Chapter 7: Consumer Behavior E-Marketing, 3rd edition Judy Strauss, Adel I. El-Ansary, and Raymond Frost Chapter 7: Consumer Behavior © Prentice Hall 2003

Overview Consumers in the 21st Century The Numbers Where Are the Other 5.5 Billion People? Social and Cultural Issues Technological Issues Legal and Political Issues Inside the Internet Exchange Process Context Individual Characteristics and Resources Internet Exchange Exchange Outcomes

Consumers in the 21st Century Internet usage is still growing. Marketers have turned their attention to practical questions such as: Whether a firm’s target market is online, What these customers do online, What determines whether they’ll buy from a site, How much of the marketing effort should be devoted to online channels. Understanding online consumer behavior helps marketers design marketing mixes that provide value and thus attract and retain customers.

Overview Consumers in the 21st Century The Numbers Where Are the Other 5.5 Billion People? Social and Cultural Issues Technological Issues Legal and Political Issues Inside the Internet Exchange Process Context Individual Characteristics and Resources Internet Exchange Exchange Outcomes

The Numbers 1980s: The Internet population was very small. Until 1994: Slow but steady growth due to an increasing number of text-based users. With the introduction of the WWW + multimedia content expansion: the number of Net users exploded. In 2002: 531 million people had access to the Internet = 8.5% of the global population.

Developed nations = 15% of the world’s population = 88% of all Internet users Millions of People With Home Internet Access by Region in 2002 Source: Data from Nielsen//NetRatings

Overview Consumers in the 21st Century The Numbers Where Are the Other 5.5 Billion People? Social and Cultural Issues Technological Issues Legal and Political Issues Inside the Internet Exchange Process Context Individual Characteristics and Resources Internet Exchange Exchange Outcomes

Where Are the Other 5.5 Billion People? Not online! In survey of non-Internet users:40% said they have no need for the Internet. E-marketers’ are digging deeper for a more thorough understanding of consumer preferences online and offline. Main reasons why consumers do not use the Internet: Social, cultural, technological, legal, and political issues. Without major shifts some countries may not achieve high levels of Internet adoption among individual consumers for many years. In these countries the B2B market will lead consumers to the Net where a fast-growing consumer market enticed businesses online.

Content not of interest / relevance 2 Don’t have a computer 33 Reason % No need for it 40 Content not of interest / relevance 2 Don’t have a computer 33 Not my choice/decision at work Not interested in it 25 Content not in my language 1 Don’t know how to use it 16 Cost for ISP/access cost Cost (general) 12 Cost for local telephone and toll service charges Not enough time to use it 8 Don’t know how to get it 3 Other 4 Current PC can’t access Web Unsure Biggest Reasons for Not Using the Internet Source: Pastore (2001) citing Ipsos-Reid study

Overview Consumers in the 21st Century The Numbers Where Are the Other 5.5 Billion People? Social and Cultural Issues Technological Issues Legal and Political Issues Inside the Internet Exchange Process Context Individual Characteristics and Resources Internet Exchange Exchange Outcomes

Social and Cultural Issues Consumers are accustomed to touching merchandise before buying (Egypt and Mexico). The marketplace = a social meeting place (Arab countries). Consumers often have security and privacy concerns. Payment = a problem in countries where the credit-card processing infrastructure is weak. Most consumers in such countries have no credit cards or bank accounts, and local retailers accept only cash. Lack of Internet education.

Overview Consumers in the 21st Century The Numbers Where Are the Other 5.5 Billion People? Social and Cultural Issues Technological Issues Legal and Political Issues Inside the Internet Exchange Process Context Individual Characteristics and Resources Internet Exchange Exchange Outcomes

Technological Issues Biggest barriers to Internet adoption: Low PC penetration. Communications infrastructure problems. Arab countries, have only 49 telephones per thousand people versus 133 phones per thousand people worldwide. Internet connections, where they exist, are often slow and unreliable. Phone companies charge: A per minute charge for local calls. ISP charges for Internet access. Postal services are not reliable in many countries.

Overview Consumers in the 21st Century The Numbers Where Are the Other 5.5 Billion People? Social and Cultural Issues Technological Issues Legal and Political Issues Inside the Internet Exchange Process Context Individual Characteristics and Resources Internet Exchange Exchange Outcomes

Legal and Political Issues Government censorship and regulation = slow Internet adoption. The Chinese government authorizes Web sites for citizen access and keeps a tight reign on Internet cafés. Egyptian government agencies block Internet ventures due to fear of losing tax money on direct sales to customers outside the country. Barriers to exporting (tariffs + costly distribution channels) are slowing the adoption of e-commerce. BUT a global community connected by the Internet should emerge over time, fueled by: The benefits of connecting multinational businesses, The lure of B2B e-business activity, Increasing consumer demand led by the younger generation.

Overview Consumers in the 21st Century The Numbers Where Are the Other 5.5 Billion People? Social and Cultural Issues Technological Issues Legal and Political Issues Inside the Internet Exchange Process Context Individual Characteristics and Resources Internet Exchange Exchange Outcomes

Inside the Internet Exchange Process What explain consumer buying behavior? Stimuli = marketing communication messages and cultural, political, economic, and technological factors. Individual buyer characteristics = income level, personality, psychological, social, and personal aspects. Consumers move through a variety of decision processes based on situational and product attributes. To create effective marketing strategies, e-marketers need to understand what motivates people to buy goods and services, both in the short and long term.

Inside the Internet Exchange Process The e-marketing: “...creating exchanges that satisfy individual consumer and organizational customers’ objectives.” Exchange = act of obtaining a desired object from someone by offering something in return. Individuals bring their own characteristics + personal resources (within a social, cultural, and technological context) to the process as they seek specific outcomes from an exchange.

The Online Exchange Process

Overview Consumers in the 21st Century The Numbers Where Are the Other 5.5 Billion People? Social and Cultural Issues Technological Issues Legal and Political Issues Inside the Internet Exchange Process Context Individual Characteristics and Resources Internet Exchange Exchange Outcomes

Context Broad technological, social, and cultural forces affect online consumer behavior. Marketers need to study the consumer’s environment or context and how their influence the purchasing process.

Technological Context The Internet = a utility in most developed nations. E-marketers need to consider home connection speeds + the changing landscape of digital receiving devices: Connection with broadband (fast) = 20% of Americans: These users enjoy multimedia games, music and entertainment because these download quickly. Access from a narrow band mobile handheld device (or 56k modem in a PC): access news, weather, stock quotes, and other data services that are low in graphics.

Technological Context PC is not anymore the only way to communicate with customers: Digital receiving devices = PC, electronic pager, FAX machine, iTV (interactive TV), voice mail, handheld PDA, cell phone, and a other devices. Need to learn which devices a firm’s customers and prospects own and prefer to use for various purposes, from communication through purchase and post purchase service.

Social and Cultural Context The Web is training individuals and organizations to help themselves to information, products, and virtually everything they want when and where they please = power is shifting to consumers. U.S. trends are affecting online exchanges: Information overload overwhelms consumers. Bunkering means people are staying at home more. Security and privacy are major concerns. Home and work boundaries are dissolving. Anywhere, anytime convenience is critical for busy people.

Social and Cultural Context U.S. trends are affecting online exchanges: Time poverty creates multitasking and speeds up normal processes. Demanding expectations. Self-service is required. Sophisticated consumers know they are in control and have choices. Personalization is becoming expected. Easy does it, especially when it comes to the frustrations of technology. Multiple channel shopping has become the norm.

Overview Consumers in the 21st Century The Numbers Where Are the Other 5.5 Billion People? Social and Cultural Issues Technological Issues Legal and Political Issues Inside the Internet Exchange Process Context Individual Characteristics and Resources Internet Exchange Exchange Outcomes

Individual Characteristics Affecting Internet Exchanges Characteristics specific to Internet users: A positive attitude toward technology. Online skill and experience play an important role in the exchange process. Gender affects attitudes toward use of technology: Men are more positive about Internet shopping. Language: the Internet would be more useful it had more content in the local languages of various countries.

Individual Characteristics Affecting Internet Exchanges Online shoppers tend to be more: Goal oriented (= going to a specific Web site with a purpose in mind, or searching for the lowest price for a particular product + not having to deal with salespeople or crowds in the online environment, and appreciate the online product selection, convenience, and information availability) Than experience oriented: having fun, bargain hunting, or just surfing to find something new. Goal oriented individuals like the idea that they. 2 common traits of online shoppers: convenience or price orientation. Differences in the outcomes sought online based on family life cycle.

Consumer Resources For consumers: VALUE = BENEFITS - COSTS Costs = a consumer’s resources for exchange: Money, Time, Energy, Psychic costs.

Monetary Cost Consumers need enough discretionary income to exchange for the goods and services they want. What makes the Internet exchange different? Consumers have to pay by credit card, debit card, electronic check, or smart card. BUT not everyone is able to acquire or wants a credit card. = A big problem for e-marketers targeting: The teen market online Consumers in countries with low credit card availability.

Monetary Cost Consumers with bank accounts can use: Debit cards. Electronic checks: the consumer sets up an account and authorizes a third party Web site to pay a specified amount and withdraw funds from the user’s checking account. Smart cards = Splash Plastic: have an electronic chip that can be coded to hold a certain amount of funds, payable by the bank or a depository company. Advantages = anyone with the cash can get one and the limit of potential fraud is the amount of money coded into the card.

Time Cost Time poverty = problem for today’s consumers. They want to receive appropriate benefits for the time they spend online. Did the user get what she wanted for the time she invested? Internet firms to be sure their sites are well organized and easy to navigate so users can quickly find what they want. Search engines and shopping agents can help consumers find what they want to leverage their brief forays online. The Internet’s property of time moderator helps consumers manage their scarce time. This is because users can shop, e-mail, or perform other activities anytime. Time resource is a critical topic = online attention from consumers is a desirable and scarce commodity: Consumers pay more focused attention to Web sites than to the content in any other medium.

Time Cost Concept of flow in Web navigation behavior: Characterized by a seamless sequence of responses facilitated by machine interactivity, Intrinsically enjoyable, Accompanied by a loss of self-consciousness, Self-reinforcing. Consumers are 100% involved and not easily distracted when they are online. When e-marketers capture consumer’s attention, they can make a big impression in a short time as long as the Web site is enjoyable, self-reinforcing, and engaging.

Number of sessions for the month 18 Number of domains visited 48 Metric Quantity Number of sessions for the month 18 Number of domains visited 48 Page views for each session 43 Time spent online for the month 9:50 Time spent per session 0:32 Duration of page viewed 0:00:44 April 2002 Global Internet Usage Source: Data from www.Nielsen//NetRatings

Energy and Psychic Costs Energy + psychic resources = closely related to time. Sometime = Too much trouble to turn on the computer, log onto the Internet, and check e-mail. Rising popularity of short text messaging (SMS) via cell phones and handheld mobile devices. Consumers apply psychic resources when Web pages are hard to figure out or when facing technological glitches. 44% of all online shoppers abandon online shopping carts at one time or another due to technical problems.

Page took too long to load 48 Returned the product 10 Reason Given % Page took too long to load 48 Returned the product 10 Site was confusing/couldn’t find product 45 Site wouldn’t accept credit card 9 Product not available/in stock 32 Tried/failed to contact customer service 8 Got logged off / system crashed 26 Site made unauthorized charge to my credit card 5 Had to contact customer service 20 Ordered product but never came 4 Product took too long to arrive 15 Wrong product arrived and couldn’t return it Most Common Reasons for Failed Online Purchases Source: Boston Consulting Group Study as reported in Wellner (2001)

Overview Consumers in the 21st Century The Numbers Where Are the Other 5.5 Billion People? Social and Cultural Issues Technological Issues Legal and Political Issues Inside the Internet Exchange Process Context Individual Characteristics and Resources Internet Exchange Exchange Outcomes

Internet Exchange When exchange occurs: Browser bookmarks = quick jump to favorite online retailer. E-mail messages contain hyperlinks to bring consumers directly to specific information, news reports, or advertised specials. The Internet has the added feature of automation to facilitate exchange. CNN.com sends one sentence e-mails several times a day or week with breaking news for those who sign up for the service.

Overview Consumers in the 21st Century The Numbers Where Are the Other 5.5 Billion People? Social and Cultural Issues Technological Issues Legal and Political Issues Inside the Internet Exchange Process Context Individual Characteristics and Resources Internet Exchange Exchange Outcomes

Exchange Outcomes What benefits do consumers get by exchanging all that money, time, and energy? What American consumers do online and how the Internet has changed the way people behave. The myriad of online activities can be categorized by the following general outcomes: Relationships, Entertainment, Media consumption, Information gathering, Transactions. Each is ripe with marketing opportunity.

Relationships 43% of online time = e-mail or other communication related activities: It is an inexpensive way to keep in touch, It is usually text based = can be easily accomplished with a slow modem or over a wireless handheld device. Form new relationships with the people they meet online. Spend time in chat rooms, make phone calls, and visit online dating sites. Communication can take place in communities of interest.

Relationships E-mail popularity explains the success of Web based e-mail services, such as AOL (61% of the Internet population), Hotmail (60%), and Yahoo (57%)! E-mail services are an important part of the traffic draw. These companies bring a lot of eyeballs to their sites=They exchange these eyeballs for commissions on products sold at the site and on advertising revenues. The paying customers = retailers a+ advertisers, these sites are exchanging free services with consumers.

Chat in online discussion 23 Send instant message 48 Outcome % Send e-mail 95 Chat in online discussion 23 Send instant message 48 Make Internet phone call 12 Share files with others (music, video, games) 37 check e-mail on cell phone or PDA 10 Visit online support group 36 Visit dating Web site 9 Proportion Performing Relationship Activities Online in the U.S. Source: Data from www.pewinternet.org

Entertainment Consumers use the Internet for entertainment (50%). Internet’s big promises= audio and visual entertainment: 51% of U.S. users watch video online + 37% listen to music. These activities are difficult without a fast broadband connection. Only 20% of all users have broadband at home; Until more do, firms won’t produce much of this type of online entertainment; BUT, until more entertainment is available, mass audiences won’t be lured into paying for broadband. All television content will be transmitted digitally within five years by federal mandate. More devices will allow TV programs to be delivered on demand. Consumers will adopt broadband as part of their cable TV service.

Listen/download music 37 Watch video or audio clip 51 Play a game Outcome % Surf for fun 64 Listen/download music 37 Watch video or audio clip 51 Play a game Download games, videos, pictures 41 Visit adult Web site 14 Proportion Performing Entertainment Activities Online in the U.S. Source: Data from www.pewinternet.org

Media Consumption Consumers are accessing news, weather, sports scores, and radio broadcasts over the Internet. Consumers have a limited amount of time to exchange for media consumption, and that the Internet takes away from offline media time. Consumers use whatever medium is handy when they want news, including a handheld PDA—another indication that the Internet has morphed from novelty to utility. 33% of Internet users mentioned watching television less often, 25% read magazines less frequently, 23% read newspapers less often, 16% listen to the radio less frequently.

Media Consumption This switch to online media consumption is why all the major media disseminate information on their Web sites: The challenge is making it pay off in profits. The advertising models are not paying the bills. Some, like the Wall Street Journal, charge for subscriptions. Online media firms must decide what strategic purpose their Web site investment serves.

Political news / information Check the weather 64 Sports scores Outcome % Get news 70 Political news / information 40 Check the weather 64 Sports scores 38 Listen to music from radio station, music store, recording artist 37 Proportion Performing Media Consumption Activities Online in the U.S. Source: Data from www.pewinternet.org

Information Second to e-mail, consumers spend much of their time gathering research and information online: Activity is especially acute during holidays and special events. 73 million Americans use the Internet for health information. 52 million Americans use the Internet to find job information. How do Internet users find information? 85% have used search engines. Queries range from “the ridiculous”, to the sublime to the heartbreaking. Google.com is the most popular search engine: visitors spend 25.9 minutes per month there. Users spend 10.8 minutes a month on Yahoo! and 6 minutes at MSN. Google’s revenue model is entirely advertising based, It has drawn a larger user base because it does not crowd the home page with offers.

Find phone number /address 53 Map or driving directions 79 Outcome % Hobby information 80 Find phone number /address 53 Map or driving directions 79 Research for school/training Travel information 66 Financial 44 Books, movies, leisure activities 63 A job 37 Health/medical 61 A place to live 29 Government site 57 Religious/spiritual 28 Research for job 54 Family history/genealogy 20 Proportion Performing Information Consumption Activities Online in the U.S. Source: Data from www.pewinternet.org

Buy and Shop for Products 75% all Internet users seek information online prior to buying products: To purchase online, To purchase at a local brick-and-mortar. In total, U.S., consumers spent 79% of their shopping dollars in brick-and-mortar stores, 15% online, and 6% on catalog sales. Consumers might not spend more: 5.5 billion people are not Internet users, and have no drive to get connected. The Internet does not provide the social experience found in the physical world. Consumers may not shop for most products online unless they are motivated by dissatisfaction with offline retailers. Some people do not trust the Internet enough to enter personal and credit card information on Web pages.

Online Shopping Landscape Source: Data from www.bcg.com

Buy and Shop for Products A final consideration involves the types of products appropriate for online and offline consumption, 3 types of products : Search goods can be evaluated by reading about them = software, automobiles, and computers, = the most appropriate for online purchasing Experience goods can only be evaluated through product use = clothing and flowers, Credence goods = items that are difficult to assess without someone else’s opinion, such as expensive wine or even a book. 51% of Internet users are buyers.

Research product before buying 75 Groceries 8 Buy a product 56 Outcome % Research product before buying 75 Groceries 8 Buy a product 56 Charity donation 7 Buy/make travel reservation 42 Gamble 5 Bank online 23 Take class for college credit Participate in online auction 20 Take any online class Buy/sell stocks, bonds, mutual funds 12 Proportion Performing Transaction Activities Online in the U.S. Source: Data from www.pewinternet.org

Key Terms Attention economy Bunkering Electronic checks Exchange Flow

Review Questions What are some of the social, cultural, technological, and legal issues that slow Internet adoption in some nations? What is an exchange? What are some of the trends affecting online exchanges in the United States? What individual characteristics influence online behavior? What are the four costs that constitute a consumer’s resources for exchange? How can e-marketers facilitate Internet exchange? What are the five main categories of outcomes sought by Internet users?

Discussion Questions Why would a growing B2B market lead consumers onto the Internet in countries where penetration was previously low? Can an attention economy exist in countries where Internet penetration is low? Explain your answer. What might e-marketers do to accommodate consumers who are experiential shoppers? Do you consider the concept of flow an explanation for what some observers call Internet addiction? Explain your answer. How might e-marketers capitalize on consumer interest in relationships as an outcome of Internet activity?