Week 2: Customers in the Digital World

Video Transcripts

Video 1: Customers in the Digital World: Overview

This week, we'll talk about customers in the digital world. If you recall the process of marketing
discussed in week one, it starts with understanding customer needs and behaviour. A deep
understanding of customers is the single most important factor in sustained marketing
success.
In this module, we will cover customer behaviour in the digital world and recent trends, peer
influence and its role in role in digital marketing, network effects and their types, and strategies
to leverage them in the digital marketing. Finally, we will provide an overview of the digital
marketing process.

Video 2: Recent Trends in Consumer Behaviour

In this video, we will discuss recent trends in online consumer behaviour that have an impact
on the digital marketing strategy. In today's times, consumers' behaviour is greatly influenced
by their online Interactions. The ease of sending marketing messages and sharing any
information online has resulted in an overload of information for consumers.
They are bombarded with advertisements that are mostly targeted and some are for testing
the impact. Consumers can research about brands, products, delivery times, warranty, etc.,
at their own leisure both within a site and across sites before making a purchase decision.
Consumers are becoming comfortable with and regular users of digital technologies. More
and more consumers use digital wallets and credit cards now and these are fast replacing
cash as a form of payment.
As you can see, cash payments are now significantly less than payments using credit cards,
e-wallets, and bank transfers. In fact, credit cards and e-wallets dominate the share in US,
China, and Europe. Consumers these days also increasingly use emails, apps, and chatbots
for communication with the customer support for resolving their issues or grievances.
The share of E-wallets is expected to increase from 35.2% in 2019 to 53.2% in 2025. More
people are willing to use their local suppliers compared to well-known global brands. Also, 89
to 90% customers are willing to pay marginally more for locally sourced items. Customers are
also more influenced by the environmental policies of companies and the support companies
provide to communities in which they operate.
Overall, customers have become more conscious of the support companies provide to issues
important for Society. Further, customers prefer transacting with companies that are in sync
with their own values. The exposure of customers to information concerning issues of concern
and the new challenges associated with online transactions such as data security have
motivated customers to be more thoughtful and selective in their decisions. Customers prefer
companies they trust.
Further, customers evaluate a company's conduct towards their community, employees, and
the environment before making a decision to interact with the company.

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 Let us examine the results of a market research by KPMG concerning key purchase drivers.
As we can see, 63% customers consider value for money an important factor in decision-
making. Other purchase drivers that contribute to the overall value sought by a customer from
the purchase are: Ease of buying; 42% customers consider this an important driver. Trust in
the brand is considered important by 41% of customers.
Personal safety is considered important by 40% of customers. Range of products and services
is considered important by 37% of customers. Customer experience is considered important
by 35%. And staff policy of the company is considered important by 19% of customers.
Euromonitor has identified some prominent trends in consumer behaviour that has
implications for businesses both as opportunities and challenges.
Consumers have become restless and rebellious and have become more cynical of
government and politics. They have become more safety-obsessed and demand contactless
services, exceptional sanitation standards and products that enhance hygiene and immunity.
Consumers are more shaken and stirred by the new challenges they are facing related to
work, personal life, health, and so on.
Due to economic challenges, consumers have become thoughtful thrifters; they budget
cautiously and purchase value-added and affordable products and services. Finally, they are
trying to find new work-life balance as remote collaboration has redefined a traditional office
environment. Consumers are also increasingly opting for e-retail platforms; nearly one in three
in India, and two in three in the US. Therefore, it is valuable to understand consumer behaviour
with respect to e-retail.
As per data from Bain & Company and Flipkart research, visitors spend less than nine minutes
per visit on an e-retail platform. One in two visitors browse the image gallery and one in 15
click on detailed product descriptions. Shoppers browse more than 20 product pages before
deciding and 50-60 pages when it coms to buying mobiles or women's ethnic wear.
Clearly, the design quality of the e-retail websites have an important role to play in success in
this domain. As you can see, this histogram shows detailed view of shopper behaviour on an
e-retail site. It shows that visitors visit 49 pages before purchasing a mobile and 58 pages
before purchasing women's ethnic wear. Since people are more likely to know their
preferences based on experience in case of personal care products, we find people visit 12
pages before making purchase in this category.
Note that visiting an average of 12 pages before purchasing even in personal care category
shows that people enjoy checking out other products even when they're mostly aware of their
preferences.
Trust comes up as an important factor for consumers in many studies and peers play a
significant role in this context in influencing consumer behaviour online. The next video looks
at peer influence in digital marketing.

Video 3: Peer Influence in Digital Marketing

In this video, we will discuss peer influence in digital marketing. What do we mean by peers?
Newman, in the "Handbook of Development Psychology" published in 1982, defines peers as
a group of members who know each other, share mutual knowledge and life experiences, and
serve as a comparison or reference to each other.

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 Research finds that individuals at an early adolescent stage, that is between 10 to 14 years of
age, maintain more intimate relationships with their peers and are more sensitive to one
another's emotional needs. Now that we understand what peers are, we need to understand
what peer influence is.
Peer influence refers to the influence of the behaviour of the people around us that impacts
our own behaviour. Therefore, in marketing peers' influence means how the behaviour of
others influences our buying preferences. Peer influence causes us to copy and comply in an
effort to impress other people or fit in with the social group.
Peer influence can be of many types.
The first type is conformity where peers adjust behaviour to match the norms of the group. An
example of conformity is iPhone usage by teens in the United States. 85% of the United States
teens own an iPhone and this figure is expected to remain stable if not increase. This is
attributable to the need to conform to the prevalent group norms which dictates the use of an
iPhone.
The second type of peer influence is social norms. Evolving norms that set the standard for
standard normal behaviour.
One dramatic example is a study by Professor Pedro Gardete on the peer influence of airline
passengers on consumer purchases. When someone next to us makes a purchase on a flight,
we are 30% more likely to buy something too. While this figure holds true for strangers, it
jumps to 50% if the person next to them is someone they know. There are other examples of
airlines' passengers. Irrespective of the announcement made by the cabin crew, if one person
stands up to leave the plane early, we find many others start getting up to leave.
The third type of peer influence is peer endorsement.
A vote of approval for a product from our friends and family increases the likelihood of similar
behaviour from us. A Deloitte study noted that nearly one in three US consumers are
influenced by social media in their purchases. About half of Hispanics felt the same way.
Recommendations and peer influence are extremely powerful, even though they are often
underestimated. We check restaurant ratings on Zomato before eating at a restaurant. We
check product ratings and reviews on Amazon, Flipkart, Myntra, before buying a product. We
check IMDB and Rotten Tomatoes for reviews and ratings before deciding on watching a
movie or a new TV series. The knowledge that many of our connections are using LinkedIn
Premium encourages us to opt for the same.
The fourth type of peer influence is peer pressure, which is changing our buying behaviour to
avoid the status of outsider. An example is Snapchat, where posting pictures to conform to
peer pressure is significant. The prominence of peer influence is visible in marketing headlines
found commonly in the media, such as, 70% of teens trust influencers more than traditional
celebrities, 86% of women use social media for purchasing advice. Influencer marketing
campaigns earned 6.5 US dollars for every dollar spent. Two-thirds of the marketers promote
content with the help of influencers.
There are two conclusions regarding our discussion concerning peer influence so far.
First, peer influence is significant in online consumer behaviour. And second, it is enabled by
social media platforms to facilitate peer channels and amplify peer influence and group
behaviour.

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 For example, lifestyle brands can be found everywhere, beach, sports, fashion, adventure or
music. Some companies that have become cultural icons include Nike, The North Face,
Chanel, Dior, Beats, and Chips.
Such brands actively use influencers and celebrities demonstrating the power of peer
influence. Data about online consumer behaviour can be used to analyse the impact of peer
influence on behaviour. As data analytics advances, we may be able to estimate peer
influence in real time and get deeper insights. Peer influence can have a positive impact as
well. For example, weight watchers rely on the public encouragement of others to shed kilos
and keep them off.
Social media powered campaigns like "Ice Bucket Challenge" raise money for good causes.
Now let's take a look at how peer influence impacts online marketing dynamics. Most human
behaviour is the result of learning from other humans. It is this peer-to-peer socialisation that
produces fads, trends, and seismic shifts.
Design choices of online trading platforms can exacerbate peer influence effects and market
behaviour. Social media websites provide a public forum that gives individual consumers their
own voices as well as access to product information that facilitates their purchase decisions.

Video 4: How Companies Can Use Peer Influence

In this video, we want to understand how companies use peer influence. Towards that goal,
we want to understand factors that affect peer influence. Some factors known to affect peer
influence are global factors such as culture, sub-culture, socio-economic class.
Social factors such as reference group, family roles and statuses, and personal factors such
as age, profession, financial strength, lifestyle, and personality. Only three percent of the
respondents find marketing and sales trustworthy. This is important in the context of online
marketing since trust with consumers is a key factor driving online business. And this is where
companies can use peer influence online to gain consumer trust. But how can companies use
peer influence?
While business owners can't make consumers use social media, they can influence the kinds
of things a social media connected consumer finds. Millennials and Generation Z, consume
content on YouTube, Insta, Snapchat, rather than TV. Therefore, companies can employ
influencers based on the reach of posts, online engagement, and potential conversion rate.
Celebrity endorsement drives brand awareness, whereas smaller scale influencers drive
purchasing behaviour. Effect of peer influence differs between celebrities and influencers.
People with tens of thousands of followers are more relatable to the peer group people aspire
to be part of.
Celebrities on the other hand, belong to an exclusive, inaccessible group. For example, men
wanting to be stylish are more likely to listen to Aron Marino than Brad Pitt, because Aron is
seemingly somehow closer to the average person, whereas the celebrity, Brad Pitt is on a
pedestal. Consider another example. If I were trying to build a clothing brand for teens, I would
work on dominating local markets one by one. It is going to be more potent if one in ten people
in a high school in Indiana wears my product, rather than one in 1000 nationally.
A significant portion of peers modelling a brand is going to have a powerful viral effect. People
will take notice. Let me share some key takeaways on peer influence. Peer influence depends

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 upon consumer and peer characteristics. Adolescents are more susceptible to peer influence.
Look for peer influence factors at play in your market. Develop successful marketing strategies
based on the understanding of peer influence and consumer behaviour.

Video 5: The Network Effect: Introduction and Examples

We will now discuss network effects and their value in digital marketing. Network effects span
from ideologies, to relationships, and thus online and social media. But what exactly are
network effects? A network effect is present when new, additional users, signing up for a
product or service, increase its value and utility for current and future users.
Therefore, a product displays positive network effects when more usage of the product by any
user increases the product's value for other users and sometimes for all the users. Network
effect is not a new concept.
A good example of network effect is telephones. The value and utility of a telephone depends
on the connection with other telephones on the network and the number of connections that
can be formed. If you can't use the telephone to call your family and friends, the technical
superiority of the device simply won't matter.
Some other prominent examples of network effects are the Internet and Facebook.
The Internet is the greatest example of network effect at play. As the world becomes
increasingly connected, the Internet became more and more valuable to the point of
indispensability. Another example is Facebook that started as a close-knit network powered
by Harvard students. Facebook maintained its user integrity by assuring the authenticity to
users and creating community rules to make the social experience accessible and enjoyable
by all, gradually expanding first to other campuses and then to the public. Its competitors, such
as MySpace failed because it did not enjoy the network effects, like Facebook did.
Facebook's rapid growth, particularly after one billion users, has given it monopolistic influence
that is almost unassailable, apart from all the cash they rigged in with digital marketing and
curated content. The company's deep pockets have allowed it to acquire Instagram and
WhatsApp. There is no doubt that network effects are very powerful. But what is the reason
for their power? Simply put, costs of maintaining a network increase in a linear fashion with
users.
However, the value provided by the network to its users increases exponentially. This means
that in the long term, in businesses and domains where network effects play a role, the number
of players will decrease while their influence and power will increase.
For example, it is difficult to discontinue using WhatsApp because the network effects in
WhatsApp, lock in customers and make the cost of switching away from WhatsApp too high
for customers. If a customer leaves WhatsApp, she would lose all her network connections,
and all of them may not be present on alternative networks.
Despite indignant voices and outrage over privacy, WhatsApp remains the most popular
instant messaging app worldwide, with 2,000 million active monthly users.
Another important aspect of networks is that they run themselves. Classified advertising
Internet forums like Craigslist in the United States and Surekha in India are the perfect
examples of the sheer power of networks.

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 Their direct network effects are the reason these forums were dominant and still are very
relevant despite the inferior functionality and design, absence of any customisation, and
potential for fraud.
As of 2018, Craigslist generated a revenue of about US$1.034 billion, with profit margins of
almost 90%. And how much effort does it take to rake in so much money? Fifty employees.
Similar to Craigslist are—Wikipedia for information, Ebay for E-commerce, and Tinder for
dating.
Now, let's understand the difference between network effect, virality, and economics of scale.
Network effects are not the same as virality. Businesses and campaigns are called viral when
the rate of growth increases with each additional user.
Mailchimp and Hotmail are two examples of products that went viral but did not exhibit network
effects.
On the other hand, Alibaba and App Store benefited from network effects without going viral.
Similarly, network effects are not economies of scale. Economies of scale refers to the
reduction in cost due to a higher volume of production. On the other hand, network effects
produce greater value for the marginal increase in cost. As networks grow larger the cost does
increase, but the value of the product increases faster.

Video 6: Types of Network Effects

We will now discuss the type of network effects. The first type of network effect is the direct
network effect. In this type of network effect, an increase in usage of a product or service leads
to an increase in its value and utility for all users of the same.
In other words, the value of a product service or platform increases simply because the
number of users increases, and the increase in users causes the network to grow itself. Apart
from Telephone and WhatsApp, Skype and Bitcoin are good examples of direct network
effects.
Direct network effects are present in social media platforms because the platforms value for
all users grows as more users join the platform. The second type of network effect is called
indirect network effect. This type of network effect is set to occur when a platform or service
depends on more than two user groups such as producers and consumers, buyers and sellers,
or users and developers.
As more people from a group join the network, the other group receives more value from the
network. In other words, in this type when the usage of a product or service increases, it gives
rise to the production of associated valuable products or services, which in turn drive increase
of value to other existing as well as new users of the network.
For example, Facebook's growth and value spawned a number of social gaming and e-
commerce groups that, in turn, made it more appealing to other Facebook users.
Another example is that of ride-sharing services such as Uber and Ola. More taxis in the
network do not increase value for the taxi owners. However, they make the service more
valuable to riders, and more riders make the network more attractive for all taxi owners.

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 Another type of network effect occurs in two-sided networks. In this type, there are two main
groups of users, and the network effects can flow across both groups of users. As one set of
users increases its usage of the product, it increases the value of a complementary product to
another distinct set of users and vice versa.
Aggregator companies, such as Uber and Airbnb, owe their growth to two-sided network
effects.
Let us consider the example of Airbnb in detail. In Airbnb, value is created for property owners
only if there exists a sufficiently large population of travellers, and a consistent flow of travellers
through Airbnb properties as well.
On the other hand, value is created for travellers only if there are a sufficient number of
property owners listed on Airbnb, both in terms of options at a location and coverage at other
places.
Only if and when both sides of the network scale up to a critical level, both parties obtain value
in the form of consistent income and availability of options, in terms of time, price, and location.
At Airbnb, listings grow linearly, but the value can grow exponentially.
So, what is the difference between direct and indirect network effects? While growth happens
in both due to network effects, one distinguishing factor between the two is that the type of
user who joins, matters.

Video 7: Strategies to Leverage Network Effects

We will now discuss some strategies that companies can use to leverage network effects.
Businesses can create network effects by providing high-quality products and customer
service. They can make consumers the centre of their networks through high engagement,
referral promotion, community creation, and organic digital marketing. A company's Unique
Selling Proposition, or USP, must be the starting point for the network.
But only an engaged and effective community around that can retain customers. A company
must try to achieve economies of scale on both supply and demand side. And the scaling and
growth must be matched by retention and engagement. Failure to do so can lead to growth
when viewed through numbers without adding any value to consumers or the company.
The company would continue to spend on customer acquisition without sustainable benefits.
If possible, companies making complementary products must partner to better coordinate their
strategies for the complementary products for creating value, customer engagement, and
scaling up.
It is better to dominate smaller markets to acquire a critical mass of customers that makes the
business viable before taking advantage of network effects. Once a company achieves
network effects, there are several ways in which it can exploit it for business advantage.
Network effects allow a company disproportionate influence in the lives of its customers. For
example, Facebook, WhatsApp, and Amazon; all have become indispensable for their users.
The users engage with them regularly and the companies have a significant influence on the
attitudes and actions of their users.
The companies can use this influence and data on customer behaviour to target customers
with suitable promotions and improve the effectiveness of their promotions. They can use the

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 data and understand the issues faced by the customer and develop better new products and
services.
They can mine the customer engagement data to create better customer experiences and
further improve their value proposition for new customers. They can influence customer
attitudes towards products, services, and social issues in positive or negative ways.
The power of networks can be misused by a company as well. A company's strong
engagement with customers shifts the power balance towards the company and allows it to
exercise almost monopolistic power, sometimes negatively. Through the market power
obtained by a company through network effects, the company can dictate industry standards
and practices, make it difficult for new players to enter the market thus stifling innovation.
For example, as the size and reach of content curation platforms increase, there's a
proliferation of low-quality content. And companies have little incentive to focus on business
quality and practices, as network effects cause complacency to set in which reduces the
company's internal growth.
The company focuses more on acquiring customers and the quality of connections takes a
backseat. The increasing clout of such networks often favour early users over new users,
resulting in a non-uniform experience for new users. Many companies that have grown through
network effects can exert harmful effects on the economy and public opinion.
For example, fast-spreading rumours through a large network of users can create panic about
health issues, overwhelming the healthcare system in a region, such as during the COVID
crisis. The significant influence of Twitter on public opinion and its independence has often
created issues with the government of countries it operates in.

Video 8: The Digital Marketing Process

We will now discuss the steps involved in the digital marketing process. Digital marketing
involves the following steps.
First, we must define the objectives of digital marketing. The objective can be related to
branding or performance or both. For example, some campaigns may be aimed to increase
brand awareness and recall, while others may aim to increase some actions on the part of the
consumers such as purchases or conversions or shares.
At the time of setting objectives, it is helpful to identify the metrics to measure performance.
For example, if the aim is to create brand awareness, then one metric could be brand recall.
The company can conduct marketing research to measure brand recall after the campaign. If
the aim is engagement with content, then some metrics could be number of likes, shares and
comments.
Similarly, if the objective of digital marketing is to encourage customers to take some action,
then metrics could be click-through rate or CTR, cost per requisition, sentiment scores and so
on.

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 Second, we must decide who the buyers are, that is, build buyer profiles or personas. In this
step, you must consider your segments of customers and define one or more representative
customers in each targeted segment.
A detailed profile of a representative customer is called the "buyer persona" of that customer.
All customers are not the same, they differ on many factors relevant to the purchase decision.
Therefore, the company should develop multiple personas representing multiple groups of
buyers. These personas may belong to the same segment or different segments.
This can be done using analysis of existing data and other information such as customer
needs analysis, social media profile of customers, audience reports in Google analytics and
social media buzz analytics. Typically, a company wants to focus upon and develop personas
of the most valuable customers. In building personas, you need the following information for
each persona, that is each group of customers.
First, who are the customers in the group? In this, you want to identify the demographic
variables associated with the customers such as: gender, age, location, education, work
responsibility and title and any other information available that may help identify them better.
You also want to identify the psychographic variables associated with them, such as their
values, interests and opinions.
Next, you want to know what do they want? In this, you should understand the needs of the
customers in depth, that is the problem they want to solve using your product or service. You
must understand their deeper motivations and objectives, including passions, media
consumption habits and their other behavioural elements.
Next, you want to ask yourself why they would buy your offering?
You must define a unique selling proposition that would create superior value for the
customers to choose your product or service over all other alternatives.
The next step defines the buyer journey: that is the journey of each buyer persona across
various steps of the purchase funnel. That is from becoming aware of the product or service
all the way through various steps, to finally purchase it.
After understanding and defining the buyer journey, the next step involves identifying content
that should be shared with each buyer persona. Different buyer personas have different
characteristics and may require different content to meet the campaign objectives.
Content may include videos, pictures, podcasts, infographics, webinars, games, blog posts,
e-books and other type of multimedia content. A good way to make decisions at this step is to
analyse what has worked in the past and use similar content.
Another way is experimentation, where you send out different content options to different
groups within the same buyer persona, and retain the option that performs better on outcome
metrics.
Once the content is decided, the next step involves what channels should be used to reach
each buyer persona. Digital channels to reach customers are broadly divided into three
categories: paid, owned and earned. In this step, you decide how much you would invest in
paid, owned and earned content. Then you decide details within each category.
For example, in the owned media category, do you want to have a full website or a microsite?

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 Do you want to have a blog? Do you want dedicated social media channels? Which social
media platform will you use and your priority among the options?
In earned media, do you focus on outside blogs? How would you create content to increase
customer engagement? In the case of paid media, which paid media outlet would you choose
for your campaign? Will you run it on search engines, Instagram, Facebook, Twitter or on
banners on websites?
The next step in this process involves setting the timelines for activities.
A detailed calendar of activities must be prepared. Typically, it is prepared month-wise with
details of which activities are going to be done in which month. Further, other details such as
the content strategy and channel strateg, must be detailed week-wise so that the metrics can
be tracked closely and actions can be taken to meet the objectives.
The next step in the process is to allocate the budget. What would be the total digital marketing
budget? The answer depends upon the percentage of the overall marketing objectives that
are to be met through digital marketing. Naturally, for some categories such as online gaming,
digital marketing may take up the entire marketing budget, or at least a big part of it.
The budget would further be subdivided into a budget for the paid, owned, and earned content
that we plan to create. This allocation would depend upon the cost estimate of each. Overall,
our objective is to meet the campaign objectives at minimum costs.
In the final step, the company has to decide on the metrics to measure the performance of the
digital marketing campaign. As discussed earlier when discussing the objectives of the
campaign, the measurement metrics would depend upon the objectives for the campaign. The
measurement is the last step in the digital marketing process.
In the next video, I will present a summary of the material covered so far.

Video 9: Customers in the Digital World: Summary

So far in the course, we have broadly covered what is digital marketing, its relationship with
the wider marketing strategy, and how digital has impacted the elements of the marketing mix;
namely the four Ps in module one. In this module two, we have covered consumer behaviour
in the digital domain, peer influence, network effects, and the digital marketing process. This
ends module two. In the next module, we will discuss the customer journey in the digital world.

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