E-Commerce Marketing and advertising concepts Chapter 6

Learning Objectives Identify the key features of the Internet audience Discuss the basic concepts of consumer behavior and purchasing decisions Understand 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 Questions: Who is online? How do people behave online?

The Internet Audience In 2013 in the US, around 243 million people of all ages had access to the Internet Almost 85 million households in the US (over 70% 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 2.56 billion people are online Internet growth has slowed to about 2-3% 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 80% of adult Internet users in the US report logging on in a typical day They also spend more time online – over 2 hours per day In 2013, mobile smartphones and tablets are major access points to the Internet and online commerce About 143 million people, almost 60% of US Internet users, access the Internet using a mobile device

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 Fairly equal percentage of men and women users (85%) Age Young adults (18-29) form the age group with the highest percentage of Internet use (98%) Teens (12-17) also have a very high percentage of their age group online (97%) Adults in the 30-49 group (92%) are also strongly represented Another fast-growing group online is the 65 and over segment, 56% of whom now use the Internet

Demographics and Access (cont.) Ethnicity Variation across ethnic groups is not as wide as across age groups In 2004, there were significant differences among ethnic groups, but this has receded Income level About 96% of households with income levels above $75,000 have Internet access, compared with only 76% of households earning less than $30,000

Demographics and Access (cont.) Education Of those individuals with a high school education or less, 59% were online in 2013, compared to 96% of individuals with a college degree or more In summary, the “digital divide” has indeed moderated, but it still persists along the income, education, age, and ethnic dimensions (Table 6.3 provides a summary)

Other Internet Access Issues In 2013, around 85 million US households had broadband service in their homes The broadband audience is more educated and affluent Consumer purchases on the Internet are influenced by “neighborhoods” where others purchase online 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 and a more detailed model of online consumer behavior

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

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

Search Engine Marketing and Advertising In 2013, companies will spend an estimated $19.6 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 at least three different types of search engine advertising: Keyword paid inclusion (sponsored links) Advertising keywords (for example, Google’s AdWords) Search engine context ads (for example, Google’s AdSense) Originally, search engines performed unbiased searches (organic search), but this has transformed to a pay model

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

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

Example 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 and flash marketing 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