

Concept
 This describes the strength of the business model. It
includes:
 potential to generate revenue including the size of the
market targeted;
 superior ‘customer value’, in other words how well the
value proposition of the service is differentiated from that
of competitors;
 first-mover advantage (less easy to achieve today).

Chaffey, Digital Business and E-commerce Management Powerpoints on the Web, 6th edition © Marketing Insights Limited 2015
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Innovation
 The extent to which the business model
merely imitates existing real-world or
online models. Note that imitation is not
necessarily a problem if it is applied to a
different market or audience or if the
experience is superior and positive
word‑of‑mouth is generated.

Chaffey, Digital Business and E-commerce Management Powerpoints on the Web, 6th edition © Marketing Insights Limited 2015
Slide 2.86

Execution
 Aspects of execution that can be seen to
have failed for some companies are:
○ Promotion – online or offline techniques are
insufficient to attract sufficient visitors to the
site.
○ Performance, availability and security
○ Fulfilment – the site itself may be effective,
but customer service and consequently brand
image will be adversely affected if products
are not despatched correctly or promptly.

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Traffic
 This criterion is measured in terms of
the number of visitors, the number of
pages they visit and the number of
transactions they make which control
the online ad revenues
 Animportant decision is the investment in
promotion and how it is split between online
and offline techniques.

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Slide 2.88

Financing
 The ability of the company to attract
venture capital or other funding to help
execute the idea

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Profile
 This is the ability of the company to
generate favorable publicity and to
create awareness within its target
market.

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The end

Chaffey, Digital Business and E-commerce Management Powerpoints on the Web, 6th edition © Marketing Insights Limited 2015