E-Commerce Marketing and advertising concepts Chapter 6

Learning Objectives Understand three e-commerce behavioral issues: the key features of the Internet audience the basic concepts of consumer behavior and purchasing, and how consumers behave online Identify and describe the basic digital commerce marketing and advertising strategies and tools Identify and describe the main technologies that support online marketing

The Internet Audience Before firms can sell their products online, they first must understand what kinds of people they will find online and how those people behave in the online marketplace Two questions that are addressed include: Who is online? How do people behave online?

The Internet Audience In 2015 in the US, around 260 million people of all ages had access to the Internet Almost 91 million households in the US (over 75% of all households) had broadband access to the Internet By comparison, 98% of all US households currently have televisions and 94% have telephones Worldwide, around 3.1 billion people are online Internet growth has slowed to about 2% a year in the US and it is unlikely that Internet access will reach the same levels as televisions or telephones in the near future

Intensity and Scope of Usage The slowing growth rate in the US Internet population is compensated for, in part, by an increasing intensity and scope of use Overall, over 71% of all American adults report logging on in a typical day Internet use by teens is even more pervasive, with over 90% saying they go online daily, and about 25% reporting that they use the Internet almost constantly People also spend more time online – almost 2 and a half hours per day In 2015, mobile smartphones and tablets are major access points to the Internet and online commerce About 194 million people, almost 75% of US Internet users, access the Internet using a mobile phone

Demographics and Access The demographic profile of the Internet – and e-commerce – has changed greatly since 1995 Up until 2000, single, white, young, college-educated males with high incomes dominated the Internet This inequality in access and usage led to concerns about a possible “digital divide” Demographic similarities and differences can be assessed by looking at: Gender, age, ethnicity, community type, income level, and education

Demographics and Access (cont.) Gender Roughly equal percentage of men and women users (84-85%) Age Young adults (18-29) form the age group with the highest percentage of Internet use (96%) Adults in the 30-49 group (93%) are also strongly represented Another fast-growing group online is the 65 and over segment, 58% of whom now use the Internet Teens (12-17) also have a very high percentage of their age group online (97%) The percentage of very young children (0-11) has grown to 50%

Demographics and Access (cont.) Ethnicity Variation across ethnic groups is not as wide as across age groups Ten years ago, there were significant differences among ethnic groups, but this has receded Income level About 97% of households with income levels above $75,000 have Internet access Compare this to only 74% of households earning less than $30,000

Demographics and Access (cont.) Education Of those individuals with a high school education or less, 66% were online in 2015 95% of individuals with a college degree or more were online In summary, the “digital divide” has indeed moderated, but it still persists along the age, income, and education dimensions

Other Internet Access Issues In 2015, around 91 million US households had broadband service in their homes Broadband adoption rates are lower for older adults, those with low levels of education, and those with low household incomes Rural residents, African Americans, and Latinos are also less likely to have a home broadband connection Consumer purchases on the Internet are influenced by “neighborhoods” where others purchase online Social networks have a powerful influence on shopping and purchasing behavior Membership in social networks has a large influence on discovering new independent music, but less influence on already well-known products

Consumer Behavior Once firms have an understanding of who is online, they need to focus on how consumers behave online The study of consumer behavior is a social science discipline that attempts to model and understand the behavior of humans in a marketplace Models of consumer behavior attempt to predict or “explain” what consumers purchase and where, when, how much, and why they buy The following slides describe: a general model of consumer behavior a more detailed model of online consumer behavior

A GENERAL MODEL OF CONSUMER BEHAVIOR (FIGURE 6.1)

A MODEL OF ONLINE CONSUMER BEHAVIOR (Figure 6.3)

Clickstream Behavior Clickstream behavior refers to the transaction log that consumers establish as they move about the Web They may move from search engine, to a variety of sites, then to a single site, then to a single page, and then, finally, a decision to purchase Understanding individual user clickstream behavior may enable websites to be designed to better support this online purchase decision process

WHY CONSUMERS CHOOSE THE ONLINE CHANNEL (table 6.2) REASON % OF RESPONDENTS Lower prices 59% Shop from home 53% Shop 24/7 44% Wider variety of products online 29% Easier to compare and research products and offers 27% Products only available online 22% Online customer reviews 18% Better product information available 7% Promotion via e-mail or text Social media influence 1%

How Shoppers Find Vendors Online Given the prevalence of “click here” banner ads, one might think customers are driven to online vendors by spur-of-the-moment decisions In fact, only a tiny percentage of shoppers click on banners to find vendors The three most common methods that shoppers use to find vendors online include: Search engines Online marketplaces (for example Amazon and eBay) Go directly to a specific retail Web site Online buyers are “goal-oriented” and intentional shoppers

Why More People Don’t Buy Online Probably the largest factor preventing more people from shopping online is the “trust factor” Distrust for online merchants Credit card information loss Use of personal information and invasion of privacy Secondary factors can be summarized as “hassle factors” Shipping costs Returns Inability to touch and feel the product

Digital commerce marketing and advertising strategies and tools Online marketing has many similarities to, and differences from, ordinary marketing The objective of both forms of marketing is to build customer relationships But online marketing is also very different from ordinary marketing because the nature of the medium and its capabilities are so different Four new elements of a comprehensive multi-channel marketing plan are: Web sites Traditional online marketing Social marketing Mobile marketing

Search Engine Marketing and Advertising In 2015, companies will spend an estimated $25.7 billion on search engine marketing and advertising Search engine marketing (SEM) refers to the use of search engines to build and sustain brands Search engine advertising refers to the use of search engines to support direct sales to online customers There are several different types of search engine advertising

Types of search engine advertising Organic search Search engines originally performed unbiased searches where Web sites were ranked based on a search engine’s algorithm Paid inclusion For a fee, search engines guarantee a Web site’s inclusion in its list of search results (often labeling them as sponsored links) Keyword advertising Merchants purchase keywords through a bidding process Search engine optimization (SEO) is the process of improving the ranking of Web pages with search engines by altering the content and design of the Web pages and site

Search Engine Issues While search engines have provided significant benefits for merchants and customers, they also present risks and costs Search engines have the power to crush small businesses Merchants may be at the mercy of search engines for access to the online marketplace Other practices that degrade the results and usefulness of search engines include: Link farms Content farms Click fraud

How an advertising network such as doubleclick works (figure 6.7)

Pricing Strategies In the early years of e-commerce, sellers were pricing their products far below their marginal costs to attract new customers and achieve short-term success Later, once the customer was part of a large, committed audience, then prices could be raised to the point where an online seller could achieve a profit through some combination of revenue models Pricing is particularly difficult when information products and services have a marginal cost near zero Several unique pricing strategies have been developed for online content and services

Online product, service, and content Pricing Strategies Free and freemium Users are offered a basic service for free, but must pay for premium or add-on services The freemium revenue subsidizes the free services Versioning Creating multiple versions of information goods and selling essentially the same product to different market segments at different prices Bundling Offers consumers two or more goods for a reduced price Dynamic pricing Different from fixed-price strategies Identifies different prices for different consumers, situations, and time periods

Internet Marketing Technologies Online data sources Web transaction logs – records user activity at a Web site Registration forms Shopping carts Tracking files (cookies, etc.) Databases, data warehouses, data mining, and big data Customer relationship management (CRM) systems

Data Warehouse and Business Intelligence Applications

Customer Relationship Management (CRM) Systems A CRM system is a repository of customer information that records all of the contacts that a customer has with a firm and generates a customer profile available to everyone in the firm with a need to “know the customer” Data is collected through customer touch points CRM systems assist firms in categorizing customers (potential customer, current customer, high-value customer, lost customer, etc.) and enabling them to best serve each individual customer based on their individual characteristics and needs The basic idea of CRM is to treat different customers differently, because their needs differ and the value to the company also may differ

A customer relationship management system (Figure 6.10)

An online consumer purchasing model (Figure 6.11)