(Chapter 7, Laudon and Traver, E-commerce)
The Internet Audience and
Around 175 million Americans (67% of total
population) had Internet access in 2005.
Growth rate has slowed.
Intensity of usage is increasing and studies show
that users spend a greater amount of time
Scope of usage is also increasing and people are
engaging in a wide range of activities.
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Top 10 Most Popular Internet
(Percentage of people who report online weekly time with these
1. E-mail and instant messaging 90.4%
2. Web surfing or browsing 77.2%
3. Reading news 52.0%
4. Hobbies 46.7%
5. Entertainment information 45.6%
6. Shopping and buying online 44.2%
7. Medical information 36.1%
8. Travel information 34.6%
9. Tracking credit cards 32.5%
10. Playing games 28.5%
Source: The digital future report: Surveying the Digital Future Year Four, USC Annenberg School, Center for the Digital Future, September 2004
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(Worrisome) 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
The more time people spend on the Internet, the less
time spent using traditional media.
However some studies have also found that the Internet
can strengthen or complement social bonds (e.g. using
e-mail to stay in touch, etc.).
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Consumer Behaviour Models
Attempts to model and understand the
behaviour of consumers in marketplace.
Attempts to predict or explain what
consumers purchase, where, when and
how much and why they buy.
Consumer behaviour models seek to
predict the wide range of decisions that
consumers make based on background
demographic factors and other
intervening, more immediate variables.
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A General Model of Consumer
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Background Demographic Factors
Culture: Shapes basic human values, wants perceptions and behaviours.
Subculture: Subset of culture; forms around major social differences such
as ethnicity, age, lifestyle, geography.
(from ) Reference group. A group that serves as a frame of reference to
an individual, influencing his/her (consumer) behaviour. Reference groups
can be distinguished along different lines, e.g.: 1) degree of influence, 2)
type of interaction and 3) type of influence. Types of interaction:
Direct reference group. Direct (face-to-face) contact. Includes one’s
family, profession/occupation, religious peers, neighborhood, schools.
Indirect reference group. No direct (face-to-face) contact. Includes
one’s life-cycle state, social class (abstract), lifestyle group, movie
Within reference groups there are opinion leaders (viral influencers):
influence the behavior of others through their personality, skills or other
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Unique kind of reference group.
Can be defined as an integrated pattern of activities
(hobbies, sports, shopping tastes, social events
attended, etc.), interests (food, family, art, science,
etc.) and opinions (politics, social issues, etc.).
Lifestyle group classification systems. Attempt to
capture patterns of consumption, living and acting.
Rationale: understand the lifestyles of individuals
and/or groups and then tailor products, services and
marketing to those specific lifestyles.
Lifestyle classification is another method for
segmenting the market.
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Background Demographic Factors
In addition of lifestyle classification marketers are also interested in a
consumer’s psychological profile.
Psychological profile: set of needs, drives, motivations, perceptions and
Products, services and marketing messages are directed at specific
Psychographic profiles: divides market into different groups based on
demographic and psychological data.
• Different psychological profiles
regarding the adoption of innovation
(e.g. mobile banking).
• By being aware of the different
profiles (i.e. from innovators to
conscientious rejectors), marketers
can tailor their messages in order to
skew the curve towards the left.
(from: http://learnings.leadnet.org/) 9
Background Demographic Factors (Opinion leaders)
• Opinion leaders or viral influencers.
• Influence the behaviour of other individuals thanks to their
personality, skills, achievements, etc.
• Marketers seek opinion leaders out because of their power to
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The Purchasing Decision
There are five stages in the consumer
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
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A Model of Online Consumer Behavior
Online and offline consumer behaviours are similar. For example, both
types of consumers have to go through the same general decision
process (i.e. awareness of need, etc.).
However, several new factors need to be added to the online model,
Web site features, e.g.: download latency, navigability,
consumption-optimizing design and security.
Consumer clickstream behavior – the transaction log that
consumers establish as they move about the Web. Some believe
this information has a lot more predictive power (in terms of
consumer behaviour) than demographic information.
Consumer skills (knowledge of how to conduct online
Attitudes towards online purchasing.
Perceptions about control over the Web environment.
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A Model of Online Consumer Behavior
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Clickstream Analysis (1)
40% of online users are “buyers”, who actually
purchase something entirely online.
Another 40% of online users are “browsers”,
who research products on the web but purchase
The combined group, referred to as “shoppers”.
The importance of online browsing for offline
purchasing should not be underestimated.
If a store provides information online, but does not
sell products online, 46% of Americans are more
likely to go to the store and buy the products
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Clickstream Analysis (2)
Study by Booz Allen & Hamilton and NetRatings.
They found seven categories of clickstream behaviour,
Just the facts.
Do it again.
Categories called “occasions”. Authors suggest that “occasion-based”
marketing is more effective than static market segmentation (based on
demographics and/or consumer attitudes).
In some categories, users are more likely to consume, whereas in
others they seem to be immune to online advertising.
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Clickstream Analysis (3)
Most important clickstream factors:
Number of days since last visit.
Speed of clickstream behaviour.
Number of products viewed during last visit.
Number of pages viewed.
Number of products viewed.
Supplying personal information (trust).
Number of days since last purchase.
Number of past purchases.
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What Consumers Shop for and
Small ticket items
Books, health, beauty supplies, office supplies,
music, software, video and toys
Purchase price is small (reduced consumer risk)
Items are physically small (shipment costs are low)
Margins are high (at least on CDs and software)
Broad selection of products
Big ticket items
Airline ticket, hotel rooms, computer hardware, …
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What Consumers Buy on the Web –
Small Ticket Items
SOURCE: Based on data from eMarketer, Inc., 2004b.
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What Consumers Buy on the Web –
Big Ticket Items
SOURCE: Based on data from eMarketer, Inc., 2004b.
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Offline Purchase After Online
Source: The Economist, http://economist.com
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How Shoppers Find Vendors Online
E-Commerce shoppers are extremely intentional.
Only a tiny minority engages in spur-of-the-moment buying, after clicking “click
here” banner adds.
Once consumers are online, 54% of shoppers use search engines to find their
products, 20% go directly to a company’s Web site, 7% use comparison shopping
sites and 5% use 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
The goal for merchants is to target these goal-oriented consumers:
Target communications to these consumers.
Make sure the merchant’s company is at the top of the search results lists.
Web site: easy to access and use product information.
Have full selection of products and services.
Have good customer service.
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• The other extreme from “goal-directed” consumers.
• Some people are not sure what they are looking for or what they want to buy.
• StumbleUpon identifies the general interests of users and then uses
collaborative filtering tools to direct users to sites that were visited by
people with similar interests.
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Why More People Don’t Shop Online
Major online buying concerns:
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Trust, Utility, and Opportunism in Online Markets
Recent research (Ba & Pavlou, 2002) has shown that the two most
important factors shaping decisions behind an online purchase are:
utility and trust.
Consumers want good deals, bargains, convenience, and speed of
Asymmetry of information. The seller usually knows better than the
consumer about the quality of goods and terms of sale.
This can lead to opportunistic behaviour by the seller.
Sellers can develop trust among online consumers by building strong
reputations of honesty, fairness, and delivery of quality products.
Examples of online-mechanisms for trust building:
Feedback forums in Epinions.com.
Amazon book reviews (by consumers).
Feedback forums in eBay.
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Basic Marketing Concepts
image Source: economist.com
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Basic Marketing Concepts
Marketing: the strategies and actions firms take
to establish a relationship with a consumer and
encourage purchases of its products or services.
Internet Marketing: using the web-as well as
traditional channels to develop a positive, long
term relationship with customers, thereby
creating a competitive advantage for the firm
by allowing it to charge a higher price for
product or services than its competitors can
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Basic Marketing Concepts
Firms within an industry compete with one
another along several dimensions, e.g.:
Differentiation. Uniqueness of products.
Cost. Product cost.
Scope. Niche markets or a broad segment.
Marketing seeks to create unique, highly
differentiated products or services that are
produced or supplied by one trusted firm
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Products, Brands and the Branding
A brand is a set of expectations that a consumer has when
consuming or thinking about consuming a product or service from a
The most important expectations created by brands are:
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Process of Brand Creation
• A product is designed based on consumer research.
• A core product is identified.
• Marketers identify differentiating features. Communicate to consumer.
• Consumers develop expectations.
• A strong brand requires a strong product. Otherwise: expectations shattered.
• The consumer is willing to pay extra for the brand’s features.
• If the expectations are met, a sense of loyalty to the product and company is generated in the
consumer and communicated throughout the consumer’s social network.
Figure 7.8, Page 381 31
• Three levels of a product or
service: core, actual and
• Core product: essential
benefit/ functionality of the
product (e.g. touch screen).
• Actual product: set of
charactersitics to deliver the
product’s core benefits (e.g.
design of the box)
• Augmented product: additional benefits beyond the core and actual
product (e.g. warranty).
• The augmented product is the foundation for a product’s brand. In
other words, this outer layer is fundamental to the process of
Are Brands Rational? (1)
• Coca-cola. One of the most enduring and
powerful brands in the history of commerce.
• The core product is simply: colored, flavored,
carbonated sugar water.
• But the augmented product is a “delightful,
refreshing, reputable, unique-tasting drink”,
based on a secret formula.
• Customers are willing to pay twice as much for
this augmented product compared to unbranded
• This begs the question: are brands rational?
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Are Brands Rational? (2)
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
Brands increase customer retention –
A successful brand constitutes a long-lasting
(although not necessarily permanent) unfair
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Brands & Unfair Competitive Advantage
A fair competitive advantage is based on:
Efficient production processes.
Essentially: factors that can be imitated, replicated
or purchased by competitors.
Unfair competitive advantages include:
Essentially: factors that can’t be imitated, replicated
Brand names can’t be purchased, unless the
company owning the brand is bought.
Can Brands Survive the Internet?
In e-commerce I era, academics and business consultants
assumed that the Web would result in the “Law of One
The Internet with its abundance of pricing information, would lead
to price transparency and would eventually drive prices down to
their marginal cost.
Perfect marketplace, there would be one world price for every
Frictionless commerce would of course mean the end of brands
and premium pricing.
E-commerce companies continue to rely on brands to
attract customers and charge premium prices.
Internet technologies can be used to infinitely
differentiate products (personalization, customization,
etc.), partially counteracting the price-lowering effects of
lower search costs and global availability of suppliers.
Brands and Price Dispersion
Price dispersion refers to the difference
between the highest and lowest prices in a
The most frequently visited and used
e-commerce sites are not the lowest-price
For example, Amazon, which has one of the
strongest brand names on the web, charges
premium prices when compared to other
e-tailers or even retail stores.
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Web transaction logs
Cookies and Web bugs
Databases, data warehouses, and data
Customer relationship management (CRM)
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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 useful marketing information, particularly
when combined with:
Registration forms – used to gather personal data
Shopping cart database – captures all item selection,
purchase and payment data
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Web transaction logs (cont’d)
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Marketing Uses of Data from Web
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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
Cookies provide Web marketers with a very
quick means of identifying the customer and
understanding his or her prior behaviour.
Location of cookie files on computer depends
on browser version.
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A Web Bug is a graphics on a Web page or in an Email
message that is designed to monitor who is reading the
Web page or Email message.
Web Bugs are often invisible because they are typically
only 1-by-1 pixel in size.
They are represented as HTML IMG tags.
One method of identification:
Check the HTML source of a page.
Search for IMG tags (images typically of size 1x1).
The URL points to a server which differs from that of the
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The information that is sent to a
server when a Web Bug is viewed
The IP address of the computer that
fetched the Web Bug
The URL of the page that the Web Bug is
The URL of the Web Bug image
The time the Web Bug was viewed
The type of browser that fetched the
Web Bug image
A previously set cookie value
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Some of the uses of a Web Bug on
a Web page
Ad networks can use Web Bugs to add
information to a personal profile of what
sites a person is visiting.
Another use of Web Bugs is to provide an
independent accounting of how many
people have visited a particular Web site.
Web Bugs are also used to gather
statistics about Web browser usage at
different places on the Internet.
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Should Web Bugs Be
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
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Databases and Data
Data warehouse: Database that collects a
firm’s transactional and customer data in
a single location for offline analysis by
marketers and site managers.
Firms can use data warehouses to answer
questions such as:
What products are most profitable by
How effective are the different marketing
strategies adopted by the company?
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Set of analytical techniques that look for patterns in
the data of a database or data warehouse, or seek to
model the behavior of customers
Query-driven – based on hunches of marketers who pose
specific queries (e.g. relationship between time of day and
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 – behavioural 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.
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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
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Generic Market Entry Strategies
• New firms and existing firms can choose how they enter the online
• New firms:
• In the early days. Typical strategy: pure clicks. Rationale: enter quickly,
get first mover advantages. Hindsight: doesn’t work in the long run.
• Bricks and clicks. New firms usually can’t afford this. Alliances with
• Existing firms:
• Tend of have significant cash flow and capital to fund their E-Commerce
• Pure clicks. Barnesandnoble.com. Established as an independent firm.
• Most common strategy: extend their business by employing bricks and
Establishing the Customer Relationship (1)
Once a first has established an entry strategy it
must then determine how it will relate to the
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
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Establishing the Customer Relationship (2)
How DoubleClick Works
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Establishing the Customer Relationship (3)
By Dawn Hudson
Permission marketing: Marketing strategy in which
companies obtain permission from consumers
before sending them information or promotional
messages (example: opt-in e-mail).
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. Online version of the traditional word-of-mouth
In the offline world, word-of-mouth is the second (after television) most
common way for customers to learn about a new product or service.
Brand leveraging: Process of using power of an existing brand
to acquire new customers for a new product or service.
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Mass market-personalization continuum ranges
from mass marketing to direct marketing to
micromarketing to personalized, one-to-one
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 (not
groups) and then positioning the product vis-à-
vis competitors to be truly unique.
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The Mass Market-Personalization Continuum
• Micromarketing. Aimed at geographical units (e.g. cities). Product and
• One-to-one marking is suitable when you have a complex product and/or
service that is highly customizable.
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Other Customer Retention Marketing
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.
Studies have shown that users predominantly go on the
Web for e-mailing and to find information. Marketers have
heeded this statistic and have come up with strategies
that attempt to integrate content and transactions in a
seamless way. For example, Iexplore.com, offers valuable
content and at the same time keeps track of your
clickstream and profile in order to suggest relevant travel
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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 e-mail
confirmations and acknowledgments.
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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
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
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Net Pricing Strategies (cont’d)
Free products/services: Can be used to build market
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
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
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Some of the slides are adapted from:
Chapter 7, Laudon and Traver,
E-commerce, 3rd edition, Addison-
Payam Barnaghi for the original slides.
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