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 Pricing, Online Marketing Behavior, and Analytics

DOI: 10.1057/9781137413260.0001
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DOI: 10.1057/9781137413260.0001
 Pricing, Online
Marketing Behavior,
and Analytics
Giampaolo Viglia
Research Fellow, University of Eastern Piedmont, Italy

DOI: 10.1057/9781137413260.0001
pricing, online marketing behavior, and analytics
Copyright © Giampaolo Viglia, 2014.
Foreword © Aurelio G. Mauri, 2014.
Softcover reprint of the hardcover 1st edition 2014 978-1-137-41325-3
All rights reserved.
First published in 2014 by
PALGRAVE MACMILLAN®
in the United States—a division of St. Martin’s Press LLC,
175 Fifth Avenue, New York, NY 10010.
Where this book is distributed in the UK, Europe and the rest of the world,
this is by Palgrave Macmillan, a division of Macmillan Publishers Limited,
registered in England, company number 785998, of Houndmills, Basingstoke,
Hampshire RG21 6XS.
Palgrave Macmillan is the global academic imprint of the above companies
and has companies and representatives throughout the world.
Palgrave® and Macmillan® are registered trademarks in the United States,
the United Kingdom, Europe and other countries.

ISBN: 978-1-137-41326-0 PDF

ISBN: 978-1-349-48988-6

Library of Congress Cataloging-in-Publication Data is available from the

Library of Congress.
A catalogue record of the book is available from the British Library.
First edition: 2014
www.palgrave.com/pivot
doı: 10.1057/9781137413260
 Contents
List of Illustrations vi
Foreword by Aurelio G. Mauri vii
Acknowledgments xiii

Introduction 1
1 Definition of Online Marketing 4
2 Online Marketing Communication
Channels 23
3 Online Marketing Metrics and Analytics 39
4 Online Pricing 48
5 A Peculiar Type of Revenue Management:
Overbooking 68
6 Case Study: Applications for the Hotel
Industry 76
Conclusions 87

References 90
Index 101

DOI: 10.1057/9781137413260.0001 v
 List of Illustrations
Tables
1.1 Comparison of traditional and online
marketing 8
1.2 Five-step consumer buying decision model 15
4.1 Matching buyers and sellers as a function
of the market 49
4.2 Types of promotions and different roles 52
5.1 Reservation rights and cancellation rights 70

Figures
4.1 Prospect theory function 60
4.2 Decision weights 61
4.3 Prelec’s curvatures 63
5.1 Overbooking problems 71
6.1 Main online marketing channels used
by hotels 83

vi DOI: 10.1057/9781137413260.0002
 Foreword: Marketing
and Pricing in the
Digital Environment
Aurelio G. Mauri

During the last years radical changes in the global

economy have dramatically affected business strategies
and transformed the habits of customers and firms and
the ways they interact. The nature of competition and
the forms of organizing and managing corporations, as
well as consumer behaviors, have all been significantly
modified. Furthermore, as observed by Philip Kotler
(2000), change is occurring at an accelerating rate.
Globalization, technological advances, and deregulation
are the three fundamental drivers of this rapid and sig-
nificant evolution.
The present book, written by Giampaolo Viglia, deals
with the impact that new information and communica-
tions technologies (ICTs) have on marketing strategies
and tactics. The author gives special attention to the new
marketing and communicative tools that can be used to
interact with customers, and then on pricing issues and
revenue management techniques. Writing the foreward
for this book, fruit of the research work of the author
within Italian and Spanish universities, is an appreci-
ated opportunity for me to remark on some particular
considerations.

DOI: 10.1057/9781137413260.0003 vii

viii Foreword

The impact of new ICT technologies

ICT developments and the widespread use of the Internet play a central
role in the new economics of today. The Internet is an effective, efficient,
and ubiquitous information platform that allows both firms and custom-
ers to reduce costs for information seeking (Sharma & Sheth, 2004). As
a matter of fact, a substantial effect of the Internet is a strong reduction
in the costs of information. In consequence of recent progress in mobile
technology and of the fast proliferation of portable devices, the mobile
channel has also arisen as a powerful tool for marketing activities.
The expansion of the digital environment, as noted by Teece (2010),
“require[s] businesses to re-evaluate the value propositions they present
to customers” and “the supply side driven logic of the industrial era
has become no longer viable.” In fact, as indicated by Vargo and Lusch
(2004), the business orientation has shifted from tangibles toward intan-
gibles, such as skills, information, and knowledge, and toward interac-
tivity and connectivity as well as relationships with the co-creation of
value. Moreover, the Internet has permitted the entry into the market of
new players and the use of new distribution channels. In addition, the
Internet offers firms an important opportunity to enlarge their market
base by selling products online. More generally, it is now possible to
enrich the products/markets combinations fulfilled by a company.
The role of computing advances in the economic area and their
implications for business management and marketing have inspired
many publications on the topic, written both by academics and by prac-
titioners. The terms (or labels) used by the numerous authors are varied:
digital marketing, e-marketing, Internet marketing, online marketing,
web marketing, and so forth (Chaffey et al., 2006). Often the choice of a
specific term is influenced by the focus on specific channels and devices
as well as by the emphasis on tactical and technical issues (Merisavo,
2005).

Digital marketing and consumer behavior

Marketing activities belonging in distribution, transaction, and commu-
nication contexts are greatly affected by the digital revolution (Peterson
et al., 1997; Kiang et al., 2000). Digital marketing is based on and takes
advantage of the use of new technologies to collect, manage, elaborate,

DOI: 10.1057/9781137413260.0003
 Foreword ix

and provide information so as to communicate with customers and to

conduct economic transactions. Also, marketing metrics for business
performance control can be more insightful and efficient than in the past
because of these new technologies.
The digital framework influences management and marketing at
cultural, strategic, and tactical levels. More widely, the focus has moved
from the producer to the consumer (taking shape as a customer-centric
perspective). Electronic marketplaces support product and communica-
tion personalization/customization. Variegated customer needs can be
fulfilled more easily and less expensively thanks to the lower cost provi-
sion of information and customer solutions. As a consequence, custom-
ers have more numerous and specific product and brand choices, and
the competing alternatives for supply are more transparent. In addition,
the birth of meta-search websites has made it easier for clients to make
comparisons among many different offers. Customer behaviors have
changed. The web has radically changed the manner in which people
research information, communicate, make decisions, and especially the
way they purchase goods and services. In particular, tourism products
have become one of the most suitable product categories for sale through
this digital channel (O’Connor, 2002).
Distribution issues are greatly affected by new technologies, with the
affirmation of multi-channel distribution and the phenomena of disin-
termediation and reintermediation. Thus, the study of how consumers
consider and choose online versus offline channels becomes crucial
across all the successive stages of the buying process, as well as how these
decisions are affected by the consumer’s previous experience. In many
sectors (e.g., tourism) the multi-channel sales approach makes manag-
ing pricing policies more complex. In fact, the so-called “price parity”
among different distribution channels has become a key concern for
managers. Consequently, conflicts among different channels may arise.
New technologies have also deeply impacted corporate commu-
nications. In order to face and manage the variety of media tools and
techniques, integration has become a key concern. Integrated marketing
communications is a comprehensive approach addressed to ensure stra-
tegic and creative integrity across all media (Linton & Morley, 1995).
Furthermore, the Internet is not a means employed only by firms and
organizations, but it is used more and more by individuals in order to
make their personal thoughts, product evaluations, and opinions easily
available to the global community of Internet users. Word-of-mouth,

DOI: 10.1057/9781137413260.0003
x Foreword

an ancient modus operandi within human society, has been further

emphasized and boosted by new technologies. Online feedback mecha-
nisms and customer reviews have a deep impact on customer purchase
intentions (Mauri & Minazzi, 2013).

Pricing and revenue management

In the digital environment price has acquired a special and more
important role. New technologies offer new effective managerial
instruments for pricing policies but also make pricing more difficult
and complex to manage. Throughout most of history, prices were set
by negotiation between buyers and sellers (so-called bargaining). But
now, in contrast, setting one price for all buyers is the norm, a rela-
tively new idea developed with mass production and modern retailing.
However, recently the web has been reversing the policy of fixed pric-
ing (“one price for all”). New technological equipment has offered to
online sellers an unprecedented chance to track and analyze customer
behavior and to obtain valuable information about customers’ prefer-
ences (the possibility of customizing products) and greater knowledge
about their price sensitivity and their willingness-to-pay (Hinz et al.,
2011). As a result, differential pricing, or price discrimination, has been
employed. It is a powerful tool that permits sellers to improve their
profits and reduces the consumer surplus held by buyers. Furthermore,
price discrimination enables sellers to supply buyers that would other-
wise be priced out of the market, an outcome that augments economic
efficiency (Bakos, 1998). It is also simpler to monitor and deal with
competitors’ prices by operating dynamically (dynamic pricing). Price
changes are easier, almost inexpensive, and potentially more effective
with dynamic pricing. New technology has made dynamic pricing not
only widely possible but also commercially feasible and more profit-
able (Elmaghraby & Keskinocak, 2002). Furthermore, it allows special
attention to be given to the various psychological dimensions of price
and their impacts on perceived value, fairness, and brand loyalty
(Grewal et al., 2003).
In the last decades revenue management has emerged as a chief topic
in various service industries, especially in tourism businesses. Concisely,
revenue management can be delineated as a collection of coordinated
techniques and business practices utilized for increasing profitability,

DOI: 10.1057/9781137413260.0003
 Foreword xi

both by differentiating prices and by managing capacity allocation

(Mauri, 2012). Revenue management is applicable to any business that
has a relatively fixed capacity of perishable inventory with differentiated
demand, has a high fixed-costs structure, and involves varying customer
price sensitivity. Revenue management exploits differences in purchas-
ing behaviors by diverse market segments. Consequently, pricing and
capacity allocation to various market portions are key levers. These are
topics that are constantly evolving with the development of the Internet
and of the continuing progress of the information and communications
technologies. Although the profitability results of revenue management
techniques appear evident, the integration between revenue manage-
ment and customer relationship management is more complex and is
becoming a crucial concern from a long-term view.

References

Bakos, Y. (1998) “The emerging role of electronic marketplaces on the

Internet,” Communications of the ACM, 41(8), pp. 35–42.
Chaffey, D., Mayer, R., Johnson, K., and Ellis-Chadwick, F. (2006)
Internet Marketing: Strategy, Implementation and Practice (3rd ed.),
Harlow: Financial Times/Prentice Hall.
Dellarocas, C. (2003) “The digitization of word of mouth: promise and
challenges of online feedback mechanisms,” Management Science,
49(10), pp. 1401–1424.
Elmaghraby, W., and Keskinocak, P. (2003) “Dynamic pricing in the
presence of inventory considerations: Research overview, current
practices, and future directions,” Management Science, 49(10), pp.
1287–1309.
Frambach, R.T., Roest, H.C.A., and Krishnan, T.V. (2007) “The impact
of consumer Internet experience on channel preference and usage
intentions across the different stages of the buying process,” Journal of
Interactive Marketing, 21(2), pp. 26–l41.
Grewal, D., Iyer, G.R., Krishnan, R., and Sharma, A. (2003) “The
Internet and the price–value–loyalty chain,” Journal of Business
Research, 56(5), pp. 391–398.
Hinz, O., Hann, I., and Spann, M. (2011) “Price discrimination in
e-commerce? An examination of dynamic pricing in name-your-
own-price markets,” MIS Quarterly, 35(1), pp. 81–98.

DOI: 10.1057/9781137413260.0003
xii Foreword

Kiang, M.Y., Raghu, T.S., and Huei-Min Shang, K. (2000) “Marketing

on the Internet—Who can benefit from an online marketing
approach?” Decision Support Systems, 27(4), pp. 383–393.
Kotler, P. (2000) Marketing Management, Millenium Edition (10th ed.),
New Jersey: Prentice-Hall.
Linton, I., and Morley, K. (1995) Integrated Marketing Communications,
Oxford: Butterworth-Heinemann.
Mauri, A.G. (2012) Hotel Revenue Management. Principles and Practices,
Milano: Pearson.
Mauri, A.G., and Minazzi, R. (2013) “Web reviews influence on
expectations and purchasing intentions of hotel potential customers,”
International Journal of Hospitality Management, 34(4), pp. 99–107.
Merisavo, M. (2005) “The effects of digital marketing on customer
relationships.” in Saarinen, T., Tinnilä, M., & Tseng, A. (eds),
Managing Business in a Multi-Channel World: Success Factors for
E-Business (pp. 89–104). Hershey: Idea Group Publishing.
O’Connor, P. (2002) “An empirical analysis of hotel chain online pricing
strategies,” Information Technology and Tourism, 5(2), 65–72.
Peterson, R.A., Balasubramanian, S., and Bronnenberg, B.J. (1997)
“Exploring the implications of the internet for consumer marketing,”
Journal of the Academy of Marketing Science, 25, 329–346.
Sharma, A., and Sheth, J.N. (2004) “Web-based marketing. The coming
revolution in marketing thought and strategy”, Journal of Business
Research, 57, pp. 696–702.
Teece, D.J. (2010) “Business models, business strategy and innovation,”
Long Range Planning, 43(2), pp. 172–194.
Vargo, S.L., and Lusch, R.F. (2004) “Evolving to a new dominant logic
for marketing,” Journal of Marketing, 68(1), pp. 1–17.

DOI: 10.1057/9781137413260.0003
 Acknowledgments
A team of passionate people helped me to produce this
book by offering me updated material and giving their
precious feedback.
Aurelio Mauri, Associate Professor at IULM University
(Milan) gave me great insights on the more rigorous
academic part. His genuine piece of advice was constant
throughout the development of this work.
If this book can push the boundaries of a strictly
academic audience the merit is of Maria Manolioudi,
Marketing Associate at Vista Print and Farhan Malik, an
experienced hospitality manager who patiently guided me
through the latest communication channels (Chapter 2)
and the application of theory to the hotel industry
(Chapter 6), respectively. Without their contribution I
could never have used this applied lens alone.
The anonymous reviewers of a first draft of the book
were constructive and generous with their proactive ideas
to improve the quality of the manuscript.
Roberta Minazzi, Assistant Professor at University
of Insubria, wrote an interesting section on the effect of
reviews on consumer preferences within the framework of
social media (Section 2.5.1).
Lilija Spiglazovaite (Msc) and Sara Karimi Davar (Msc)
provided research assistance and helpful comments.
Leila Campoli and Sarah Lawrence, Associate Editor and
Editorial Assistant of Palgrave Macmillan, respectively,
showed understanding and offered me flexibility during
the whole process.

DOI: 10.1057/9781137413260.0004 xiii

xiv Acknowledgments

Other people, David Morris Hamilton-Ely, Stefanie Guillard and

Francesc Tribò, assisted me with proofreading and organizational issues.
Last but not least, my family tolerated the unpredictability of a typical
academic life.
I’m endlessly grateful to you all.

DOI: 10.1057/9781137413260.0004
 Introduction
Viglia, Giampaolo. Pricing, Online Marketing Behavior,
and Analytics. New York: Palgrave Macmillan, 2014.
doi: 10.1057/9781137413260.0005.

DOI: 10.1057/9781137413260.0005 
 Pricing, Online Marketing Behavior, and Analytics

Online marketing is a necessity in today’s competitive environment. It

has played a central role during the last decade in changing how the
customer relates to business and vice versa. The goal for the present and
the future for online marketers is to know how to make your presence
known, not simply to be online.
Marketing practices have dramatically shifted with the sudden growth
of social media and the proliferation of devices, platforms, and applica-
tions. This rapidly changing environment presents new opportunities
and challenges for marketers. Marketers need to stay up to date on the
evolution of e-marketing. Undoubtedly, online marketing is in full swing,
and more is yet to come. This book aims to be a useful tool for research-
ers, practitioners, business students, or anyone who has a keen interest in
online marketing specifically—not just general marketing. A background
in business, advertising, or marketing is required to get the most of the
content as it is based on marketing and economic theories, frameworks,
practices, and pricing strategies. Having said that, the material in this
text is targeted toward an academic audience. The aim of the author is
to instruct the reader in the theories and practices of online marketing;
the characteristics, consumer behavior, differences between platforms,
analytics, and pricing strategies of new media will be explored in depth.
This book covers many different aspects of how online marketing
works, its tools and its continuous evolution. The case studies and exam-
ples are used to illustrate the theory and explain the characteristics of
the elements in a practical way. There is a supportive literature review
to highlight what was previously done. Throughout the book, the use of
mathematics is narrow. Only Chapter 5, which analyzes the overbooking
practice in an analytical way, requires a working knowledge of math-
ematical functions and basic statistics.
We introduce online marketing in the first chapter, its history and
evolution as well as its characteristics. Also, we make a comparison
between online and traditional marketing, and we present the different
product categories and the profile of the online consumer in view of the
factors that make him or her buy. Targeted marketing gives a significant
competitive advantage, so companies struggle to segment and create the
right profiles of their customers. Accordingly, we present metrics and
analytics in the third chapter to help companies understand their audi-
ence and thus create successful campaigns.
The second chapter focuses on the communication channels that
span from online display to mobile and affiliate marketing, and older

DOI: 10.1057/9781137413260.0005
 Introduction 

ones such as e-mail and social media marketing. Using new tools and
techniques, users will be better able to maximize profits and optimize
their online presence.
The third chapter presents web metrics and analytics and discusses
how they can improve marketing performance. There is also an inter-
esting digression on the role of ethics and security for consumers when
paying online. This last topic is gaining importance due to the increase
of online fraud.
The fourth chapter focuses on revenue management theories and
strategies, including reference and dynamic pricing, giving a clear view
of the economic aspects of online marketing and helping the reader
understand what is behind the online marketing process.
In the last two chapters we present applications: Chapter 5 formally
presents the advantages and risks of overbooking, a revenue manage-
ment technique, while Chapter 6 discusses a case study of the hotel
industry with specific examples of the explained terms and information
in the previous chapters. The hotel industry has witnessed a significant
impact by Internet marketing, and, as a result, a breakthrough in tourism
has occurred. The majority of the customers these days do not search
for hotels in yellow pages or call to book rooms, but instead they book
directly via the Internet or through a global distribution system of travel
agents. Traditional methods of cold calling and making appointments
to increase hotel bookings still work, but hotels need to have a virtual
presence, as explained in the Chapter 6.
This book, balanced between a consumer and a professional lens, tries
to fill all these gaps and give the necessary insights on online marketing
and its future evolution.

DOI: 10.1057/9781137413260.0005
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