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IT 361: E-Commerce Systems

Chapter 4

E-commerce Marketing & Advertising

Readings: Chapter 6

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Consumers Online: The Internet Audience and Consumer

Behavior• Around 90 million American households (65% of households)

had Internet access in 2007• Growth rate has slowed (90s 30%, now 2-3%)

• Intensity and scope of use both increasing

(↑usage → ↑comfort & familiarity →↑service to explore)

• Some demographic groups have much higher percentages of online usage than other groups– Demographics to examine include gender, age, ethnicity, community

type, income; education

• Differences between broadband audience and dial-up

need to be taken into consideration when marketing

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Consumers Online: The Internet Audience and Consumer

Behavior

• Location vs. Neighborhood effects (online – offline social ties)

Being located nearby other users of the online grocery increased the likelihood of purchasing at the site by 50%

(Importance of social ties and communication)

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Consumer Behavior Models

• Who is your customer & How (s)he behaves• Attempt to predict/explain what consumers

purchase and where, when, how much and why they buy.

• Rule: If the consumer decision-making process can be understood, firms will have a much better idea how to market ad sell their products

• Consumer behavior models based on background demographic factors and other intervening, more immediate variables

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A General Model of Consumer Behavior

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Background Demographic Factors

• Cultural– Culture and subculture

• Social– Reference groups

• Direct (family, profession, religion, neighborhood, school)• Indirect (social class, lifestyle)• Opinion leaders (viral influencers)• Lifestyle groups (activities: hobbies, spots, events

interests :food, fashion, family opinions: government, business, social)

Theory: once you understand a consumer's lifestyle or the lifestyle of a group of people, then you can design products and marketing messages that appeal specifically to that lifestyle group

• Psychological– Psychological profiles– "People do not want your product or service." They do want answers to

problems, solutions to needs, pathways to wants, or a secret door to their heart's desires.

• Gillette knows that it doesn't sell blades. It sells clean shaves.

• Revlon knows it doesn't sell nail polish. It sells romance.

• Betty Crocker knows it doesn't sell cake mix. It sells, "Gee, mom, this cake is great!“

Why consumers choose the online channel?

The online Purchasing Decision

Factors predicting buying behaviors are– Looking for product information online– Leading a “wired lifestyle”– Recently ordering from a catalog

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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

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The Consumer Decision Process and Supporting Communications

• The consumer decision-making process and types of offline and online marketing communications that supports this process and seek to influence the consumer before, during and after the purchase decision.

• Both offline and online communication tools can be used to support the online consumer decision process in each of the 5 stages,

The Purchase Decision Process

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A Model of Online Consumer Behavior

Figure 6.4, Page 349

Clickstream behavior

• “deep” knowledge of the customer dynamically developed

• Clickstream behavior of people online very close to the moment of purchase, enable marketers to understand what the consumer was looking for at each moment, and how much they are willing to pay, thus allowing marketers to precisely target their communications.

Most clickstream factors

• Number of days since last visit• Speed of clickstream behavior• Number of products viewed during last visit• Number of pages viewed• Number of products viewed• Supplying personal information• Number of days since last purchase• Number of past purchases

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Shoppers: Browsers and Buyers

• 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

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Online Shoppers and Buyers

• Ecommerce and traditional commerce are coupled and should be viewed by merchants as part of continuum of consuming behavior and not as radical alternatives once

• Consumes use a variety & multiple of media.• Online merchants should:

– build the information content of the site to attract browsers looking for information

– Build content to rank high in SE– Put less attention on selling per se– Promote services and products in offline media

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What Consumers Shop for and Buy Online

• Online sales divided roughly into small ticket and big ticket items– Purchases of big ticket items (>$1000) (travel,

computer hardware, consumer electronics) expanding– Top small ticket categories (apparel, books, office

supplies, software, etc.) have similar characteristics—sold by first movers, small purchase price, physically small, high margin items (CDs, software), broad selection of products available

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What Consumers Buy Online

Source: “ Factors affecting E-commerce uses in Saudi Arabia”, Khalil H., University of Liverpool, 2010

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Intentional Acts: How Shoppers Find Vendors Online

• 54% of shoppers use search engines • 20% of consumers go directly to site• 12% use comparison shopping or product

rating sites• 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

• Merchants can convert “goal-oriented” consumers into buyers by– Targeting their communications– Design their sites (easy access, product

information, full selection, customer service)– At the very moment the consumer is searching

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Why More People Don’t Shop Online

• Major online buying concerns:– Trust

• Security • Privacy

– Hassle • Shipping costs• Inability to see/touch

product• Return policy

Source: “ Factors affecting E-commerce uses in Saudi Arabia”, Khalil H., University of Liverpool, 2010

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Trust, Utility, and Opportunism in Online Markets

• Factors shaping the decision to purchase online:– Utility (Good deals, convenience, speed of delivery, ..)– Trust (opportunities behaviors by sellers) (reputation of

honesty, fairness, and delivery of quality product = basic elements of brands)

• Online sellers who develop trust are able to charge premium price

• Factors leading to trusting online relationship: Perception of web site credibility, ease of use, and perceived risk

• Traditional ads are far more trusted than online ads• Personal friends & families are far more trusted than SN

members

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Basic Marketing Concepts• Marketing:

– Strategies and actions firms take to establish relationship with consumer and encourage purchases of products and services

– It is an integrated process through which companies build strong customer relationships and create value for their customers and for themselves.

• Internet marketing– Using Web to develop positive, long-term relationship

with customers, thereby creating competitive advantage for firm by allowing it to charge higher prices for products or services than competitors can charge (superior product or communicating the brands features)

– is the marketing of products or services over the Internet .

Features of Internet Marketing

– Can be more personalized– Participatory– Peer-to-peer

• Not all types of internal marketing have these features (video ad vs. TV commercial, targeted videos)

Digital Commerce Marketing & Advertising Strategies & Tools

• Elements of comprehensive multi-channel marketing plan:– Website– Traditional online marketing– Social networking– Mobile marketing– Offline marketing

Strategic Issues & Questions

Strategic Questions1. priorities• Where should you focus first? Build a website, develop a

blog, or facebook page• Where second? Develop SN presence or offline• Do you have the resources to maintain a SM marketing

campaign?

2. Integration of the different marketing platforms to deliver a single coherent branding message

• 3. Resource allocation

Websites as Marketing Platform – Establishing the Customer

Relationship• Website performs 4 functions:

– Establish the brand identity & consumer expectations (identify quality, price, support, reliability – create expectations)

– Inform and educate the consumer– Shape the customer experience– Anchors the brand

• The one place where one can find the complete story vs. ad

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Online Marketing & Advertising Tools

• Paid message on Web site, online service or other interactive medium, such as interactive messaging

• 2007: $21.4 billion spent, expected to grow to $24.7 billion by 2010

• Advantages:– Ability to target ads to narrow segments and track performance in

almost real time– Provide greater opportunity for interactivity

• Disadvantages:– Concerns about cost versus benefit– Concerns about how to adequately measure results

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Online Advertising from 2004-2017

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Forms of Online Advertisements

• Display ads: banners, rich media &video ads• Search engine advertising: Paid search

engine inclusion and placement• Sponsorships• Referrals (affiliate relationship marketing)• E-mail marketing• Online catalogs• Lead Generation

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Display and Rich Media/Video Ads• Display ads: provided by 5 Top companies

(banners, Rich media ads, sponsorship, video ads)

• Banner Ads (oldest, least effective, lowest cost)

advantages over traditional– click through– identify & track users– Animation

• Rich media: – boosts visits to websites by 300% (6X)– Interstitials– A good interstitials uses “animation”, “skip through” or

“stop”

• Video Ads– small spending compared to SE, fastest growing,

most effective display ad – 12X rich media, 27X banner ads– 3 types: pre-roll, mid-roll, post-roll– Say Media, Advertising.com,

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Online Advertising Placement Methods

• Banner swapping: Arrangements among firms allow each firm to have its banners displayed on other affiliate sites for no cost

• Advertising Networks• Advertising exchanges: Act as brokers

between advertisers and publishers, placing ads and tracking all activity related to ad (RTB & managing) (Google DoubleClick Ad Exchange)

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Sponsorships and Affiliate Marketing

• Sponsorship: Paid effort to tie advertiser’s name to particular information, event, venue in way that reinforces brand in positive, yet not overtly commercial manner

• Affiliate Marketing: Permits firm to put logo or banner ad on another firm’s Web site from which users of that site can click through to affiliate’s sit– pay-per-click vs. pay-for-performance– 10% of retail sales– Affiliate brokers

Viral & Lead Generation Marketing

• Viral Marketing– Advantages

• Less expensive• Less use of online support

– Online venues for viral marketing: Email, Facebook, Google+, YouTube, social games

• Local Generation Marketing (inbound marketing) helps firms build websites, email campaign, manage leads: initiate further contacts, track interactions, .. (Hutspot.com)

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Search Engine Advertising: Paid Search Engine Inclusion and

Placement• One of fastest growing and most effective forms of online

marketing communications• Types:

– Organic serach– Paid inclusion– Paid placement– Keyword advertising: Google AdWords– Network keyword advertising: Google AdSense

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Search Engine Advertising: Paid Search Engine Inclusion and

Placement (cont’d)• Google, Yahoo, MSN are leaders in this

technology• Issues:

– Appropriate disclosure of paid inclusion and placement practices

– Link Farm– Content Farm– Search engine click fraud (when competitor hires third

parties to fraudulently click on competitor ads to drive up costs)

– Ad nonsense (Google AdSense ads that are inappropriate for content)

• Search engine optimization: – Register with as many search engines as possible– Ensure that keywords used in Web site description match

keywords likely to be used as search terms by user– Link site to as many other sites as possible– Update the content frequently– Design the site to become easily read by SE

• Social Search attempts to use social contacts to provide search results (Google +1)

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E-mail Marketing and the Spam Explosion

• Direct e-mail marketing: E-mail sent directly to interested consumers who “opt-in” or have not “opted-out”

• Spam: Unsolicited commercial e-mail– Spam is exploding out of control—70%–80% of all e-

mail purportedly is spam– Efforts to control spam:

• Technology (Filtering software) (only partly effective)• Government regulation (CAN-SPAM and state laws) (largely

unsuccessful)• Self-regulation by industry (ineffective)• Volunteer efforts (not enough)

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Other Forms of Online Marketing Communications

• Online catalog: Provides equivalent of paper-based catalog

• Blog advertising: Online ads related to content of blogs

• Social network advertising: Ads on MySpace, Facebook, YouTube, etc.

• Game advertising: downloadable ‘advergames’, placing brand-name products within games

How does social media influence consumer behavior?

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Multi-channel Marketing: Integrating Offline and Online

Marketing• Media consumption patters has changed: videos,

twitters, facebook ..• Marketers use multiple channel to “touch” consumer

(email, SN, SE, display ads on mobile, affiliate programs) to increase total media exposure.

• Early vision; in the Internet economy, nearly all marketing communications would be online.

• The most effective online ads are those that consistent imagery with campaigns running in other media at the same time.

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Other Marketing Strategy: Customer Retention Strategy

Personalization marketing• Internet enables personalization on mass market (Amazon)Behavioral targeting of ads (interest-based ads) (deliver tailored

message + measure the results)4 methods used to behaviorally target ads: • SE queries• Browsing history (clickstream)• Data from SN sites• Integration of online with offline• Times, Yahoo, MSN, AOL)

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Other Marketing Strategy: Customer Retention Strategy

Customization• Customer co-production• “build-to-order” products create product differentiation (Niki,

M&Ms..)• Information goods (New York Times, Yahoo, MSN, AOL)

Other Marketing Strategy: Customer Retention Strategy

Customer service (make or break a marketing effort): user ability to communicate with a company & obtain required information.

• Help reduce customer frustration, cut the number of abandoned shopping carts & increase sales

• “customer loyalty increases substantially when online buyers learn that customer service rep are available”

• “customers are willing to pay more for superior customer services”Customer Service Tools include:– Frequently asked questions (FAQs)– Real-time customer service chat systems :↓shopping cart abandonment

rate ↑# of items purchased– Automated response systems

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Net Pricing Strategies

• Early view: Web would lead to a new world of information symmetry & empowered customers => Law of One Price

• 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

• Prices set to maximize profit: marginal cost = marginal revenue

• Early years of ecommerce, marginal cost < marginal revenue (attract eyeballs + piggyback)

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Net Pricing Strategies (cont’d)

• Price discrimination: Selling products to different people and groups based on willingness to pay

• Only work if firms can:– Identify the price each individual is willing to

pay– Segregate the customers

Demand Curve

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Net Pricing Strategies (cont’d)

• Free products/services: Can be used to build market awareness. Difficult to convert the eyeballs into paying customers. Exceptions to free (valuable, exclusive, expensive, not widely distributed, unique, immediate consumption value)

• Versioning: Creating multiple versions of product and selling essentially same product to different market segments at different prices

• Bundling: Offers consumers two or more goods for one price. Based on the idea:– The marginal cost = 0– Many people would buy bundle for same or slightly higher price

• Dynamic pricing: The value of the product = what the market is willing to pay– Auctions: for unique or unusual products– Yield management: different pricing for different markets to sell excess capacity

(perishable, variation in demand, clearly defined segment, competitive market, market condition change rapidly)

– Flash management

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Internet Marketing Technologies

• Web transaction logs• Registration forms• Shopping carts• Cookies and Web bugs• Databases, data warehouses, data mining and

big data.• Customer relationship management (CRM)

systems

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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– Shopping cart database

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Cookies and Web Bugs

• 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– Provide Web marketers with a very quick means of identifying

customer and understanding prior behavior– Location of cookie files on computer depends on browser version

• Web bugs: Tiny (1 pixel) graphic files embedded in e-mail messages and on Web sites– Used to automatically transmit information about user and page

being viewed to monitoring server

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Customer Relationship Management (CRM) Systems

• Repository of customer information that records all contacts that customer has with firm and generates customer profile available to everyone in firm with 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

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A Customer Relationship Management System

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Online Marketing Metrics: Lexicon

• Metrics that focus on success of Web site in achieving audience or market share– Impressions– Click-through rate (CTR)– View-through rate (VTR)– Hits– Page views– Stickiness (duration)– Unique visitors– Loyalty– Reach– Recency

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Online Marketing Metrics: Lexicon (cont’d)

• Metrics that focus on conversion of visitor to customer– Acquisition rate– Conversion rate– Browse-to-buy-ratio– View-to-cart ratio– Cart conversion rate– Checkout conversion rate – Abandonment rate– Retention rate– Attrition rate

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Online Marketing Metrics: Lexicon (cont’d)

• Social Network metrics– Group rating point– Applause ratio– Conversation ration– Amplification – Sentiment ratio– Duration of engagement

• E-mail metrics– Open rate– Delivery rate– Click-through rate (e-mail)– Bounce-back rate– Unsubscribe rate– Conversion rate (e-mail)

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An Online Consumer Purchasing Model

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How Well Does Online Advertising Work? What is the most effective

kind of online ads? Vs. offline?

• Depends on; goal of campaign, nature o product, & quality of Web site.

• Click-through rates may be low, but this is just one measure of effectiveness (Table 7.5)

• ROI that counts• Research indicates that most powerful

marketing campaigns include both online and offline advertising

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Click-through Rates by Format 2000–2005

* As consumers become more accustomed to new online ads format, click-through rate tend to fall

SOURCE: SOURCES: Doubleclick, 2007a, b; eMarketer, Inc., 2007c; author estimates.

Comparative ROIHow effective is online ads compared to offline?

Business to Consumer Marketing Best Practices

• The most powerful marketing campaign used multiple forms of marketing including online, catalog, TV, radio, newspapers and retail stores.

• Traditional media (TV & print material) remain the primary means for consumers to find out about new products

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The Costs of Online Advertising

• Cost per thousand (CPM): Advertiser pays for impressions in 1,000 unit lots

• Cost per click (CPC): Advertiser pays pre-negotiated fee for each click ad receives

• Cost per action (CPA): Advertiser pays pre-negotiated amount only when user performs a specific action

• Hybrid: Two or more of the above models used together

Web Analytics

• Software that analyzes and presents data on each stage of the customer conversion process– Awareness– Engagement– Interaction– Purchase– Loyalty and post-purchase

• Helps managers– Optimize ROI on Web site and marketing efforts– Build detailed customer profiles– Measure impact of marketing campaigns

• Google Analytics, IBM Coremetrics, Adobe Analytics

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Web Analytics and the Online Purchasing Process

Copyright © 2007 Pearson Education, Inc.

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Web Site Activity Analysis

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The Web Site as a Marketing Communications Tool

• Web site can be viewed as extended online advertisement

• Domain name: First communication e-commerce site has with prospective customer

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Web Site Functionality

• Factors affecting effectiveness of a software interface:– Utility– Ease of use

• Factors in credibility of Web sites:– Design look– Information design/structure– Information focus– Responsiveness

Web Design Guides

• Web site design:  The web designer must make various issues into consideration:– Speed vs. aesthetics:  Some of the fancier sites have serious problems

functioning practically.  Consumers may be impressed by a fancy site, or may lack confidence in a firm that offers a simple one.  Yet, fancier sites with extensive graphics take time to download—particularly for users dialing in with a modem as opposed to being “hard” wired—and may result in site crashes.

– Keeping users on the site:  A large number of “baskets” are abandoned online as consumers fail to complete the “check-out” process for the products they have selected.  One problem here is that many consumers are drawn away from a site and then are unlikely to come back.  A large number of links may be desirable to consumers, but they tend to draw people away.  Taking banner advertisers on your site from other sites may be profitable, but it may result in customers lost.

– Information collection:  An increasing number of consumers resist collection of information about them, and a number of consumers have set up their browsers to disallow “cookies,” files that contain information about their computers and shopping habits.

Web Design Guides (cont.)

• Site content. The content of a site should generally be based on the purposes of operating a site. For most sites, however, having a clear purpose be evident is essential. The site should generally provide some evidence for this position. For example, if the site claims a large selection, the vast choices offered should be evident. Sites that claim convenience should make this evident. A main purpose of the Internet is to make information readily available, and the site should be designed so that finding the needed information among all the content of the site is as easy as possible. Since it is easy for consumers to move to other sites, the site should be made interesting. To provide the information and options desired by customers, two-way interaction capabilities are essential.

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Factors in the

Credibility of Web Sites

SOURCE: Based on data from Fogg, et al, 2002.

Attribute encourage to use E-store

Factors for not using E-commerce

Attributes of e-store feature

Reasons for not using online purchase