lecture7.ppt - kasetsart universitymcs/courses/2007_02/219322/slides/lecture7.pdf · brand: a set...

219322219322Electronic Commerce

Lecture 7Engineering

Laudon & Traver: Chapter 7 E-commerce Marketing Concepts

Copyright © 2007 Pearson Education, Inc. Slide 7-1

N tFli D l d D f d It B dNetFlix Develops and Defends Its BrandClass Discussion

What was NetFlix’s first business model? Why did this model not work and what new Why did this model not work and what new model did it develop?

Why is NetFlix attractive to customers?Why is NetFlix attractive to customers?

How does NetFlix distribute its videos?

Wh i N Fli ’ “ d ?”What is NetFlix’s “recommender system?”

How does NetFlix use data mining?

Is video on demand a threat to NetFlix?


Consumers Online: The Internet Audience and Consumer BehaviorAudience and Consumer Behavior

First principle of marketing and sales: Know the customer” Who uses the Web who shops oncustomer” – Who uses the Web, who shops on the Web and why, and what do they buy?Around 175 million Americans (67% ofAround 175 million Americans (67% of population over age 14) had Internet access in 2005Growth rate has slowed (30%)Intensity and scope of use both increasing: users y p gare going online more frequently (60% of people logon each day) and engage in wider range of

ti iti th i th t


activities than in the past

Internet Audience and Consumer BehaviorBehavior

Some demographic groups have much higher percentages of online usage than other groupspercentages of online usage than other groups

Demographics to examine include:

GenderGender

Age

EthnicitEthnicity

Community Type (Urban, Suburban, Rural)

IIncome

Education


Type of Internet Connection: Broadband ImpactsImpacts

52 million Americans (>50% of all Internet (users) had broadband access by end of 2005

Broadband audience quite different from dial-Broadband audience quite different from dialup audience:

WealthierWealthier

More educated

More middle-aged

Greater intensity and scope of use


y p

Lifestyle Impacts

Intense Internet usage may cause a decline in traditional social activities (e.g., talking with in traditional social activities (e.g., talking with neighbors and family members)

Social development of children using InternetSocial development of children using Internet intensively instead of engaging in face-to-face interactions or undirected play may also beinteractions or undirected play may also be negatively impacted

The more time people spend on the InternetThe more time people spend on the Internet, the less time spent using traditional media (TV radio and newspapers)


(TV, radio, and newspapers)

Consumer Behavior Models

After having known “who” is online, then firms need to know “what” they do onlineneed to know what they do onlineConsumer behavior study attempts to understand the behavior of customers in aunderstand the behavior of customers in a marketplace to predict/explain what consumers purchase and where when howconsumers purchase and where, when, how much and why they buy. Consumer behavior models based onConsumer behavior models based on background demographic factors and other intervening, more immediate variables


g,

A General Model of Consumer BehaviorFigure 7.1, Page 367Figure 7.1, Page 367


SOURCE: Adapted from Kotler and Armstrong, 2006.

Background Demographic Factors

CulturalCulture (nation) and subculture (ethnicity, age, lifestyle

S i lSocialReference groups

Direct: one’s family profession or associationDirect: one s family, profession or associationIndirect: one’s life-cycle stage, neighborhood, and schoolsO i i l d ( i l i fl )Opinion leaders (viral influencers)Lifestyle groups

PsychologicalPsychologicalPsychological profiles (attitudes and beliefs)


Factors That Predict Online Buying BehaviorFigure 7.2, Page 371


SOURCE: Lohse Bellman, and Johnson, 2000.

The Purchasing Decision

Five stages in the consumer decision process:

Awareness of need

Search for more information

Evaluation of alternativesEvaluation of alternatives

Actual purchase decision

P t h t t ith fiPost-purchase contact with firm


The Consumer Decision Process and Supporting Communicationspp gFigure 7.3, Page 371


A Model of Online Consumer Behavior

Adds two new factors:

Web site capabilities, e.g., latency,Web site capabilities, e.g., latency, navigability, and confidence in Web site’s securitysecurity

Consumer clickstream behavior –transaction log that consumers establish astransaction log that consumers establish as they move from search engine, to a variety of sites then to a single site then to aof sites, then to a single site, then to a single page, and then finally to purchase something


something

A Model of Online Consumer BehaviorFigure 7.4, Page 372Figure 7.4, Page 372


Shoppers: Browsers and Buyers

About 63% of online users purchase online (buyers); an additional 12% research online, b t h ffli (b )but purchase offline (browsers)Significance of online browsing for offline

h i ( ki 15% f t t l t ilpurchasing (making up 15% of total retail spending) and vice versa (65% of online households) should not be underestimatedhouseholds) should not be underestimatedE-commerce and traditional commerce are coupled and should be viewed by merchantscoupled and should be viewed by merchants and researchers as part of a continuum of consuming behavior


consuming behavior

Online Shoppers and BuyersFigure 7.5, Page 375


SOURCE: Based on data from eMarketer, Inc., 2005a; Shop.org, 2005; authors’ estimates.

What Consumers Shop for and Buy OnlineOnline

Online sales divided roughly into small ticket and big ti k t itticket items

Top small ticket categories (apparel, books, office supplies software etc ) have similarsupplies, software, etc.) have similar characteristics—sold by first movers, small purchase price (low consumer risk), physicallypurchase price (low consumer risk), physically small (low shipping costs), high margin items (for CDs and software), broad selection of products available

Purchases of big ticket items (travel, computer h d l t i ) di


hardware, consumer electronics) expanding

What Consumers Buy Online—Small Ticket ItemsFigure 7.6, Page 376


SOURCE: Based on data from eMarketer, Inc., 2004b.

What Consumers Buy Online—Large Ticket ItemsFigure 7.6, Page 376


SOURCE: Based on data from eMarketer, Inc., 2004b.

Intentional Acts: How Shoppers Find Vendors OnlineVendors 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 p ,store

Most online shoppers have a specific item inMost online shoppers have a specific item in mind


Why More People Don’t Shop Online

Major online buying concerns:

Security of credit card info: 52.2%Security of credit card info: 52.2%

Privacy of personal info: 40.9%

Shipping costs: 32 1%Shipping costs: 32.1%

Product quality: 26.8%

Return policy: 24.1%

Product availability: 18.6%oduct a a ab ty 8 6%

Shipping issues/delays: 17.5%


Trust, Utility, and Opportunism in Online MarketsMarkets

Trust and utility among the most important factors shaping d i i t h lidecision to purchase onlineConsumers are looking for utility (better prices, convenience, speed of delivery), p y)Asymmetry of information can lead to opportunistic behavior by sellersCons mers also need to tr st merchants before illing toConsumers also need to trust merchants before willing to purchase Sellers can develop trust by building strong reputations for p y g g phonesty, fairness, delivery Trust-building online mechanism examples: Feedback forums e g epinions com; Amazon’s reviews from


forums, e.g., epinions.com; Amazon s reviews from reviewers, and eBay’s seller feedback

Basic Marketing Concepts

Marketing: The strategies and actions firmsMarketing: The strategies and actions firms take to establish a relationship with a consumer and encourage purchases of g pproducts and servicesInternet marketing: Using the Web, as well as g g ,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 f d t i th it titfor products or services than its competitors can charge


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”)


Feature Sets

Defines as the bundle of capabilities and services offered by the product or serviceservices offered by the product or service

Includes:

Core product e g washing machineCore product, e.g., washing machine

Actual product, e.g., Maytag’s name brand i h d bili d fwith durability and ease of use

Augmented product, e.g., Maytag with 5-year warranty, free delivery, and low-cost installation fees


Feature SetFigure 7.7, Page 379Figure 7.7, Page 379


SOURCE: Kotler and Armstrong, 2006.

Products, Brands and the Branding ProcessBrand: A set of expectations that consumers haveBrand: A set of expectations that consumers have when consuming, or thinking about consuming, a product or service from a specific companyBranding: The process of brand creationClosed loop marketing: When marketers are able to directly influence the design of the core productdirectly influence the design of the core product based on market research and feedback

E-commerce enhances the ability to achieveyBrand strategy: Set of plans for differentiating a product from its competitor, and communicating th diff t th k t lthese differences to the marketplaceBrand equity: estimated value of the premium customers are willing to pay for a branded product


customers are willing to pay for a branded product versus unbranded competitor

Marketing Activities: From Products to BrandsFigure 7.8, Page 381


Are Brands Rational?

For consumers, a qualified yes:Brands introduce market efficiency byBrands introduce market efficiency by reducing search and decision-making costs

For business firms a definite yes:For business firms, a definite yes:Brands lower customer acquisition costBrands increase customer retentionBrands increase customer retentionSuccessful brand constitutes a long-lasting (although not necessarily permanent)(although not necessarily permanent) unfair competitive advantage


Can Brands Survive the Internet? Brands and Price Dispersionand Price Dispersion

Researchers initially postulated that Web would result in “Law of One Price”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 – the difference between the highest and lowest prices in a marketand lowest prices in a marketResearch evidence indicates that brands are alive and well on the Internet, and that consumers are a d e o t e te et, a d t at co su e s a ewilling to pay premium prices for products and services they view as differentiated


Internet Marketing Technologies

Web transaction logs

Cookies and Web bugs

Databases, data warehouses, and data , ,mining

Advertising networksAdvertising networks

Customer relationship management (CRM) systemssystems


The Revolution in Internet Marketing TechnologiesTechnologies

Three broad impacts:p

Internet has broadened the scope of marketing communicationsmarketing communications

Internet has increased the richness of marketing communicationsmarketing communications

Internet has greatly expanded the i f ti i t it f th k t linformation intensity of the marketplace


Web Transaction Logs

Built into Web server software

Records user activity at a Web siteRecords user activity at a Web site

WebTrends a leading log analysis tool

C id f k iCan provide treasure trove of marketing information, particularly when combined with:

Registration forms

Shopping cart databasepp g


Cookies

Small text file that Web sites place on a visitor’s client computer every time they visit, visitor s client computer every time they visit, and during the visit as specific pages are accessedaccessed

Cookies provide Web marketers with a very quick means of identifying the customer andquick means of identifying the customer and understanding his or her prior behavior

Location of cookie files on computer dependsLocation of cookie files on computer depends on browser version


N t C ki MNetscape Cookie ManagerFigure 7.11, Page 391


Web Bugs

Tiny (1 pixel) graphic files embedded in e-mail messages and on Web sitesmail messages and on Web sites

Used to automatically transmit information about the user and the page being viewed toabout the user and the page being viewed to a monitoring server

C b id tifi d b i i th dCan be identified by viewing the source code of HTML email messages and looking for the IMG t th t li k t th URL fIMG tag that links to the URL of a server different from the one that served the page it lf


itself

Insight on Society: Should Web Bugs BeInsight on Society: Should Web Bugs Be

Regulated?gClass Discussion

Are Web bugs innocuous? Or are they anAre Web bugs innocuous? Or are they an invasion of personal privacy? Do you think your Web browsing should beDo you think your Web browsing should be known to marketers? What are the different types of Web bugs?What are the different types of Web bugs?What are the Privacy Foundation guidelines for Web bugs?for Web bugs?What protections are available?


Databases and Data Warehouses

Database: Software that stores records and attributesDatabase: Software that stores records and attributesDatabase 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

l ti l d t brelational databaseRelational database: Represents data as two-dimensional tables with records organized in rows and attributes intables 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


offline analysis by marketers and site managers

A Relational Database View of E-commerce CustomersFigure 7.12, Page 395


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:Types include:

Query-driven: based on specific queries, e.g., querying for top ten products sold at a Web sitequerying for top ten products sold at a Web site by each hour of the day


Data MininggModel-driven: based on model that analyzed key variables of interest to decision makerskey variables of interest to decision makers, e.g., building a financial model of products showing profitability of each product on the g p y psiteRule-based: examines demographic and transactional data of groups and individuals at a Web site and tries to derive general rules of visitors’ behavior E g female customers whovisitors behavior. E.g., female customers who purchased items worth > $50 in a visit and who viewed travel articles might be shown a gvacation travel advertisement


Data MininggCollaborative filtering: site visitors

ll b ti l l if th l b dcollaboratively classify themselves based on common interests.


Data Mining and PersonalizationFigure 7 13 Page 397Figure 7.13, Page 397


SOURCE: Adomavicius and Tuzhilin, 2001b ©2001 IEEE.

I i ht T h l Th L T ilInsight on Technology: The Long Tail: Collaborative Filtering and Recommender g

SystemsClass DiscussionClass Discussion

What are “recommender systems.” Give an example you have usedyou have used.

What is “collaborative filtering?”

What is the “long tail” and how do recommenderWhat is the long tail and how do recommender systems support sales of items in the tail?

What are some of the reasons that collaborativeWhat are some of the reasons that collaborative filtering fails?

How can human editors, including consumers, make


How can human editors, including consumers, make recommender systems more helpful?

Advertising Networks

Best known for ability to present users with banner advertisements based on a databasebanner advertisements based on a database of user behavioral data

DoubleClick best known exampleDoubleClick best-known example

Ad server selects appropriate banner ad b d ki W b b b k dbased on cookies, Web bugs, backend user profile databases


How an Advertising Network such as DoubleClick WorksFigure 7.14, Page 401


Customer Relationship Management (CRM) Systems( ) y

Repository of customer information that records all of the contacts that a customer has with a firm andthe 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 firmP d t d d tProduct and usage summary dataDemographic and psychographic dataProfitability measuresProfitability measuresContact history Marketing and sales information


Marketing and sales information

A Customer Relationship Management SystemyFigure 7.15, Page 403


SOURCE: Compaq, 1998.

Market Entry Strategies

For new firms:

Pure clicks/first moverPure clicks/first mover

Mixed “clicks and bricks”/alliances

For existing firms:For existing firms:

Pure clicks/fast follower

Mixed “bricks and clicks”/brand extensions


Generic Market Entry StrategiesFigure 7.16, Page 404Figure 7.16, Page 404


E t bli hi th C t R l ti hiEstablishing the Customer Relationship

P i i k ti Obt i i iPermission marketing: Obtain permission before sending consumer information or promotional messages (example: opt in epromotional messages (example: opt-in e-mail)Affiliate marketing: Relies on referrals; WebAffiliate marketing: Relies on referrals; Web site agrees to pay another Web site a commission for new business opportunities itcommission for new business opportunities it refers to the siteViral marketing: Process of getting customersViral marketing: Process of getting customers to pass along a company’s marketing message to friends, family, and colleagues


g , y, g

Establishing the Customer Relationship (cont’d)( )

Blog marketing: Using blogs to market goods th h t d d ti ithrough commentary and advertising

Social network marketing: Similar to viral marketing

Brand leveraging: Process of using power of g g g pan existing brand to acquire new customers for a new product or servicep


Customer Retention: Strengthening the Customer Relationshipp

Mass market-personalization continuum ranges from mass marketing to direct marketing to micromarketing to personalized, one-to-one marketingmarketing

One-to-one marketing: Involves segmenting the market on a precise and timely understanding of anmarket on a precise and timely understanding of an individual’s needs, targeting specific marketing messages to these individuals and then positioning g p gthe product vis-à-vis competitors to be truly unique


The Mass Market-Personalization ContinuumFigure 7.17, Page 411


Other Customer Retention Marketing TechniquesTechniques

Customization: Changing the product (not just th k ti ) di tthe 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 yinformation tailored to each user’s profile


Other Customer Retention Marketing Techniques (cont’d)q ( )

Customer service tools include:

Frequently asked questions (FAQs)

Real-time customer service chat systems y(intelligent agent technology or bots)

Automated response systemsAutomated response systems


Net Pricing Strategies

Pricing (putting a value on goods and services) an integral part of marketing t tstrategy

Traditionally, prices based on: Fixed cost Variable costs Market’s demand curve

Price discrimination: Selling products to ce d sc at o Se g p oducts todifferent people and groups based on their willingness to pay


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 pricesmarket segments at different prices

Bundling: Offers consumers two or more goods for one priceone price

Dynamic pricing:

AuctionsAuctions

Yield management


Channel Management Strategies

Channel: Refers to different methods by which goods can be distributed and soldgChannel conflict: Occurs when a new venue for selling products or services threatens or g pdestroys existing venues for selling goodsExamples: online airline/travel services and ptraditional offline travel agenciesSome manufacturers are using partnership g p pmodel to avoid channel conflict


Online Market Research

Market research: Involves gathering information that will help a firm identify information that will help a firm identify potential products and customers

Two general types:Two general types:

Primary research

S d hSecondary research


Insight on Business: ZoomerangClass Discussion

What are the advantages of an online survey service?

What features make Zoomerang surveys g yeasy to implement when compared to traditional survey instruments?y

What are some of Zoomerang’s weaknesses?weaknesses?


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