Copyright © 2004 Pearson Education, Inc. Slide 7-1 E-commerce Kenneth C. Laudon Carol Guercio Traver business. technology. society. Second Edition

Copyright © 2004 Pearson Education, Inc. Slide 7-2 Chapter 7 E-commerce Marketing Concepts

Copyright © 2004 Pearson Education, Inc. Slide 7-3 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 Describe the basic marketing concepts need to understand Internet marketing Identify and describe the main technologies that support online marketing Identify and describe basic e-commerce marketing and branding strategies Explain how online market research is conducted

Copyright © 2004 Pearson Education, Inc. Slide 7-4 NetFlix Develops a New Brand Example of pure-play online business that built a nationally recognized successful brand within a relatively short time period Marketing strategies include:  Strategic alliances  Personalization  Data mining and collaborative filtering  Customer service

Copyright © 2004 Pearson Education, Inc. Slide 7-5 NetFlix Develops a New Brand Page 355

Copyright © 2004 Pearson Education, Inc. Slide 7-6 The Internet Audience and Consumer Behavior Around 160 million Americans (56% of total population) have Internet access mid-2003 Growth rate has slowed to less than 10% a year Intensity and scope of use both increasing

Copyright © 2004 Pearson Education, Inc. Slide 7-7 Top 10 Most Popular Internet Activities (2002) Table 7.1, Page 359

Copyright © 2004 Pearson Education, Inc. Slide 7-8 A Growing Range of Online Activities: An Average Day in the Life on an Internet User Table 7.2, Page 360

Copyright © 2004 Pearson Education, Inc. Slide 7-9 A Growing Range of Online Activities: An Average Day in the Life on an Internet User Table 7.2 (cont’d), Page 361

Copyright © 2004 Pearson Education, Inc. Slide 7-10 Internet Audience and Consumer Behavior Demographics and access: some demographic groups have much higher percentages of online usage than other groups. Demographics to examine include:  Income  Age  Ethnicity  Education  Gender

Copyright © 2004 Pearson Education, Inc. Slide 7-11 Changing Demographic Differences in Internet Access Table 7.3, Page 363

Copyright © 2004 Pearson Education, Inc. Slide 7-12 Type of Internet Connection: Broadband Impacts 30 million Americans will have broadband access by end of 2003 Broadband audience quite different from dial- up audience:  Wealthier  More educated  More middle-aged  Greater intensity and scope of use

Copyright © 2004 Pearson Education, Inc. Slide 7-13 The Impact of Broadband on Internet Activities Table 7.4, Page 365

Copyright © 2004 Pearson Education, Inc. Slide 7-14 The Impact of Broadband on Internet Activities (cont’d) Table 7.4, Page 366

Copyright © 2004 Pearson Education, Inc. Slide 7-15 Lifestyle Impacts Intense Internet usage may cause a decline in traditional social activities Social development of children using Internet intensively instead of engaging in face-to-face interactions or undirected play may also be negatively impacted The more time people spend on the Internet, the less time spent using traditional media

Copyright © 2004 Pearson Education, Inc. Slide 7-16 Consumer Behavior Models Attempt to predict/explain what consumers purchase and where, when, how much and why they buy. Consumer behavior models based on background demographic factors and other intervening, more immediate variables

Copyright © 2004 Pearson Education, Inc. Slide 7-17 A General Model of Consumer Behavior Figure 7.1, Page 368

Copyright © 2004 Pearson Education, Inc. Slide 7-18 Background Demographic Factors Culture: Shapes basic human values, wants perceptions and behaviors Subculture: Subset of culture; forms around major social differences such as ethnicity, age, lifestyle, geography Direct reference group: Include one’s family, profession/occupation, religion, neighborhood, schools Indirect reference group: Includes one’s life-cycle state, social class and lifestyle group Opinion leaders (viral influencers): Influence the behavior of others through their personality, skills or other factors

Copyright © 2004 Pearson Education, Inc. Slide 7-19 Background Demographic Factors (cont’d) Psychological profile: set of needs, drives, motivations, perceptions and learned behaviors Psychographic profiles: divides market into different groups based on demographic and psychological data

Copyright © 2004 Pearson Education, Inc. Slide 7-20 Factors That Predict Online Buying Behavior Figure 7.2, Page 370

Copyright © 2004 Pearson Education, Inc. Slide 7-21 The Purchasing Decision Five stages in the consumer decision process:  Awareness of need  Search for more information  Evaluation of alternatives  Actual purchase decision  Post-purchase contact with firm

Copyright © 2004 Pearson Education, Inc. Slide 7-22 The Consumer Decision Process and Supporting Communications Figure 7.3, Page 371

Copyright © 2004 Pearson Education, Inc. Slide 7-23 A Model of Online Consumer Behavior Adds two new factors:  Web site capabilities – the content, design and functionality of a site  Consumer clickstream behavior – the transaction log that consumers establish as they move about the Web

Copyright © 2004 Pearson Education, Inc. Slide 7-24 A Model of Online Consumer Behavior Figure 7.4, Page 372

Copyright © 2004 Pearson Education, Inc. Slide 7-25 Seven Types of Online Sessions Table 7.5, Page 374

Copyright © 2004 Pearson Education, Inc. Slide 7-26 Shoppers: Browsers and Buyers 2003 UCLA Internet Report:  About 40% of online users are “buyers” who actually purchase online  About 40% of online users research on the Web (“browsers”) and purchase them online. Significance of online browsing for offline purchasing and vice versa should not be underestimated E-commerce and traditional commerce are coupled and should be viewed by merchants and researchers as part of a continuum of consuming behavior

Copyright © 2004 Pearson Education, Inc. Slide 7-27 Online Shoppers Figure 7.5, Page 375

Copyright © 2004 Pearson Education, Inc. Slide 7-28 What Consumers Shop for and Buy Online Online sales divided roughly into small ticket and big ticket items Small ticket items – traditional leaders include apparel, books, health and beauty aids, office supplies, music, software, videos, toys etc. Top small ticket categories have similar characteristics – sold by first movers, small purchase price, physically small, high margin items, broad selection of products available Purchases of big ticket items (airline tickets, hotel rooms, computer hardware, consumer electronics) expanding

Copyright © 2004 Pearson Education, Inc. Slide 7-29 What Consumers Buy on the Web – Small Ticket Items (December 2002) Figure 7.6, Page 377

Copyright © 2004 Pearson Education, Inc. Slide 7-30 What Consumers Buy on the Web – Big Ticket Items (December 2002) (cont’d) Figure 7.6, Page 377

Copyright © 2004 Pearson Education, Inc. Slide 7-31 Intentional Acts: How Shoppers Find Vendors Online Over 85% of shoppers find vendor sites by typing product or store/brand name into search engine or going directly to the site Most (55%) online shoppers plan to purchase product within a week, either online or at a store Most online shoppers (83%) have a specific item in mind

Copyright © 2004 Pearson Education, Inc. Slide 7-32 Shoppers’ Intention to Purchase Figure 7.7, Page 378

Copyright © 2004 Pearson Education, Inc. Slide 7-33 Most Online Shoppers Are Focused Browsers Figure 7.8, Page 378

Copyright © 2004 Pearson Education, Inc. Slide 7-34 Why More People Don’t Shop Online There are a number of actions e-commerce vendors could take to increase the likelihood that shoppers and non-shoppers would purchase online more frequently, including: Better prices Making comparison shopping easier Making it easier to return merchandise Providing better security for credit card and/or personal information

Copyright © 2004 Pearson Education, Inc. Slide 7-35 Factors That Would Encourage More Online Purchasing Table 7.6, Page 380

Copyright © 2004 Pearson Education, Inc. Slide 7-36 Trust, Utility, and Opportunism in Online Markets Trust and utility among the most important factors shaping decision to purchase online Consumers are looking for utility (better prices, convenience) Asymmetry of information can lead to opportunistic behavior by sellers Consumers also need to trust merchants before willing to purchase Sellers can develop trust by building strong reputations for honesty, fairness, delivery

Copyright © 2004 Pearson Education, Inc. Slide 7-37 Basic Marketing Concepts Marketing: The strategies and actions firms take to establish a relationship with a consumer and encourage purchases of products and services Internet marketing: Using the Web, as well as traditional channels, to develop a positive, long-term relationship with customers, thereby creating competitive advantage for the firm by allowing it to charge a higher price for products or services than its competitors can charge

Copyright © 2004 Pearson Education, Inc. Slide 7-38 Basic Marketing Concepts (cont’d) Firms within an industry compete with one another on four dimensions:  Differentiation  Cost  Focus  Scope Marketing seeks to create unique, highly differentiated products or services that are produced or supplied by one trusted firm (“little monopolies”)

Copyright © 2004 Pearson Education, Inc. Slide 7-39 Feature Sets Defines as the bundle of capabilities and services offered by the product or service Includes:  Core product – the core benefit the customer receives from the product  Actual product – the set of characteristics designed to deliver the product’s core benefits  Augmented product – a product with additional benefits to customers beyond the core benefits embodied in the actual product

Copyright © 2004 Pearson Education, Inc. Slide 7-40 Feature Set Figure 7.9, Page 382

Copyright © 2004 Pearson Education, Inc. Slide 7-41 Products, Brands and the Branding Process Brand: A set of expectations that consumers have when consuming, or thinking about consuming, a product or service from a specific company Branding: The process of brand creation Closed loop marketing: When marketers are able to directly influence the design of the core product based on market research and feedback.  E-commerce enhances the ability to achieve Brand strategy: Set of plans for differentiating a product from its competitor, and communicating these differences to the marketplace Brand equity: estimated value of the premium customers are willing to pay for a branded product versus unbranded competitor

Copyright © 2004 Pearson Education, Inc. Slide 7-42 Marketing Activities: From Products to Brands Figure 7.10, Page 383

Copyright © 2004 Pearson Education, Inc. Slide 7-43 Are Brands Rational? For consumers, a qualified yes:  Brands introduce market efficiency by reducing search and decision-making costs For business firms, a definite yes:  Brands lower customer acquisition costs – the overall costs of converting a prospect into a consumer  Brands increase customer retention –  Successful brand constitutes a long-lasting (although not necessarily permanent) unfair competitive advantage

Copyright © 2004 Pearson Education, Inc. Slide 7-44 Can Brands Survive the Internet? Brands and Price Dispersion Researchers initially postulated that Web would result in “Law of One Price” – with complete transparency in a perfect marketplace, there would be one world price for every product Did not occur, and e-commerce firms continue to rely heavily on brands to attract customers and charge premium prices Price dispersion – the difference between the highest and lowest prices in a market Research evidence indicates that brands are alive and well on the Internet, and that consumers are willing to pay premium prices for products and services they view as differentiated

Copyright © 2004 Pearson Education, Inc. Slide Page 387

Copyright © 2004 Pearson Education, Inc. Slide 7-46 Internet Marketing Technologies Web transaction logs Cookies and Web bugs Databases, data warehouses, and data mining Advertising networks Customer relationship management (CRM) systems

Copyright © 2004 Pearson Education, Inc. Slide 7-47 Revolution in Internet Marketing Technologies Three broad impacts:  Internet has broadened the scope of marketing communications  Internet has increased the richness of marketing communications  Internet has greatly expanded the information intensity of the marketplace

Copyright © 2004 Pearson Education, Inc. Slide 7-48 Impact of Unique Features of E- commerce Technology on Marketing Table 7.7, Page 389

Copyright © 2004 Pearson Education, Inc. Slide 7-49 Web Transaction Logs Built into Web server software Records user activity at a Web site WebTrends a leading log analysis tool Can provide treasure trove of marketing information, particularly when combined with:  Registration forms – used to gather personal data  Shopping cart database – captures all item selection, purchase and payment data

Copyright © 2004 Pearson Education, Inc. Slide 7-50 Four Seconds from the Web Transaction Log of Azimuth-Interactive.com Figure 7.11, Page 391

Copyright © 2004 Pearson Education, Inc. Slide 7-51 Marketing Uses of Data from Web Transaction Logs Table 7.8, Page 392

Copyright © 2004 Pearson Education, Inc. Slide 7-52 Cookies Cookies: small text file that Web sites place on a visitor’s client computer every time they visit, and during the visit as specific pages are accessed. Cookies provide Web marketers with a very quick means of identifying the customer and understanding his or her prior behavior Location of cookie files on computer depends on browser version

Copyright © 2004 Pearson Education, Inc. Slide 7-53 A Typical Netscape Cookie File Figure 7.12, Page 393

Copyright © 2004 Pearson Education, Inc. Slide 7-54 Web Bugs Tiny (1 pixel) graphic files embedded in e- mail messages and on Web sites Used to automatically transmit information about the user and the page being viewed to a monitoring server

Copyright © 2004 Pearson Education, Inc. Slide 7-55 Insight on Society: Should Web Bugs Be Regulated? Marketers claim Web bugs are innocuous; privacy advocates say, if so, why are they hidden Different types include clear GIF, executable bugs and script-based executable bugs Privacy Foundation guidelines for Web bug usage:  Should be visible and labeled to indicate function  Should identify name of company that placed it  Should display disclosure statement if clicked  Should be able to opt-out Network Advertising Initiative (NAI) calls them Web beacons, and have issued their own guidelines Currently, no government regulation

Copyright © 2004 Pearson Education, Inc. Slide 7-56 Databases and Data Warehouses Database: Software that stores records and attributes Database management system (DBMS): Software used to create, maintain and access databases SQL (Structured Query Language): Industry-standard database query and manipulation language used in a relational databases Relational database: Represents data as two-dimensional tables with records organized in rows and attributes in columns; data within different tables can be flexibly related as long as the tables share a common data element Data warehouse: Database that collects a firm’s transactional and customer data in a single location for offline analysis by marketers and site managers

Copyright © 2004 Pearson Education, Inc. Slide 7-57 A Relational Database View of E-commerce Customers Figure 7.13, Page 398

Copyright © 2004 Pearson Education, Inc. Slide 7-58 Data Mining Set of analytical techniques that look for patterns in data of a database or data warehouse, or seek to model the behavior of customers Types include: Query-driven – based on specific queries Model-driven – involves use of a model that analyzes key variables of interest to decision makers Rule-based – examines demographic and transactional data of groups and individuals at a Web site and attempts to derive general rules of behavior for visitors Collaborative filtering – behavioral approach; site visitors classify themselves into affinity groups based on common interests; products are then recommended based on what other people in the group have recently purchased

Copyright © 2004 Pearson Education, Inc. Slide 7-59 Data Mining and Personalization Figure 7.14, Page 399

Copyright © 2004 Pearson Education, Inc. Slide 7-60 Insight on Technology: Enhancing the Intelligence of Collaborative Filtering Systems Collaborative filtering automates the process of collecting and distributing recommendations from other users Early efforts suffered from defects (start-up effect, popularity effect, misplaced-consumer effect) Solutions include adding human editors, asking consumers to establish own profiles

Copyright © 2004 Pearson Education, Inc. Slide 7-61 Advertising Networks Best known for ability to present users with banner advertisements based on a database of user behavioral data DoubleClick best-known example Ad server selects appropriate banner ad based on cookies, Web bugs, backend user profile databases

Copyright © 2004 Pearson Education, Inc. Slide 7-62 How an Advertising Network such as DoubleClick Works Figure 7.15, Page 404

Copyright © 2004 Pearson Education, Inc. Slide 7-63 Customer Relationship Management (CRM) Systems 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 an need to “know the customer” Customer profiles can contain: Map of the customer’s relationship with the firm Product and usage summary data Demographic and psychographic data Profitability measures Contact history Marketing and sales information

Copyright © 2004 Pearson Education, Inc. Slide 7-64 A Customer Relationship Management System Figure 7.16, Page 406

Copyright © 2004 Pearson Education, Inc. Slide 7-65 Market Entry Strategies For new firms:  Pure clicks/first mover  Mixed “clicks and bricks”/alliances For existing firms:  Pure clicks/fast follower  Mixed “clicks and bricks”/brand extensions

Copyright © 2004 Pearson Education, Inc. Slide 7-66 Generic Market Entry Strategies Figure 7.17, Page 408

Copyright © 2004 Pearson Education, Inc. Slide 7-67 Establishing the Customer Relationship Permission marketing: Marketing strategy in which companies obtain permission from consumers before sending them information or promotional messages (example: opt-in ) Affiliate marketing: Marketing strategy that relies on referrals; Web site agrees to pay another Web site a commission for new business opportunities it refers to the site Viral marketing: Process of getting customers to pass along a company’s marketing message to friends, family, and colleagues Brand leveraging: Process of using power of an existing brand to acquire new customers for a new product or service

Copyright © 2004 Pearson Education, Inc. Slide 7-68 Customer Retention Mass market-personalization continuum ranges from mass marketing to direct marketing to micromarketing to personalized, one-to-one marketing One-to-one marketing: Involves segmenting the market on a precise and timely understanding of an individual’s needs, targeting specific marketing messages to these individuals and then positioning the product vis-à-vis competitors to be truly unique

Copyright © 2004 Pearson Education, Inc. Slide 7-69 The Mass Market- Personalization Continuum Figure 7.18, Page 414

Copyright © 2004 Pearson Education, Inc. Slide 7-70 Other Customer Retention Marketing Techniques Customization: Changing the product (not just the marketing message) according to user preferences Customer co-production: Allows the customer to interactively create the product Transactive content: Results from the combination of traditional content with dynamic information tailored to each user’s profile

Copyright © 2004 Pearson Education, Inc. Slide 7-71 Other Customer Retention Marketing Techniques (cont’d) Customer service tools include: Frequently asked questions (FAQs) – text-based listing of common questions and answers Real-time customer service chat systems – company’s service representatives interactively exchange text messages with one or more customers on a real-time basis Intelligent agent technology – bots Automated response systems – send confirmations and acknowledgments

Copyright © 2004 Pearson Education, Inc. Slide 7-72 Net Pricing Strategies Pricing (putting a value on goods and services) an integral part of marketing strategy Traditionally, prices based on:  Fixed cost (costs of building production facility  Variable costs (costs involved in running production facility)  Market’s demand curve (quantity of goods that can be sold at various prices) Price discrimination: Selling products to different people and groups based on their willingness to pay

Copyright © 2004 Pearson Education, Inc. Slide 7-73 A Demand Curve Figure 7.19, Page 419

Copyright © 2004 Pearson Education, Inc. Slide 7-74 Net Pricing Strategies (cont’d) Free products/services: Can be used to build market awareness Versioning: Creating multiple versions of a good and selling essentially the same product to different market segments at different prices Bundling: Offers consumers two or more goods for one price Dynamic pricing:  Auctions – establish an instant market price for goods  Yield management – Managers set prices in different markets, appealing to different segments in order to sell excess capacity

Copyright © 2004 Pearson Education, Inc. Slide 7-75 The Demand for Bundles of 1-20 Goods Figure 7.20, Page 422

Copyright © 2004 Pearson Education, Inc. Slide 7-76 Channel Management Strategies Channel: Refers to different methods by which goods can be distributed and sold Channel conflict: Occurs when a new venue for selling products or services threatens or destroys existing venues for selling goods Examples: online airline/travel services and traditional offline travel agencies Some manufacturers are using partnership model to avoid channel conflict

Copyright © 2004 Pearson Education, Inc. Slide 7-77 Online Market Research Market research: Involves gathering information that will help a firm identify potential products and customers Two general types: Primary research – involves gathering first-hand information using techniques such as surveys, personal interviews and focus groups Secondary research – relies on existing, published information as basis for analyzing market

Copyright © 2004 Pearson Education, Inc. Slide 7-78 Types of Survey Questions Table 7.9, Page 425

Copyright © 2004 Pearson Education, Inc. Slide 7-79 Insight on Business: Zoomerang Zoomerang.com: One of the first online survey tools launched Enables users to choose from pre-built survey templates, create and distribute online surveys, and collect and analyze survey responses Competitors include SurveyMonkey and others

Copyright © 2004 Pearson Education, Inc. Slide 7-80 Some Popular Secondary Research Tools Table 7.10, Page 428

Copyright © 2004 Pearson Education, Inc. Slide 7-81 Case Study: Liquidation.com: B2B Marketing Basics on a Budget Liquidation.com: B2B auction business model, focusing on liquidated goods Marketing and branding tactics include:  Trust building through alliances  Web transaction log analysis, customer registration forms  Search engine marketing  Guerilla marketing public relations campaign and limited advertising  marketing

Copyright © 2004 Pearson Education, Inc. Slide 7-82 Liquidation.com: B2B Marketing Basics on a Budget Page 430