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What Consumers Shop For And Buy Online


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  • 1. E-commerce Kenneth C. Laudon Carol Guercio Traver business. technology. society. Third Edition
  • 2. Chapter 7 E-commerce Marketing Concepts
  • 3. NetFlix Develops and Defends Its Brand Class Discussion
    • What was NetFlix’s first business model?
      • Deliver DVD to your mailbox
    • Why did this model not work? DVD scratched and slow customer services response
    • What new model did it develop?
      • renting movies online
    • Why is NetFlix attractive to customers?
      • An edge is its interface. Through its shareable friendship lists of favorites, the site utilizes an element of social networking
    • How does NetFlix distribute its videos? Video-on-demand and deliver video online by video streaming
    • What is NetFlix’s “recommender system?” collaborative filtering system for personalization
    • How does NetFlix use data mining? Data mining  data analysis of movie VOD  movie rating
    • Is video on demand a threat to NetFlix? Yes  NetFlix starts VOD in 2005
  • 4. Consumers Online: The Internet Audience and Consumer Behavior
    • Around 175 million Americans (67% of total population) had Internet access in 2005
    • Growth rate has slowed  no of online customers increase slowly
    • Intensity 強烈程度 and scope 範圍 of use both increasing  but the degree of usage differentiation increases
  • 5. Internet Audience and Consumer Behavior
    • Some demographic groups have much higher percentages of online usage than other groups
    • Demographics to examine include:
      • Gender
      • Age
      • Ethnicity 種族地位
      • Community Type
      • Income
      • Education
  • 6. Type of Internet Connection: Broadband Impacts
    • 52 million Americans had broadband access by end of 2005
    • Broadband audience quite different from dial-up audience:
      • Wealthier
      • More educated
      • More middle-aged
      • Greater intensity and scope of use
  • 7. 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
  • 8. 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
  • 9. A General Model of Consumer Behavior
    • Figure 7.1, Page 367
    SOURCE: Adapted from Kotler and Armstrong, 2006.
  • 10. Background Demographic Factors
    • Cultural
      • Culture and subculture
      • E.g. Culture: Chinese, American, European
      • E.g. Subculture: 廣東人、北方人、台灣人
    • Social
      • Reference groups
        • Direct
        • Indirect
        • Opinion leaders (viral influencers)
        • Lifestyle groups
    • Psychological
      • Psychological profiles
  • 11. Factors That Predict Online Buying Behavior
    • Figure 7.2, Page 371
    SOURCE: Lohse Bellman, and Johnson, 2000. The more factors you have, the more chance You will purchase online
  • 12. 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
  • 13. The Consumer Decision Process and Supporting Communications
    • Figure 7.3, Page 371
    Pure type traditional
  • 14. A Model of Online Consumer Behavior
    • Adds two new factors:
      • Web site capabilities
      • Consumer clickstream behavior
  • 15. A Model of Online Consumer Behavior
    • Figure 7.4, Page 372
    Independent variables Intervening variables Background factor Market stimuli Website capabilities The website provides a certain degree of Effects on consumer behavior
  • 16. Shoppers: Browsers and Buyers
    • About 63% of online users purchase online; an additional 12% research online, but purchase offline
    • 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
  • 17. Online Shoppers and Buyers
    • Figure 7.5, Page 375
    SOURCE: Based on data from eMarketer, Inc., 2005a;, 2005; authors’ estimates. Buy offline Traditional  all offline Usually, a consumer will buy certain electronic product online if the website is provided by the manufacturer directly
  • 18. What Consumers Shop for and Buy Online
    • Online sales divided roughly into small ticket and big ticket items
      • Top small ticket categories (apparel 衣服 , books, office supplies, software, etc.) 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 (travel, computer hardware, consumer electronics) expanding
  • 19. What Consumers Buy Online—Small Ticket Items
    • Figure 7.6, Page 376
    SOURCE: Based on data from eMarketer, Inc., 2004b. 服裝
  • 20. What Consumers Buy Online—Large Ticket Items
    • Figure 7.6, Page 376
    SOURCE: Based on data from eMarketer, Inc., 2004b.
  • 21. 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 online shoppers plan to purchase product within a week , either online or at a store
    • Most online shoppers have a specific item in mind
  • 22. Why More People Don’t Shop Online
    • Major online buying concerns:
      • Security
      • Privacy
      • Shipping costs
      • Return policy
      • Product availability
      • Shipping issues/delays
  • 23. 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
    • What is Information Asymmetry?
      • Typically it is the seller that knows more about the product than the buyer, however, it is possible for the reverse to be true: for the buyer to know more than the seller.
    • Consumers also need to trust merchants before willing to purchase
    • Sellers can develop trust by building strong reputations for honesty, fairness, delivery
  • 24. 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
  • 25. 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”)
  • 26. Feature Sets
    • Defines as the bundle of capabilities and services offered by the product or service
    • Includes:
      • Core product
      • Actual product
      • Augmented product
  • 27. Feature Set
    • Figure 7.7, Page 379
    SOURCE: Kotler and Armstrong, 2006.
  • 28. 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
  • 29. Marketing Activities: From Products to Brands
    • Figure 7.8, Page 381
    Closed loop marketing e.g. iPod  iPod shuffle; campbell soap
  • 30. Are Brands Rational 有理性的 ?
    • For consumers, a qualified yes:
      • Brands introduce market efficiency by reducing search and decision-making costs
        • E.g. SONY, Canon and Panasonic
    • For business firms, a definite yes:
      • Brands lower customer acquisition 獲得物 cost
        • Why? Customer spends less time in product research
      • Brands increase customer retention 保持 (loyalty)
      • Successful brand constitutes a long-lasting (although not necessarily permanent) unfair competitive advantage
        • E.g. i-pod
  • 31. Can Brands Survive the Internet? Brands and Price Dispersion  yes
    • Researchers initially postulated 假設 that Web would result in “Law of One Price”
      • Did not occur , and e-commerce firms continue to rely heavily on brands to attract customers and charge premium prices
    • Price dispersion 分散 – 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
  • 32. Internet Marketing Technologies
    • Web transaction logs
    • Cookies and Web bugs
    • Databases, data warehouses, and data mining
    • Advertising networks
    • Customer relationship management (CRM) systems
  • 33. The 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
  • 34. Web Transaction Logs 網站瀏覽及交易記錄
    • Built into Web server software
    • Records user activity at a Web site
    • WebTrends a leading log analysis tool
    • Can provide treasure trove 貴重的發現物 of marketing information, particularly when combined with:
      • Registration forms
      • Shopping cart database
  • 35. 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
      • Where is it used? Website login  webmail, e-banking, online shopping
    • 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
      • Cookies have limited life-span 有效生命期 and will expire once disconnected from the website.
      • How to clear cookies in IE? Tools  Internet options  delete …  delete cookies
  • 36. Netscape Cookie Manager
    • Figure 7.11, Page 391
  • 37. 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
  • 38. Insight on Society: Should Web Bugs Be Regulated? Class Discussion
    • Are Web bugs innocuous 無害的 ? It depends on the nature of the graphics Or are they an invasion of personal privacy? Yes
    • Do you think your Web browsing should be known to marketers? Yes
    • What are the different types of Web bugs?
      • GIF/JPEG, Flash, ActiveX
    • What are the Privacy Foundation guidelines for Web bugs? Information collected for internal use instead of disclosure other business purpose.
    • What protections are available? Anti-spyware or Anti-phishing tools
  • 39. Databases 資料庫 and Data Warehouses 資料分析
    • 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 database, e.g. SELECT * FROM user
    • 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  you can create your relational DB using MS Access
    • Data warehouse : Database that collects a firm’s transactional and customer data in a single location for offline analysis by marketers and site managers
  • 40. A Relational Database View of E-commerce Customers
    • Figure 7.12, Page 395
    6 3 relations This relational DB contains 4 tables
  • 41. 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, e.g. SELECT * FROM user WHERE sex = “M”
      • Model-driven  based on data pattern
      • Rule-based  predictive modeling
      • Collaborative filtering  making automatic predictions (filtering) about the interests of a user by collecting taste information from many users (collaborating). The underlying assumption of CF approach is that those who agreed in the past tend to agree again in the future
  • 42. The relationship between Data Mining and Personalization
    • Figure 7.13, Page 397
    SOURCE: Adomavicius and Tuzhilin, 2001b ©2001 IEEE.
  • 43. Insight on Technology: The Long Tail: Collaborative Filtering and Recommender Systems - Class Discussion
    • What are “recommender systems.” Give an example you have used . It aims at providing personalized product recommendations to customers, e.g.
    • What is “collaborative filtering?” slide 41
    • What is the “long tail” and how do recommender systems support sales of items in the tail?
      • E.g. type “holiday in Asia” instead of “holiday” in search box
    • What are some of the reasons that collaborative filtering fails? The underlying assumption that customer current preference based on past choices and data sparsity 貧乏
    • How can human editors, including consumers, make recommender systems more helpful? Be more participative
  • 44. Advertising Networks is a collection of (often unrelated) online advertising inventory.
    • Online advertising inventory comes in many different forms. This inventory can be found on websites, in RSS feeds, on blogs, in instant messaging applications, in adware, in e-mails, and on other sources.
    • 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
  • 45. How an Advertising Network such as DoubleClick Works
    • Figure 7.14, Page 401
  • 46. Customer Relationship Management (CRM) Systems
    • Repository 貯藏 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”
    • 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
  • 47. A Customer Relationship Management System
    • Figure 7.15, Page 403
    SOURCE: Compaq, 1998. 1 2 3 聚集 Examples: telecom company, e.g. Smartone Jobseeker agent, e.g.
  • 48. Market Entry Strategies
    • For new firms:
      • Pure clicks/first mover
      • Mixed “clicks and bricks”/alliances
    • For existing firms:
      • Pure clicks/fast follower
      • Mixed “bricks and clicks”/brand extensions
  • 49. Generic Market Entry Strategies
    • Figure 7.16, Page 404
    Online only Online with Traditional shop (results of merging)
  • 50. Establishing the Customer Relationship
    • Permission marketing : Obtain permission before sending consumer information or promotional messages (example: opt-in e-mail  register yahoo, hotmail email account)
    • Affiliate marketing : 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. E.g. forward email from one to another
  • 51. Establishing the Customer Relationship (cont’d)
    • Blog marketing : Using blogs to market goods through commentary and advertising
    • Social network marketing : Similar to viral marketing, e.g. online forum or community
    • Brand leveraging : Process of using power of an existing brand to acquire new customers for a new product or service, e.g. SONY introduce VAIO computer series
  • 52. Customer Retention: Strengthening the Customer Relationship
    • Mass market-personalization continuum ranges from mass marketing  direct marketing  micromarketing  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 古式的 ( 法 ) competitors to be truly unique
  • 53. The Mass Market-Personalization Continuum
    • Figure 7.17, Page 411
    Soft-drink Specific product e.g. cooker or memory stick Fitness/golf Club - membership Telecom package
  • 54. Other Customer Retention Marketing Techniques
    • Customization: Changing the product (not just the marketing message) according to user preferences e.g. allows user change mobile phone case
    • Customer co-production: Allows the customer to interactively create the product, e.g. DELL
    • Transactive content: Results from the combination of traditional content with dynamic information tailored to each user’s profile, e.g. order pizza online or order movie ticket online
  • 55. Other Customer Retention Marketing Techniques (cont’d)
    • Customer service tools include:
      • Frequently asked questions (FAQs)
      • Real-time customer service chat systems (intelligent agent technology or bots)
      • Automated response systems
  • 56. Net Pricing Strategies
    • Pricing (putting a value on goods and services) an integral part of marketing strategy
    • Traditionally, prices based on:
      • Fixed cost
      • Variable costs
      • Market’s demand curve
    • Price discrimination: Selling products to different people and groups based on their willingness to pay
  • 57. 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
      • Yield management  discount to seat, room etc.
  • 58. 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 e.g. TV advertisement of Broadway and Chung Yuen
  • 59. Online Market Research
    • Market research: Involves gathering information that will help a firm identify potential products and customers
    • Two general types:
      • Primary research  getting original data directly about the product and market
      • Secondary research  data gathered by industry experts, trade associations; data gathered by your company
  • 60. Insight on Business: Zoomerang Class Discussion
    • What are the advantages of an online survey service?
      • A channel in handling customer complains, suggestions, and feedback
      • Identify a strategy for obtaining client feedback
    • What features make Zoomerang surveys easy to implement when compared to traditional survey instruments?
    • What are some of Zoomerang’s weaknesses?
      • Design issue – consistency, survey objective