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Chapter 4

Consumer Behavior, Customer Service,

and Advertising

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Learning Objectives

Describe the factors that influence consumer behavior onlineUnderstand the decision-making process of consumer purchasing onlineDescribe how companies are building one-to-one relationships with customersDiscuss the issues of e-loyalty and e-trust in ECExplain how personalization is accomplished onlineDescribe consumer market research in EC

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Learning Objectives (cont.)

Explain the implementation of customer service online and describe its toolsDescribe the objectives of Web advertising and its characteristicsDescribe the major advertising methods used on the WebDescribe various online promotions

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Exhibit 4.1EC Consumer Behavior Model

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Consumer Behavior Online

Consumer typesindividual consumers who commands most of the media’s attentionOrganizational buyers

Governments and public organizationsPrivate corporationsResellers

Consumer behavior viewed in terms of:Why is the consumer shopping?How does the consumer benefit from shopping online?

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Variables in the Purchasing Environment

Social variables—people are influenced by:

Family members, friends, co-workers, “what’s in fashion this year”

Cultural/community variables—where the consumer livesOther environmental variables:

Available information, government regulations, legal constraints, situational factors

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Consumer Purchasing Decision Making

Roles people play in decision-makingInitiator—suggests/thinks of buying a particular product or serviceInfluencer—advice/views carry weight in making a final buying decisionDecider—makes a buying decision or any part of it Buyer—makes the actual purchaseUser—consumes or uses a product or service

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General Purchasing Decision-Making Model

5 major phases of a general model1.Need identification2. Information search3.Evaluation of alternatives 4.Purchase and deliver5.After-purchase evaluation

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How One-to-One Relationships Are Practiced

One-to-One marketing: Marketing that treats each customer in a unique way.Relationships as a two-way street:

Customer information is collected and placed in a databaseCustomer’s profile is developed and …

Generate “four P’s” of marketing:Product PlacePrice Promotion

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Exhibit 4.5The New Marketing Model

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How One-to-One Relationships Are Practiced (cont.)

Doing business over the Internet enables companies to:

Communicate better with customersUnderstand customers’ needs and buying habits better Improve and customize their future marketing efforts

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Personalization

Personalization—the matching of services, products, and advertising content to individual consumerUser profile —the requirements, preferences, behaviors, and demographic traits of a particular customerCookie—a data file that is placed on a user’s hard drive by a Web server, frequently without disclosure or the user’s consent, that collects information about the user’s activities at a site

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Personalization (cont.)

Major strategies used to compile user profiles include:

Solicit information directly from the user.Use cookies or other methods to observe what people are doing onlinePerform marketing researchBuild from previous purchase patterns

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Collaborative Filtering

Collaborative filtering—a personalization method that uses customer data to predict, based on formulas derived from behavioral studies, what other products or services a customer may enjoy; predictions can be extended to other customers with similar profiles

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Customer Loyalty & E-Loyalty

Customer loyalty—degree to which customer stays with vendor or brand

Important element in consumer purchasing behaviorOne of the most significant contributors to profitability

E-loyalty—customer’s loyalty to an e-tailerLearn about customers’ needsInteract with customersProvide customer service

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Trust in EC

Trust—psychological status of involved parties who are willing to pursue further interactions to achieve a planned goal

EC vendors must establish high levels of trust with current and potential customersParticularly important in global EC transactions

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How to Increase EC Trust

Trust can be decreased by:Any user uncertainty regarding the technology Lack of initial face-to-face interactionsLack of enthusiasm among the parties

Brand recognition is very important in EC trustEC security mechanisms can also help solidify trust

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Market Research for EC

EconomyIndustry Firms ProductsPricing

DistributionCompetitionPromotionConsumer purchasing behavior

Market research includes gathering information about:

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Market Research for EC (cont.)

Various tools are used to conduct consumer market research:

Questionnaires Surveyors Telephone surveysFocus groups

Important first to understand how groups of consumers are classified

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Market Segmentation

Market segmentation—process of dividing a consumer market into logical groups for conducting marketing research, advertising, and sales

GeographyDemographics

Psychographics (Lifestyle) Benefits sought

Powerful tool for research regarding:Consumer behaviorDiscover of new marketsConsumer interest in new products

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What Are We Looking For in EC Market Research?

Major factors used for prediction are:

Product information requestedNumber of related e-mailsNumber of orders madeWhat products/services are orderedGender

Online market research attempts to find:

Purchase patterns for individuals and groupsFactors that encourage online purchasingHow to identify real buyers and browsers How an individual navigatesOptimal Web page design

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EC Market Research (cont.)

Interactive Internet-based market research

Allows personal contact with customersProvides marketing organizations with greater ability to understand customer, market, and competition

Identify early shifts in product and customer trends

Enables marketers to identify products and marketing opportunities Develop products that customers really want to buy

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Online Market Research Methods

Web-based surveys Free software to create survey forms and analyze results is available at

supersurvey.comwebsurveyor.com

Online focus groups—help overcome some problems that limit the effectiveness of Web-based surveys (sample size, partial responses)

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Online Market Research Methods (cont.)

Tracking customer movements—learn about customers by observing their behavior rather than by asking them questions

transaction logA record of user activities at a company’s Web siteclickstream behaviorCustomer movements on the InternetWeb bugsTiny graphics files embedded in e-mail messages and in Web sites that transmit information about users and their movements to a Web serverspywareSoftware that gathers user information over an Internet connection without the user’s knowledge

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Limitations of Online Market Research Methods

Accuracy of responsesLoss of respondents because of equipment problemsEthics and legality of Web trackingFocus group responses can lose something in the translation from an in-person group to an online group

Eye contact and body language are lostAnonymity is necessary to elicit an unguarded response

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Data Mining

Data mining—the process of searching a large database to discover previously unknown patterns; automates the process of finding predictive information

New business opportunities generated by conducting:Automated prediction of trends and behaviorsAutomated discovery of previously unknown patterns and relationships

Sample data mining applicationsRetailing and sales distributionBankingAirlines

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Web Mining

Web mining—application of data mining techniques to discover meaningful patterns, profiles, and trends from both the content and usage of Web sites

Web content mining – discovering info from web documents.Web usage mining – analyzing Web access logs

Web mining is critical for EC due to the large number of visitors to EC sites

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Limitations of Online Market Research

Lack of representativeness in samples of online users

Online shoppers tend to be wealthy, employed, and well educated; results may not be extendable to other markets

The right kind of sampling is achieved through verification of target audience or demographic

Anonymity causes a loss of information about demographics and characteristics of the respondents

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Delivering Customer Servicein Cyberspace

Customer service—a series of activities designed to enhance customer satisfaction (the feeling that a product or service has met the customer’s expectations)

Traditional: do the work for the customerEC delivered: gives tools to the customer to do the work for him/herself

E-service—customer services supplied over the Internet. Three levels of e-services:

Foundation of service Customer-centered servicesValue-added services

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Delivering Customer Servicein Cyberspace (cont.)

Value chain for Internet serviceCustomer acquisition (pre-purchase support)Customer support during purchase—provides a shopping environment that is efficient, informative, productive

Customer fulfillment (purchase dispatch)—timely deliveryCustomer continuance support (post- purchase)—maintain the customer relationship between purchases

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Customer Relationship Management

Customer relationship management (CRM)—a customer service approach that focuses on building long-term and sustainable customer relationships that add value both for the customer and the companyBuilding a customer-centered EC strategy

Focus on the end customerSystems and business processes designed for ease of use Foster customer loyalty

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Customer Service Tools

Personalized Web pagesUsed to record purchases and preferenceDirect customized information to customers efficiently

E-mail and automated responseDisseminate general informationSend specific product informationConduct correspondence regarding any topic (mostly inquiries from customers)

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Customer Service Tools (cont.)

Call center—a comprehensive service entity in which EC vendors address customer service issues communicated through various contact channels

Telewebs—call centers that combine Web channels with portal-like self-service; combine

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Metrics

Response timesSite availabilityDownload timesTimeliness

Security and privacyOn-time order fulfillmentReturn policyNavigability

Metrics—measures of performance; may be quantitative or qualitative

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Web Advertising

Advertising is an attempt to disseminate information in order to affect a buyer-seller transactionInteractive marketing—marketing that allows a consumer to interact with an online seller

Two-way communication and e-mail capabilitiesVendors also can target specific groups and individualsEnables truly one-to-one advertising

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Internet Advertising Terminology

Ad views—number of times users call up a page that has a banner on it during a specific time period; known as impressions or page views.Button—a small banner that is linked to a Web sitePage—HTML document

Click—a count made each time a visitor clicks on an advertising banner to access the advertiser ‘s Web site (ad clicks and click throughs)

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Internet Advertising Terminology (cont.)

CPM (cost per thousand impressions)—fee an advertiser pays for each 1,000 times a page with a banner ad is viewed

Hit—request for data from a Web page or fileVisit—a series of requests during one navigation of a Web a site; a pause of request for a certain length of time ends a visit

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Why Internet Advertisement?

3/4 of PC users gave up some television timeWell educated, high-income Internet users are a desired target for advertisersInternet is by far the fastest growing communication medium Advertisers are interested in a medium with such potential reach, both locally and globally

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CostOnline ads are cheaper than those in other mediaAds can be updated at any time with minimal cost

Richness of formatUse of text, audio, graphics, and animationGames, entertainment, and promotions are easily combined in online ads

PersonalizationCan be interactiveCan target specific interest groups and/or individuals

Why Internet Advertisement? (cont.)

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Exhibit 4.11Adoption Curves for Various Media

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Advertising Networks

Advertising networks (ad server networks)—specialized firms that offer customized Web advertising, such as brokering ads and helping target ads to selected groups of consumersOne-to-one targeted ads and marketing can be:

ExpensiveVery rewardingVery effective

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Advertisement Methods

Banner--on a Web page, a graphic advertising display linked to the advertiser’s Web page

Keyword bannersRandom banners

Benefits of banner adsCustomized to the target audience or one-to-one adsUtilize “force advertising” marketing strategyDirect link to advertiserMulti media capabilities

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Advertisement Methods (cont.)

Limitations of banner adsHigh costClick ratio—the ratio between the number of clicks on a banner ad and the number of times it is seen by viewers; measures the success of a banner in attracting visitors to click on the adDeclining click ratio—viewers have become immune to banners

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Advertisement Methods (cont.)

Banner swapping—an agreement between two companies to each display the other’s banner ad on its Web site

Direct link between one site to the other siteAd space bartering

Banner exchanges—markets in which companies can trade or exchange placement of banner ads on each other’s Web sites (bcentral.com)

Credit ratio of approximately 2:1Still the largest Internet advertising medium

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Advertisement Methods (cont.)

Pop-under ad—an ad that appears underneath the current browser window, so when the user closes the active window, they see the adInterstitials– an initial Web page or a portion of it that is used to capture the user’s attention for a short time while other content is loadingE-mail

Several million users may be reached directlyProblems: junk mail, spamming

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Advertising in chat roomsVirtual meeting groundFree addition to a business siteAllows advertisers to cycle through messages and target the chatter again and againAdvertising can become more thematicMore effective than bannersUsed for one-to-one connections

Advertorial—an advertisement “disguised” to look like an editorial or general information

Advertisement Methods (cont.)

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Advertising Strategies

Associated ad display (text links)—an advertising strategy that displays a banner ad related to a term entered in a search engineAds as a commodity—direct payment made by the advertisers for ads viewedViral marketing (advocacy marketing)—word-of-mouth marketing by which customers promote a product or service by telling others about itCustomizing ads—one-to-one advertisement (Webcasting)

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Online events, promotions, and attractions

Online events, promotions, and attractions

Promotions designed to attract visitors are regular events on thousands of Web sites

Contests CouponsQuizzes Giveaways

Bargains on the InternetLotteryFree samples