Online marketing basics: market efficiency and parallels with physical market

Market efficiency largely depends on the availability and accessibility of info on products and services. If, let’s say, there is no info available on goods quality, potential buyers will not be inclined to purchase them because of high uncertainty and risk. The quality of digital products can only be judged after their consumption, and many information products are purchased by consumers only once. This forces manufacturers to think about how to convince customers as a commodity, and buyers carefully ponder every purchase.

In the physical market, with the time passing on and repeated purchases made, a consumer estimates the quality and forms his image of the reputation of the seller. In the electronic market reputation of the seller is a poor quality criterion, since the seller is not in the market for a long time. The purchaser may not be aware of the existence of product satisfying her requirements, and are therefore may not be willing to pay a good price, since she is not sure about it. As a result, the market wins seller, producing cheap goods of poor quality. Because of quality uncertainty the user is willing to pay only the lowest price and the result is oftentimes a product of poor quality.

This phenomenon is called ‘lemons problem’. It turns out that low-quality goods are being squeezed out of the market quality. The same effect can be illustrated by an example of the insurance market. If the insurance company does not differ from ‘neat’ homeowners from ‘problematic’ ones, it will add a premium for the ‘average’ customer. However, in this case, ‘neat’ customers (more profitable customers) may be gone, as they will consider the fee to be too high, leaving unprofitable customers for the business. With ‘problematic’ customers insurance company is in risks of getting ruined quickly. Since the ‘lemons problem’ caused by asymmetric information, it can be solved by giving the consumer information about the quality of goods. This information can be passed through the distribution of newsletters; through the establishment of quality standards and certification of goods; through the opinion of a third party, which would provide information about the products (e.g. through reviews or comparisons).

One consequence of the uncertainty of quality digital products gave birth to freeware and shareware licensing models. Shareware products are typically paid for by the consumer after a trial period. In the US, there’s even a professional association of developers of such products. This organisation defines the type of product as a marketing method used for the distribution and sale of software products that enables the consumer to try the product, decide whether it corresponds to the specific needs of the client,and then pay for it. Choosing the right monetisation model is a tough aspect, where decisions have a crucial impact. According to HTP Digital, a prominent digital marketing Manchester agency, the adjustments in licensing models of some of their customers projects resulted in 11 43% revenue increase. Typically, a shareware product does not have a special component that obliges the consumer to make a payment. The program may terminate upon the expiration of the trial period, but that the user can download a new copy of the same program and run it. Therefore, digital products and services are distributed similarly to those offered at no cost. Both products are also an example of marketing communications, signaling the quality of our digital products. Once the conquest of the recognition of consumers, such programs may be licensed, included in large software platforms with millions of users reach.