Business Case #7 Internet Marketing The Internet has b.docx

Business Case #7
Internet Marketing
The Internet has been the fastest-growing marketing medium in
recent years. As Internet
technology has developed and broadband penetration has
increased, numerous opportunities have
arisen which more and more companies are trying to exploit.
This note describes various aspects of online marketing. Each
section of the note is self-contained
and addresses a particular theme:
The first section, “The online audience”, explains how, and how
widely, the Internet is used today.
A medium is only useful for marketing purposes if it allows
sellers to reach potential buyers. This
section looks at online shoppers and their willingness to
research and carry out purchases online.
The second section, “Particularities of the Internet”, compares
the Internet with other media. The
Internet is different from other media in certain respects, but
there is nothing to be afraid of. The

challenge is to exploit its particularities so as get the best
possible return on investment.
The third section, “Potential of Internet marketing”, shows how
the Internet can be the vehicle for
marketing activities at all stages of the purchase process.
Whether the aim is to arouse consumer
interest in a sales proposition, explain the proposition or close a
sale, the Internet has the tools to
do it.
The fourth section, “Options for Internet marketing”, describes
the most widely used online
marketing tools.
The fifth section, “The Internet marketing market”, presents the
players in the market. To find the
right service provider, assuming we have decided what we
expect from our online campaign and
how we want to approach it, we need to know the types of
companies there are and the services
they offer.
The last section of the note, “Examples of Internet use”,
describes some advertising campaigns
that have included the Internet in their media plan. This section
is not intended as an exhaustive

sample but presents different ways in which the Internet has
been used by companies that
advertise online.
At the end of the note we attach a list of sources of up-to-date
information about the Internet.
Although the ideas and concepts set forth in the note are
relatively well established, the statistics
are likely to change quite rapidly. Anticipating this eventuality,
we indicate public sources from
which the latest figures on Internet marketing can be obtained.
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The Internet Audience
Who is Online?
One of the first questions to be considered when organizing a
communication campaign is who
the intended audience is. The larger the population that use a
given medium as a source of
information, the more communication options that medium will
offer.

The population of Internet users in Spain is around 22.5 million
and the population of daily users,
around 12 million. This makes the Internet the sixth most
widely used medium.
Figure 1. Penetration of the media in Spain (%)
The Internet user population in Spain has grown steadily since
1996. This trend is forecasted to
continue, while Internet penetration will continue to increase,
albeit at a slowing pace. The process
of technology assimilation is still far from over, however.
The Internet User Profile
The Internet user profile has changed significantly as the
population of Internet users in Spain has
come to encompass a majority of the country’s population.
Nowadays, Internet users comprise
men and women in similar proportions. A majority of Internet
users are still in the 25 to 44 age
bracket, but the gaps are closing. All age groups have a
significant presence (more than 5%), and
the group that used to lag furthest behind, the over-65s, is now
the one that is growing fastest.
Table 1 shows the change in the Internet user profile since the

Internet started to become widely
used in Spain:
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Access Points
At present, 40% of homes have a broadband connection and the
home is the preferred point of
access to the Internet, ahead of the workplace. Users who have
Internet access in their homes spend
an average of more than 10 hours per week online from their
homes, in addition to time spent
online from elsewhere.
Far from slowing, the growth in the reach of the Internet seems
about to receive fresh impetus
from the rollout of third-generation mobile devices and wireless
networks. Soon the Internet will
accompany us everywhere we go, via our PDAs, game consoles
or cell phones.
This expansion will be accompanied by new services and uses to
help us get maximum benefit
from the new connectivity.

Companies
Overall, 96.2% of Spanish companies are connected to the
Internet, whereas among large
companies the figure is 99.9%:
Figure 2
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What is the Internet Used for?
In the early nineties, the Internet came into civilian use. The
first applications to gain popularity
were email and discussion groups. Since then, the range of
online services has grown steadily and
the Internet has become as indispensable for work (supporting
internal and external
communication) as for leisure.
The uses of the Internet today can be classed in five categories:
– Websites and applications designed mainly to
provide information and
entertainment. Examples: cnn.com, elMundo.es, Windows
Media Player.
– Websites and applications designed to

facilitate the exchange of ideas,
messages or information between individuals and groups.
Examples: Yahoo! Mail, MSN
Messenger.
– Websites and applications for online shopping.
Examples: Amazon, eBay,
Dell.com.
– Websites and applications that combine user-
generated content with
communications to allow users to build relationships with one
another. Examples:
Facebook, MySpace.
– Websites and applications that produce ordered lists
of online content based on
user-specified criteria. Examples: Google, Bing.
Using this classification, the time people spend online can be
broken down as follows:
Figure 3
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The Internet and the Purchase Process

One of the most popular online activities is shopping. The
number of sales to end users via the
Internet has grown significantly. In 2007, 7.7 million (34%) of
the 22.5 million Internet users in
Spain at that time had made a purchase online.
Most online purchases are in the tourism and leisure sectors:
flight bookings, hotel reservations,
tickets for shows, etc. Other sectors, such as real estate or
automobiles, may be l ess suitable for
online transactions, yet people still use the Internet to gather
information and compare prices,
features and offers. E-commerce transactions by sector:
Table 2
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As or more important from the commercial point of view is the
fact that most Internet users use
the Internet to research products and explore possible future
purchases. The statistics tell us that
82% of buyers and 41% of non-buyers used the Internet to
research a product or service before
purchasing it in a physical store. A company’s website is

increasingly seen by the general public
as the company’s visiting card.
A company’s online presence must therefore be an integral part
of its marketing strategy. It helps
determine the company’s image and provides specific
information about the company’s products,
thus assisting the process of acquiring new customers and
retaining existing ones.
Particularities of the Internet
Four characteristics of the online medium are decisive. The first
is the scope for segmentation.
Website visitors enter the site as individuals, not as groups.
This means that the segmentation
options are almost infinite. The second is the capacity to
provide feedback. Website visitors can
communicate with the site owner at any time, explicitly or
implicitly. The third is that Internet
users are free to do what they like. They do not have to watch
until the end of the series or sit
through the product placement. They have a remote, their
mouse, which they can use to instantly
switch to any other of the World Wide Web’s millions of
“channels”. The fourth and last is the

Internet’s vast coverage. No other medium allows us to publish
information instantaneously
“everywhere”.
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Segmentation Options
One of the main advantages of the Internet as a marketing
medium is the possibility of segmenting
Internet users. The segmentation may be based on information
provided explicitly by users at the
time of registration, or information they provide implicitly
through their browsing and search
behavior. Conceptually, segmentation is an obvious attraction to
advertisers, who often will be
willing to pay a premium for the opportunity to reach a suitable
audience. On the other hand, it
will not always be easy to find any single website or service
that covers a significant portion of the
potential consumers of the advertiser’s product and that allows
an advertiser to identify its
audience and catch their attention.

Some web services offer the possibility of discretionally
targeting particular groups of users.
Depending on the type of information they are able to gather
about their visitors, these services
will offer different types of segmentation. Sites requiring users
to register will be able to offer an
audience that is segmented according to multiple criteria:
region, demographics, tastes, hobbies,
and so on. Acquiring a large audience and building a database
of reliable, up-to-date information
about that audience is no easy task, however. The hopes vested
in social networks are founded
largely on their promise of delivering precisely that: a wide but
perfectly segmented audience.
Search engines, whether general or vertical, allow advertisers to
segment their audience according
to a different criterion, namely, the user’s immediate interest or
focus of attention. When a search
engine receives a search query, it knows exactly what the
Internet user is looking for. In the few
milliseconds between receiving the query and returning the
results, the search engine can select
advertisements, related to the subject of the search, to be
displayed alongside the results. Initially,

the search engine has only minimal data about the user: region
and language, and the keywords
used for the search. Yet this system has proven effective.
Other web services that have no formal mechanisms for
identifying visitors may still be useful to
advertisers insofar as they deal with subjects that are of interest
to particular target groups. Internet
users who use regional news services, for example, will tend to
be inhabitants of that region; users
who visit a website on newborns may well have recently had a
baby; and so on.
Often there will have to be a compromise between the
segmentation a website is able to offer, the
segmentation the advertiser would like in order to be able to
target its message, the size of the
site’s audience, the price per page view or click, and so on.
More Information about Consumers
The Internet is an interactive medium in which people are going
to express opinions about our
sales proposition regardless of whether we have promoted it
online or not. Whether the user
response is positive, negative or indifferent, we will very soon
have a response to assess and will

be able to act accordingly.
The fact that users respond to our sales proposition does not
mean that they send their responses
directly to our email address. Often we will have to use a
variety of sources and indicators to get
a realistic idea of the impact our proposal may have had. The
information we obtain from the
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advertiser’s website (web analytics) can be very valuable. For
example, it will usually tell us which
products attracted most visits, whether any other product caught
visitors’ attention, or whether a
particular section of the Help file received more visits than it
should have done. Advertisements
we place on other websites can also provide very useful
information, telling us which
advertisements were most successful and on which sites, and
sometimes even among what
customer types and at what times of day. Lastly, we must not
forget market surveillance. We will
need to monitor opinions on forums and blogs, and even the
latest videos and games that might

have some bearing on our product.
Keeping a finger on the pulse of our potential customers can be
very useful if we are able to adapt
accordingly. The Internet is very convenient in this respect, as
the parameters of an online
campaign can be changed at short notice. A campaign that is not
working can be modified or
suspended, without using the whole period or budget as initially
planned. There is even the option
of conducting one or more pilot studies with small groups
belonging to our target audience, to see
which advertising message proves most effective.
Discretion
Internet users are completely free to spend their time on content
they are interested in and ignore
any website that fails to hold their attention. It is important that
we take this element of user
discretion into account in our campaigns.
What are Internet users looking for when they visit our website
and what can we offer that will
meet their needs or otherwise distract them? Questions such as
these will need careful
consideration when preparing content. This applies both to the

advertiser’s website and to any
graphic advertisements, promotional videos, sponsored links,
and so on.
“Global” Coverage
The Internet is present practically throughout the world and is
particularly well established in
Western countries. Furthermore, the cost of publishing a
website is much the same whether the
target audience is concentrated and nearby, or dispersed and
thousands of kilometers away. This
combination of factors makes the Internet an effective means of
reaching potential customers that
could not be reached profitably using traditional media.
On the other hand, when promoting a product in a new market,
it will be important to ensure that
the extended product is as valid remotely as it is locally. If not,
any deficiencies will have to be
remedied by adapting the offer to make it fully competitive. If
this is impossible, the promotional
effort is likely to be fruitless.
Tourist services are an example of a type of product that can
benefit from online advertising. As it
is the tourists who travel to the place where the product is

delivered, the service remains
competitive even when purchased remotely. The ability to cut
out intermediaries and endorsers
often offsets the amount spent on advertising and may even
allow prices to be set at more
competitive levels.
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Another case where online marketing works well is high price
density products, or products whose
origin adds value for the buyer. Computer software, online
training courses or products with
denomination of origin have no or only minimal distribution
costs relative to their differential
value compared to competing products.
Lastly, companies that operate over a wide area also benefit
from using the Internet for their
campaigns. In this case, the benefit lies not so much in reaching
more potential customers as in
achieving the same impact as with conventional campaigns but
at a lower cost.
Potential of Internet Marketing

Marketing covers all the stages consumers go through before
purchasing a product, from becoming
aware that the product exists to becoming convinced that the
product will meet their needs and
actually making their purchase.
These stages form a continuum and are very flexible in space
and time. Persuading consumers to
buy a new car will take a lot more time and resources than
persuading them to add a small item to
their shopping basket at the checkout. Yet both the publicist
who designs the automobile
advertisement and the person who sets up the display box of
chewing gum beside the cash till are
doing marketing.
In its early days, the Internet was primarily a new channel for
making purchases. It allowed
multiple parties to communicate almost instantaneously. From
the start it had certain advantages
compared to the telephone or regular mail. As a means of
building awareness of a product and
communicating a value proposition, however, it was not so
efficient. Online advertisers could
communicate with only a small number of potential customers
because Internet users were still a

minority. Also, communication was restricted by the
technological limitations of the time and
widespread suspicion of the new channel.
These obstacles to online marketing have gradually been
overcome and more and more companies
are making the Internet a significant part of their media plan.
Nowadays, the Internet is used both
to execute transactions, create awareness of new products, and
build loyalty to a brand.
AIDA
AIDA is an acronym referring to a classical marketing model
which describes the stages of the
purchase process. According to this model, the advertising
message or the product itself must first
attract the attention (A) of the prospective customer, then
arouse interest (I) and a desire (D) to
have the product, before prompting the customer to take action
(A) and buy the product.
The AIDA model is a typical framework for ordering and
grouping marketing actions according
to their function. As we shall see, the Internet is a powerful
channel for marketing actions at each
stage of the sales process.

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Attention
Online campaigns are relatively economical and quick to deploy
and easy to measure. Given
widespread use and the large amounts of time spent online, the
Internet is an attractive medium
for launching sales propositions.
It poses an additional challenge, however, in that Internet users
are free to choose the content they
want to see. They can close an advertising pop-up almost
without seeing the content.
To catch their attention we must consider their predisposition
and profile, and the situation in
which they will be receiving our message.
When an Internet user is actively looking for something in
particular, it is relatively easy to attract
his attention. All we need to do is provide an answer to his
search query. One of the most successful
types of online advertising, sponsored links, is based precisely
on this approach.

If an Internet user is not actively looking for anything in
particular, we will have to make an extra
effort to attract his attention. Animated and interactive
advertisements have proven fairly effective
in this respect. They offer a brief entertainment, which often is
enough to capture a person’s
attention. This gives the advertiser a few precious seconds in
which to arouse interest in its product.
Other alternatives are email advertising and advertisements
embedded in games or movies. Email
advertising has the advantage that it can be adapted to the
profile of recipients so as to increase the
chances of success. Caution is advised, however, as this type of
advertising is unsolicited an d
unexpected. Consequently, people may consider it intrusive, in
which case it will be
counterproductive.
Lastly, combining advertisements in different media has a
multiplier effect. A TV advertisement
is soon forgotten, but if we refresh consumers’ memory when
they are online, the advertising
message may eventually sink in.
Interest and Desire

For a prospect to become interested in a product, he must be
made to recognize or remember some
existing need or interest. In some cases, consumers do not know
that a particular solution exists,
so the primary goal will be to create awareness. In other cases,
consumers know perfectly well
what they want, so all we need to do is encourage them to do
something about it.
The aim with respect to desire is to explain to potential
customers that our sales proposition is the
one that most fully meets their needs.
Both these steps – arousing interest and creating desire – can be
handled online. For this purpose
sellers may use their own advertisements or corporate portals or
microsites created specifically for
the occasion.
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To arouse interest and desire in rational purchase processes,
many companies use their own
corporate portal. The portal provides abundant information

about the company and its products,
and may even allow visitors to compare products. This helps
build confidence in the company and
gives consumers the information they need in order to choose
the right product, while at the same
time limiting the number of options.
Where the purchase process is more impulsive, consumers do
not need so much information. It
may be sufficient just to reinforce the ideas they associate with
the product. Microsites, i.e., small
websites set up for a specific communicative purpose, are often
a very effective tool for achieving
this. They can contain large numbers of animations and sounds
that allow an advertiser to recreate
the atmosphere it wants to associate with its product.
Action
The final stage of the purchase process is the act of purchasing
a product. As the rest of t he process
is very flexible, the seller must be ready to close the deal
quickly and conveniently at any time. It
is important not to frustrate users’ expectations at most delicate
moment, causing them to change
their mind.

The Internet has proven to be a very practical medium for
facilitating certain types of purchases.
As users have come to appreciate the possibility of shopping at
any time of day and from the
comfort of their own home and have become familiar with
online technology, initial reservations
with regard to e-commerce have waned. In some sectors, such as
air transport, foodservice and
entertainment, demand has been so strong that companies have
migrated a large part of their
operations online.
The most common options for online shopping are:
-specific online store. In this case, the
important thing is to attract
sufficient qualified traffic.
third-party online store. This is clearly the
least risky option. Even so,
companies must beware that the image or reputation of the
seller does not damage the
image of their product.
the purchase offline. In other
words, give details of the nearest point of sale, opening hours,
terms of purchase, and so

on.
Options for Internet marketing
In the following section we review the main characteristics of
the most popular online marketing
tools.
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Advertisements
Sponsored links
Sponsored links are displayed on the results pages of searches
conducted in the leading Internet
search engines. In typeface and structure they are similar to the
search results and are also related
in content to the search terms. They are clearly marked a s
advertisements, however, and most
Internet users do not find them offensive or intrusive.
Figure 4
Sponsored links are currently the best-selling form of online

advertising. Because Internet search
engines are so popular, they are ideal for directing traffic to an
advertiser’s website. Also,
sponsored links are easy to buy and can be tailored to all
budgets.
Because sponsored links give great visibility to the associated
website they are particularly useful
when Internet users already know our product or are looking for
something similar. If we are
aiming to enhance our brand image, they will have to be
combined with other formats.
Buying sponsored links is so simple that it is easy to
underestimate the difficulty of using them
efficiently. As in any marketing campaign, we must be careful
to target our efforts to potential
customers and use an effective message. Mounting an efficient
campaign is made more difficult
by the mechanism used for purchasing sponsored links.
Bidding for keywords
Sponsored links are purchased via websites set up for that
purpose by the search engines.
Advertisers compete with one another on these sites to achieve
the desired number of visits.

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The mechanism search engines use to decide which links are
displayed with the search results has
two stages. The first is an auction. Each advertiser must
indicate, for each keyword it wants to
have associated with its link, how much it is willing to pay for
each visitor who follows the link to
its website (cost per click). Then, the search engine will choose
the advertisement that will
maximize its profit. It does this taking into account each
seller’s bid and the likelihood that the
searcher will be interested in the seller’s advertisement. Exhibit
2 shows the bids suggested by
Google for various different keywords and phrases.
This system faces advertisers with a series of puzzles. They
must decide which keywords to invest
in, how much to pay for each keyword, the text of the
advertisement, and so on. Considering that
large advertisers buy thousands of sponsored links every month,
it is easy to appreciate that

optimizing the overall investment is a complex task.
Graphic formats
By graphic format we mean any type of image-based
advertisement. This is therefore a very broad
category. Graphic formats cover everything from pop-ups to
animations and interactive
advertisements.
Figure 5
Graphic formats were one of the first types of online
advertising, along with pop -ups and spam.
Unlike pop-ups and spam, however, graphic formats are now
well established and are not rejected
by Internet users. As technology has evolved, they have become
more sophisticated. Also,
advertisers have realized that intrusive online advertising is
usually counterproductive.
The success of an online advert will depend on factors such as
whether the product is appropriate
to the content of the page on which the ad appears; how the ad
is visually integrated in the page;
and the creativity of the advertising message.

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Graphic advertisements may be designed to direct us to another
website (“conversion”) or to
remind us of a particular brand or product. This is a significant
difference compared to sponsored
links, as graphic formats can be used to strengthen brand image.
The difficulty lies in measuring
their impact.
Media Vehicles
Graphic advertisements can be found on virtually any kind of
website. However, the co ntext in
which we place our advertisement will affect how Internet users
interpret it. So we need to consider
the advantages of each location. The most popular are vertical
search engines, news portals and
social networks.
Vertical search engines offer a willing audience who are
looking for products similar or related to
the one being advertised. Often they allow the advertiser to
choose which part of the portal the
advertisement appears in, which can result in considerable

savings.
Another possible location for graphic advertisements is in news
portals. In this case, audience
segmentation is usually very limited. On the other hand, such
portals give access to large audiences
and have produced good results in image campaigns.
The social networks are another option for online advertising.
The advertiser can choose which
users will see the advertisements, based on demographic and
geographic criteria. However, the
amount of attention such advertisements receive is low.
Sponsored Videos
Although sponsored videos have only a marginal presence
online, their share of the advertising
formats market is expected to increase in the next few years.
Online video consumption is growing
rapidly and it is expected that many companies will want to
address this new audience. One
advantage is that, as yet, there is no widespread sensation of
advertising saturation among Internet
users who watch videos on their computer.
Figure 6

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One obstacle is that advertisers have not yet found an ideal way
of presenting this type of
advertisement. “Pre-rolls” (advertisements screened just before
the requested video) are widely
considered user-unfriendly. Some companies have dropped them
and instead use text links that
appear at the bottom of the videos (see Figure 6). So far,
however, this type of advertising does
not seem to be very effective. Other obstacles are the difficulty
of automatically classifying videos
and segmenting the audience.
Other Online Marketing Tools
Sponsoring a Section of a Website
This is where a brand or company sponsors a section of a
website which has content that is
especially attractive to its target audience. The aim is to
reinforce the brand image. The sponsor
may contribute specific content to the section (“bartering”) or it
may not. In fact, the section does
not even have to be explicitly related to the sponsor’s business.

Because each sponsored section is
very specific and the results are difficult to measure, this type
of sponsorship is unlikely to become
widely used. Even so, it has increased as blogs have gained in
popularity.
Figure 7
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Direct Email
Direct email is used to deliver specific offers to potential
customer groups. It differs from spam in
that it involves sending marketing information to people who
have previously agreed to receive
such information. That is not to say that they have necessarily
given permission directly to the
advertiser to send them such information; often the permission
has been given to third parties,
which sell lists of contact details (though users have the right to
demand that their information be
deleted from such lists). Spam, in contrast, involves sending
emails indiscriminately to people who
have never agreed to receive it and makes those who send it

liable to prosecution.
Figure 8
Microsites
A microsite is a website created for a specific communicative
purpose, whether to promote a brand,
a product or a special offer. Microsites usually have a limited
life span and are used in multi -
channel campaigns. Being relatively small, they are not used so
much for giving large amounts of
information as for reinforcing a message or brand image.
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Figure 9
The main advantage of a microsite compared to other formats is
that it gives the advertiser
complete control over the content that Internet users see.
Depending on the type of communication
an advertiser wants to establish with potential customers, the
microsite will be simpler or more
complex, suggestive or more practical, with links to a online
store or not, and so on. In a microsite

the advertiser can choose which technology is used to achieve
all these objectives, without any
limitations on image or file size.
The main disadvantage is that the microsite needs to be
advertised in order to attract visitors.
Nobody is going to stumble across a microsite by chance. But it
will be important not to spend too
much on advertising the site, as it will have a limited life span.
Online Stores
Many companies set up their own online stores to give
customers access to their products via the
Internet. Sometimes, market trends virtually force them to do
so. This has been the case in ticket
sales, airlines and company directories, for example. As a rule,
online sales do not completely
replace traditional or catalogue sales; but they have led to the
development of new types of
commercial offerings that have found their place in the market.
Figure 10
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An online store has certain advantages over a conventional
store. It can serve customers across
huge geographical distances, can be open all hours, needs no
display space, and is relatively easy
to update. Yet opening and promoting an online store entails
certain challenges, notably ensuring
that the store is efficient and appropriate for the product and the
company’s customers, and
attracting sufficient visitor traffic at a reasonable price given
the conversion rate.
The Internet Marketing Market
The Internet marketing market comprises the various services
offered to sellers with the promise
of helping them to increase their online sales. Based on this
broad definition, we can broadly
identify the players, which range from consultants who help
companies plan online marketing
actions to small IT firms that develop bespoke websites. The
following section centers on the most
important players in the sector and describes the services they
offer to companies wishing to
implement a marketing campaign.
Advertising Space Sellers

Basically, there are three types, each offering different types of
products.
First, there are the large sellers of online advertising space,
Google, Yahoo! and Microsoft. All
three have their own search engines, in which they sell
sponsored links, and extensive networks of
affiliated websites in which advertisers can place different types
of advertisements. All three have
automated the process of purchasing advertising space and have
developed complete suites of tools
for their customers.
Second, there are numerous websites and small groups of
portals that guarantee more or less cl early
segmented traffic. This group includes social networking sites,
vertical search engines, and online
newspapers, among others. In most cases, these portals offer
space for graphic advertisements. The
audience segmentation and services they offer vary.
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Social networks offer a very complete demographic and
geographical segmentation of their users.

In general, they offer a full range of solutions for advertisers,
and some have even developed
automated advertisement publishing systems.
Vertical search engines, on the other hand, offer a much more
limited demographic segmentation,
Even so, they can group their users according to the interests
each has shown while searching,
which has proven to be a very useful method of segmentation.
These search engines a lso offer
numerous additional services and a deep knowledge of their
market.
News portals are a special case. Many are online versions of
traditional newspapers that have tried
to adapt their infrastructure to the Internet. Audience
segmentation is usually very limited,
basically regional.
The last group of advertising space sellers are adservers.
Adservers act as intermediaries between
portals and the companies that want to advertise on them. They
provide the infrastructure for
administering advertisers’ accounts and manage their
advertising based on individual agreements.
Online Media Agencies

The function of online media agencies is to manage their
clients’ advertising investment and online
external communications. To do this they use their knowledge
of online fashions and trends,
technologies, and the types of segmentation available in each
portal, as well as their relationships
with online opinion leaders, etc.
Because most of the information that will be published about a
product online is beyond the seller’s
control, the agency coordinates the seller’s advertising efforts
very closely with its public relations
activities. This is a fundamental difference compared to the role
of traditional media agencies,
which generally manage advertising that is essentially one-way.
Online, the success of a campaign
depends on reacting quickly to audience responses, interacting
with opinion leaders, and
supporting the campaign efficiently through external
communications.
Even so, the biggest online media agencies are traditional
agencies at different stages of transition.
Seeing how fast the Internet is developing and realizing that
most of their clients want to have an
online presence, some have tried to make the transition swiftly.

In many cases, this has meant
hiring new employees, retraining existing staff or forming work
groups with a mixture of
experienced and inexperienced staff.
In any case, traditional agencies have seen how SEO and SEM
agencies have broadened their
service offering to include managing their clients’ online
presence and thus have become
competitors.
SEO and SEM
Optimizing companies’ investment in sponsored links and
improving their search engine
positioning are complex but potentially very profitable tasks.
This has led to the appearance of a
Business Case #7
new market, the search engine optimization market. It is
populated basically by small services
firms that adapt to the needs of each advertiser.
A distinction is commonly made between search engine
marketing (SEM) and search engine
optimization (SEO). Most companies in the industry offer both

services.
SEM
The purpose of SEM is to optimize the investment in search
engine advertising (sponsored links).
This is done by adjusting the segmentation options available to
advertisers, including which
keywords to sponsor and at what times to activate the
advertisements, the geographical scope, the
text of the links for each keyword, and so on. The most
complicated part is choosing the keywords
with which the advertisement is to be associated and how much
to bid for each keyword. There
are thousands of combinations of words that may be worth
sponsoring, each with a different
likelihood of generating sales.
SEO
SEO companies help advertisers position their website higher up
in the list of search engine result s.
The weight that a search engine gives to each of the metrics it
uses to assess a site’s relevance is a
closely guarded secret. The basic criteria are well known,
however. For a search engine to consider
a website important, the site must convince it of two things: that

it is well made and useful; and
that a large number of people think the same. A SEO service
will therefore aim to improve the
advertiser’s website and get other websites to link to it and
promote it.
The problem when dealing with SEM/SEO companies is how to
measure the effectiveness of the
service they provide. Customers have little choice but to trust
their SEM/SEO provider to do a
good job, and there are suspicions as to how capable many of
them are. Google has tried to tackle
this problem by starting its own certification program. A
Google certificate certifies that an agency
has adequate knowledge of the functioning of Google’s SEM
management tool AdWords. Results
to date have not been very satisfactory. Google certification has
failed to shed much light on the
market.
SMM
Social media marketing (SMM) services have appeared in
response to the popularization of online
interactive services. Blogs, forums and social networks are sites
where consumers devote time and

energy to exchanging opinions about all kinds of products.
Many companies have started to
actively take part in these exchanges in an effort to channel
opinion or simply increase brand
recognition. How to do this in environments where companies
control only part of the content is
far from obvious. Hence the appearance of SMM services.
Among other things, SMM services identify the browsing
profile of a company’s potential
customers, i.e., the websites they visit, the services and
promotions that are likely to interest them,
the bloggers they trust most, and so on. This serves as the
starting point for a complete
communication strategy. Among other things, companies may
try to draw debate toward websites
Business Case #7
that are controlled by them, give preferential treatment to the
most influential bloggers, propose
games that Internet users then recommend to one another, and
so on.
Web Analytics
Web analytics consists of compiling, measuring and evaluating

data on a website’s visitor traffic.
An analytical study of this kind will tell us how visitors come to
our website, which pages they
visit and in what order, which links they have followed, and so
on. This information will indicate
what type of advertising is most effective, which sections or
products attract most visitors, whether
visitors regularly consult the Help pages, which Help pages are
most useful, and so on.
Broadly speaking, web analytics can be done internally, using
specific software, or outsourced to
a specialized company. Most portals can be significantly
improved just by making good use of the
freeware tool Google Analytics.
Examples of Internet Use
Multi-Channel Campaign – “The Pink Bubble” by the Uriach
Group
Between May and July 2009, the Uriach Group, a
pharmaceutical company, launched a multi -
channel campaign to promote an antiflatulent called Aerored.
The target market were women
between the ages of 30 and 65, and the goal was to make them
aware of a product that was rarely

spoken about openly because it was so intimate and personal.
The online campaign would revolve around humorous videos of
the “Pink Bubble” character who
appeared in the television advertisement. These videos would be
used to make the advertisement
popular among Internet users. The specific goals for the online
medium were: 1) reach a total of
100,000 views in the Aerored channel on YouTube
(BurbujaAeroRed) through a series of low-
cost videos filmed with a handheld camera; and 2) stimulate
discussion and interaction among
Internet users in relation to Aerored.
The online marketing agency Digital Seed, which was
experienced in SMM, was commissioned
to achieve those goals. It established a series of complementary
lines of action, converging on the
two goals. 1) Pages featuring the Pink Bubble were created on
YouTube, Facebook and Twitter.
2) The target audience on Facebook was located and invited to
visit the Pink Bubble’s Facebook
page. 3) Groups and websites related to the brand, the product
and activities associated with the
target audience were contacted in order to non-intrusively reach
people who might be interested.

4) Bloggers and key influencers were contacted through Twitter
and provided with information,
so that they could talk about the campaign. And lastly, 5) the
online strategy was used to generate
online conversations around the campaign and its main
character, the Pink Bubble, and so direct
traffic to the Aerored channel in YouTube and generate more
Facebook fans.
The results of the campaign amply exceeded the initial goals.
The YouTube videos got more than
100,000 views and acquired a fan base of more than 5,000
Facebook users, 71% of them falling
within the product’s target profile. More than 600,000 users
were just two clicks away, and posts
about the campaign appeared in 25 of the top marketing and
advertising blogs in Spain.
Business Case #7
Viral Campaign - Banco Gallego’s “Depósito Amigo” (“Friend
Deposit”)
In January 2009, the footballer Fernando Torres made headlines
for having appeared in three fairly
tacky advertisements for what were rumored to be friends of

his. The fact that an international
footballer should lend his image to such campaigns aroused a
fair amount of sympathy among
online audiences, who quickly circulated links to the
promotional videos. It was not long before
doubts were raised about the authenticity of the advertisements,
but this merely served to fuel the
debate and so brought even more exposure.
On February 6, 2009, Banco Gallego and Fernando Torres
revealed the true purpose of the
advertisements: they were part of a much broader campaign to
advertise a new financial product.
Once the campaign had caught the audience’s attention, it would
continue with “conventional”
advertisements.7
The ads disseminated via the Internet undoubtedly helped build
awareness of the campaign at a
ridiculously low price. On YouTube alone the first of the ads
was viewed more than 250,000 times,
and the next two, more than 60,000 times.8
Interactive campaign - Quiksilver’s “Ambassador in Spain”
Between March and June 2009, fashion brand Quiksilver
conducted an online campaign to

promote its new line of women’s clothing. The campaign
consisted of a competition to choose the
brand’s “ambassador” in Spain. The ambassador had to be a
young artist, whether a painter, fashion
designer or singer. The winner would have the opportunity to
promote her career by becoming the
brand’s public image and taking part in its events.
The competition was presented through a microsite that was
open to candidates and the general
public. People who did not take part in the competition could
follow the campaign’s progress while
learning about the brand’s latest products in the competition
blog. They could also vote for their
favorite candidate before the brand announced the name of the
winner on June 23.
The Quiksilver campaign was talked about in numerous fashion
blogs and more than 10,000 people
submitted votes.
Exhibit 1
Updated Sources of Information
ONTSI
The National Telecommunications and Information Society

Observatory is a body attached to the
public agency red.es, which monitors and analyzes the
telecommunications and information
society sector.
ONTSI produces, collects, summarizes and systematizes
indicators, prepares studies, and provides
information and news services about the information society.
Business Case #7
Website: http://www.ontsi.red.es
IAB
The Interactive Advertising Bureau is an association of
companies involved with Internet
marketing. Its members include online advertising agencies,
advertising space providers,
technology providers, etc.
The IAB publishes an annual report on the evolution of the
online marketing market for its
members. An abbreviated version of this study is made available
to the general public.
Website: http://www.iabspain.net

Infoadex
Infoadex monitors and analyzes advertising (ADEX) in Spain.
For 365 days a year, it monitors,
archives and analyzes each and every advertisement inserted in
all the conventional media: cinema,
newspapers, billboards, Internet, radio, magazines, Sunday
supplements and television. These data
are used to produce reports for customers.
Infoadex also publishes a reduced version of some of its reports
for the general public.
Website: http://www.infoadex.es
The Cocktail Analysis
The Cocktail Analysis is a research agency and marketing
consultancy that specializes in
consumption trends, communication and new technologies.
Website: http://www.tcanalysis.com
Exhibit 2
Number of Internet Users in Spain, 1996-2008
Business Case #7

Exhibit 3
Sample Prices of Keywords for Different Searches
Business Case #7
Questionnaire
Q1.
With online internet marketing as a tool the targeting of
audiences is potentially more accurate. If
a company wishes to aim a certain demography of males then it
is simple enough to direct traffic
to sites where the bigger hits are recorded. Does this then
marginalize other males who reside
outside this bracket?
Q2.
Table 2 shows a demographic breakdown of internet users in
Spain over a 10 year period, the

greater income level user is that in the middle income bracket
and above. This goes to show that
the internet is not as accessible to people on lower incomes that
we are led to believe. Why are
lower income people not presented with more opportunities for
internet access?
Q3.
Statistics showing that 99.9% of large companies in Spain have
internet access, a figure which can
easily be transferred to most western European countries, are
we not moving away from the
personal side of business in favor of an electronic approach?
Q4.
Internet Marketing has revolutionized the way we look at
products and services and how we now
purchase our goods. With the correct approach new companies
can progress from inception to
profit with very little outlay, especially service industries.
Q5.
The growth of internet marketing and subsequently the year on
year growth of internet purchases,
are the smaller vendors who are traditionally a face-to-face
seller having to fall in line with the

internet only sellers who can provide the same product at a
lower price?
Q6.
The speed of the internet could well be providing an added
bonus and in some cases a hindrance
to companies and their customers. After sales service has now
become the norm with customers
only a click or two away from a formal complaint being made.
Can some companies make good
use of this and gain client confidence by dealing with issues
speedily?
Q7. (True/False)
When developing a marketing campaign great care has to be
taken into account with regards to
budget and of course the benefits in relation to the spend. If, for
instance television was the chosen
Business Case #7
medium, then slots for broadcast would have to be booked in
advance and a great cost, the internet
however, has switch-on switch-off capability as needed
dependent on the digital tracking results.

Q8. (True/False)
Despite the internet being accessible throughout the whole
world, virtually, and markets similarly
open to the world, marketing campaigns still have no guarantee
that their ads will be seen let alone
read, consequently ads need to still have the grab factor. A hit
on a website will not show what
content has been read and what hasn't.
Q9.
Is it possible for an internet based marketing campaign to have
such an impact on users that it can
develop a market that hardly existed before? How can a
marketer get the message out to
prospective consumers at minimal cost?
Q10.
Sponsored advertising with selected search engines can bring
extra traffic through a particular
website. These are dependent on search terms being used
however they are directed to the top of
the first page on a search. If the term is specific enough the
customer needs to go no further than
to click on the first site. Does this give value for money given
that the search terms in some cases

will need to be fairly exact?
Eco 361
Sum 17
Exam 1
1/5
Vocab
Please define 5 of the following 7 vocab words. Along with the
definition, please provide a hypothetical
example/scenario that applies said vocabulary concept. (4 pts
each, 20 pts total)
1. Objective Function
2. Cross Price Elasticity of Demand
3. Isoquant
4. Indifference Curve
5. Law of Supply

6. Law of Diminishing Marginal Utility
7. Coefficient of Determination (�2)

Eco 361
Sum 17
Exam 1
2/5
Short Answer
Please answer 5 of the following 6 questions. (6 pts each, 30
pts total)
1. Income elasticity of demand is defined as:
�� =
%Δ��
%Δ�
*Where "�� " represents quantity demanded and "�" represents
income.
If the good in question is normal, what should the sign of the
coefficient be? Use the given equation
to explain. (6 pts)

2. Consider the following supply and demand curves:
�� = � − ��
�� = � + ��
*Where a,b,c, and d are all constants. Assume that � > �.
Sketch a graph of this market and derive expressions for �∗
and �∗ . Show all work. Briefly explain
why we are not interested in situations where � < �. (6 pts)
3. Suppose a farmer wants to build a rectangular enclosure
along an existing stone wall. If the side
along the wall needs no fence, find the dimensions of the largest
enclosure that can be made with
500 feet of fence. Show all work.
4. Suppose you are a monopolist facing the following demand
curve:
�� = � − ��
Derive an expression for total revenue. Find its critical value.
Is this a minimum or maximum? How

do you know? Explain/Show work. (6 pts)
5. Consider the following Cobb-Douglas production function:
� = 100�√�
Does this production function exhibit increasing, decreasing, or
constant returns to scale? How do
you know? Explain. (6 pts)
Eco 361
Sum 17
Exam 1
3/5
6. Consider the following Cobb – Douglas utility function:
� = ��
*Note, it should be assumed that �, � > 0

Derive an expression for the marginal utility of good “X”.
Show that the marginal utility of X is
downward sloping under diminishing and constant returns to
scale. Does this negative slope always
hold when the utility function displays increasing returns to
scale? Why / Why Not? (6 pts)

Eco 361
Sum 17
Exam 1
4/5
Extended Response: Please answer all of the following
questions. (50 pts possible)
1. Consider the following (Cobb-Douglas) utility function:
� = �1
� �2
�
And budget constraint:
� ≥ �1�1 + �2�2

*Treat �1, �2, �, �, and � as positive constants.
Using these equations, please answer the following questions:
a. Formally state this consumer’s utility maximization problem
and write down the relevant
Lagrangian. (5 pts)
b. Using your work from part “a.” , derive demand curves for
�1 and �2. Show all work. (5 pts)
c. Show that the demand curves derived in part b. satisfy the
rule of equal marginal utility per
dollar spent (i.e.
��1
�1
=
��2
�2
). (5 pts)
d. Show that the law of demand holds for both �1 and �2. (5
pts)
e. Show that both �1 and �2 are normal. (5 pts)
f. Suppose � = 1,000 and � = � =
1

2
. Using the midpoint method, please calculate the price
elasticity of demand for �1 when �1 changes from 1 to 5.
Interpret the coefficient. How, if
at all, does this change in price influence the total revenue
generated from this person’s
purchase of �1? Show all work/explain. (5 pts)
2. Consider the market for taxi rides in some hypothetical city.
Explain, by using supply and demand
analysis, how each of the following actions will affect the
market. Full credit answers should
identify/explain the relevant S/D shifter(s), incorporate supply
and demand models into their
explanations, and carefully label their models. Please consider
each case separately.
a. Bus drivers go on strike, causing bus fares to increase. (5 pts)
b. Gas prices increase. (5 pts)
c. The population of the city increases. (5 pts)
d. The population of the city decreases. (5 pts)

Eco 361
Sum 17
Exam 1
5/5
Extra Credit Opportunity
1. Consider the following excerpt (from Ebay.com, Blog
Stories):
In 1990, Nintendo held a 30- city gaming tournament to find the
best player in the world. Players
had to get the best score in demo versions of three games –
Super Mario Bros, Rad Racer, and Tetris
– all within a six minute time limit. At the end of each city’s
tournament, the winners of each of the
three age groups were given special “championship cartridges”
exactly like those used in the
competition. Ninety cartridges were distributed worldwide.
Meanwhile, Nintendo also released a special “gold edition” of

this cartridge to those who won a
promotional contest in the pages of Nintendo Power magazine.
Only 26 of these, gold edition,
cartridges were released.
a. According to this article the “championship cartridge” has a
price range (at auction) of 10 -
20 thousand dollars (depending on condition). The last gold
edition to sell on eBay went for
$26,677. Both types of cartridge contain the same set of games
(played during the
tournament) and they likely costed essentially the same amount
of money to produce (one
is simply painted gold and the other grey). Begging the
question, why the difference in
price? Use supply and demand analysis to address this
question. Explain. (5 pts)

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