Chapter 4

Consumer Behavior,
Customer Service, and
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Learning Objectives
Describe the factors that influence
consumer behavior online
Understand the decision-making process
of consumer purchasing online
Describe how companies are building oneto-one relationships with customers
Discuss the issues of e-loyalty and e-trust
in EC
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Learning Objectives (cont.)

Explain how personalization is
accomplished online
Describe consumer market research in EC
Explain the implementation of customer
service online and describe its tools
Describe the objectives of Web
advertising and its characteristics

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Learning Objectives (cont.)

Describe the major advertising methods
used on the Web
Describe various online promotions
Describe the issues involved in measuring
the success of Web advertisements as it
relates to different pricing methods.
Understand the role of intelligent agents
in consumer issues and advertising
applications
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Ritchey Design Learns

About Customers
The Problem
Small business designing and
manufacturing mountain bike components
1995 Web site was a status symbol rather
than a business tool
The site did not:
Offer enough customer information
Enable the company to gain insight
into their customers needs and wants
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Ritchey Design Learns

About Customers (cont.)
The Solution
Customer surveys introduced the site
Web Trader automatically saves and
organizes answers in the database
this information is used to make
marketing decisions

Created an electronic product catalog

Visitors can browse through the
product catalog with detailed
descriptions and graphics of products
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Ritchey Design Learns

About Customers (cont.)
The Results
Ritchey does not yet sell directly to
individuals online, because the company
wants to maintain its existing distribution
system
Dealers can:
Place orders on the site
Learn about new products quickly
site is basically used for market
research and advertising
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Exhibit 4.1
EC Consumer Behavior Model

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Consumer Behavior Online (cont.)

Consumer typesindividual consumers
who commands most of the medias
attention
Organizational buyers
Governments and public organizations
Private corporations
Resellers

Consumer behavior viewed in terms of:

Why is the consumer shopping?
How does the consumer benefit from shopping
online?
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Variables in the
Purchasing Environment
Social variablespeople are influenced by:
Family members, friends, co-workers, whats
in fashion this year

Cultural/community variableswhere the

consumer lives
Other environmental variables:
Available information, government
regulations, legal constraints, situational
factors
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Personal Characteristics
Personal Differences
Age and gender
Marital status
Educational level
Ethnicity

Occupation
Household income
Personality
Lifestyle
characteristics

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Exhibit 4.3
Amount of Money Spent on the Web

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Consumer Purchasing Decision Making

Roles people play in decision-making
Initiatorsuggests/thinks of buying a particular
product or service
Influenceradvice/views carry weight in
making a final buying decision
Decidermakes a buying decision or any part
of it
Buyermakes the actual purchase
Userconsumes or uses a product or service
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General Purchasing
Decision-Making Model

5 major phases of a general model

1.
2.
3.
4.
5.

Need identification
Information search
Evaluation of alternatives
Purchase and deliver
After-purchase evaluation

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How One-to-One
Relationships Are Practiced
Relationships as a two-way street:
Customer information is collected and
placed in a database
Customers profile is developed

Generate four Ps of marketing:

Product
Price

Place
Promotion
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How One-to-One
Relationships Are Practiced (cont.)
Doing business over the Internet enables
companies to:
Communicate better with customers
Understand customers needs and buying
habits better
Improve and customize their future
marketing efforts

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Exhibit 4.5
The New Marketing Model

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Personalization
Personalizationthe matching of services,
products, and advertising content to individual
consumer
User profilethe requirements, preferences,
behaviors, and demographic traits of a particular
customer
Cookiea data file that is placed on a users
hard drive by a Web server, frequently
without disclosure or the users consent, that
collects information about the users
activities at a site
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Personalization (cont.)
Major strategies used to compile user
profiles include:
Solicit information directly from the user.
Use cookies or other methods to observe
what people are doing online
Perform marketing research
Build from previous purchase patterns

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Collaborative Filtering
Collaborative filteringa personalization method
that uses customer data to predict, based on
formulas derived from behavioral studies, what
other products or services a customer may enjoy;
predictions can be extended to other customers
with similar profiles
Variations of collaborative filtering
Rule-based filtering, content-based filtering,
activity-based filtering

Legal and ethical issues

Privacy issues
Permission-based personalization tools
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Customer Loyalty & E-Loyalty

Customer loyaltydegree to which
customer stays with vendor or brand
Important element in consumer purchasing
behavior
One of the most significant contributors to
profitability

E-loyaltycustomers loyalty to an e-tailer

Learn about customers needs
Interact with customers
Provide customer service
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Trust in EC
Trustpsychological status of involved parties
who are willing to pursue further interactions to
achieve a planned goal
EC vendors must establish high levels of trust
with current and potential customers
Particularly important in global EC transactions

Level of trust determined by:

Degree of initial success experienced with EC
Well-defined roles and procedures for all parties
involved
Realistic expectations as to outcomes from EC
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How to Increase EC Trust

Trust can be decreased by:
Any user uncertainty regarding the technology
Lack of initial face-to-face interactions
Lack of enthusiasm among the parties

Brand recognition is very important in EC

trust
EC security mechanisms can also help
solidify trust
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Market Research for EC

Goalfind
information and
knowledge that
describes
relationships among
Consumers
Products
Marketing
methods
Marketers

Aimfind relationship
between
Discover marketing
opportunities and
issues
Establish marketing
plans
Better understand the
purchasing process
Evaluate marketing
performance

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Market Research for EC (cont.)

Market research includes gathering information
about:
Distribution
Competition
Promotion
Consumer
purchasing
behavior

Economy
Industry
Firms
Products
Pricing

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Market Research for EC (cont.)

Various tools are used to conduct
consumer market research:
Questionnaires
Surveyors
Telephone surveys
Focus groups

Important first to understand how

groups of consumers are classified
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Market Segmentation
Market segmentationprocess of
dividing a consumer market into logical
groups for conducting marketing
research, advertising, and sales
Geography Demographics
Psychographics Benefits sought

Segmentation is done with the aid of

tools:
Data modeling
Data warehousing
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Conducting Market Research Online

Powerful tool for research regarding:
Consumer behavior
Discover of new markets
Consumer interest in new products

Internet-based market research

Interactiveallowing personal contact
Gives better understanding of customer,
market, and competition
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What Are We Looking For in

EC Market Research?
Major factors used for
prediction are:

Online market research

attempts to find:

Product information
requested
Number of related emails
Number of orders
made
What
products/services are
ordered
Gender
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Purchase patterns for

individuals and groups
Factors that encourage
online purchasing
How to identify real
buyers and browsers
How an individual
navigates
Optimal Web page
design

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EC Market Research (cont.)

Interactive Internet-based market research
Allows personal contact with customers
Provides marketing organizations with
greater ability to understand customer,
market, and competition

Identify early shifts in product and

customer trends
Enables marketers to identify products and
marketing opportunities
Develop products that customers really
want to buy
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Online Market Research Methods

Web-based surveys
Free software to create survey forms and
analyze results is available at
supersurvey.com
websurveyor.com

Online focus groupshelp overcome

some problems that limit the
effectiveness of Web-based surveys
(sample size, partial responses)
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Online
Market Research Methods (cont.)
Tracking customer movementslearn
about customers by observing their
behavior rather than by asking them
questions
Transaction
Clickstream behavior
Cookies
Web bugs
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Limitations of Online
Market Research Methods
Accuracy of responses
Loss of respondents because of
equipment problems
Ethics and legality of Web tracking
Focus group responses can lose
something in the translation from an inperson group to an online group
Eye contact and body language are lost
Anonymity is necessary to elicit an
unguarded response
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Data Mining
Data miningthe process of searching a
large database to discover previously
unknown patterns; automates the process of
finding predictive information
New business opportunities generated
by conducting:
Automated prediction of trends and
behaviors
Automated discovery of previously unknown
patterns and relationships
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Data Mining (cont.)

Data mining tools and techniques:
Neural computing
Intelligent agents
Association analysis

Sample data mining applications

Retailing and sales distribution
Banking
Broadcasting
Airlines
Marketing
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Web Mining
Web miningapplication of data mining
techniques to discover meaningful
patterns, profiles, and trends from both
the content and usage of Web sites
Web content mining
Web usage mining

Web mining is critical for EC due to the

large number of visitors to EC sites
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Limitations of
Online Market Research
Lack of representativeness in samples of
online users
Online shoppers tend to be wealthy,
employed, and well educated; results may
not be extendable to other markets

The right kind of sampling is achieved

through verification of target audience
or demographic
Anonymity causes a loss of information
about demographics and characteristics of
the respondents
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Delivering Customer Service

in Cyberspace
Customer servicea series of activities designed to
enhance customer satisfaction (the feeling that a
product or service has met the customers
expectations)
Traditional: do the work for the customer
EC delivered: gives tools to the customer to do the
work for him/herself

E-servicecustomer services supplied over the

Internet
Foundation of service
Customer-centered services
Value-added services
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Delivering Customer Service

in Cyberspace (cont.)
Value chain for Internet service
Customer acquisition (pre-purchase support)
Customer support during purchaseprovides
a shopping environment that is efficient,
informative, productive
Customer fulfillment (purchase dispatch)
timely delivery
Customer continuance support (postpurchase)maintain the customer
relationship between purchases
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Customer Relationship Management

Customer relationship management (CRM)a
customer service approach that focuses on
building long-term and sustainable customer
relationships that add value both for the customer
and the company
Building a customer-centered EC strategy
Focus on the end customer
Systems and business processes designed for
ease of use
Foster customer loyalty
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Customer
Relationship Management (cont.)
Actions for successful EC strategy
Deliver personalized services
Target the right customers
Help the customers do their jobs
Let customers help themselves
Streamline business processes that impact
the customers
Own the customer s total experience by
providing every possible customer contact
Provide a 360-degree view of the customer
relationship
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Customer Service Tools

Personalized Web pages
Used to record purchases and preference
Direct customized information to customers
efficiently

E-mail and automated response

Disseminate general information
Send specific product information
Conduct correspondence regarding any topic
(mostly inquiries from customers)
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American Airlines Offers

Personalized Web Sites
American Airlines (aa.com) unveiled a the
most advanced personalized, one-to-one
interactions and transactions on its Web site
in 1998
Intelligent agents enable the generation of
personalized Web pages for each of its 1
million registered, travel-planning customers

Broadvisions application dynamically

matches customer profiles to a database
Output of the matching process triggers the
creation of a real-time customized Web page
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American Airlines (cont.)

The use of intelligent-agent technology
built a considerable edge over AAs
competitors
Personalizing Web pages is becoming
more important in:
Increasing customer loyalty
Cementing relationships with customers
Fostering the community of AA frequent
flyers
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Customer Service Tools (cont.)

Call centera comprehensive service
entity in which EC vendors address
customer service issues communicated
through various contact channels
Telewebscall centers that combine Web
channels with portal-like self-service;
combine

Justifying CRM programstwo problems

Most of the benefits are intangible
Substantial benefits reaped only from
loyal customers,
after several years
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Metrics
Metricsmeasures of performance; may be
quantitative or qualitative
Response times
Site availability
Download times
Timeliness

Security and
privacy
On-time order
fulfillment
Return policy
Navigability

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Web Advertising
Advertising is an attempt to disseminate
information in order to affect a buyer-seller
transaction
Interactive marketingmarketing that
allows a consumer to interact with an
online seller
Two-way communication and e-mail capabilities
Vendors also can target specific groups and
individuals
Enables truly one-to-one advertising
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Internet Advertising Terminology

Ad viewsnumber of times users call up a page
that has a banner on it during a specific time
period; known as impressions or page views.
Buttona small banner that is linked to a Web
site
PageHTML document
Clicka count made each time a visitor clicks
on an advertising banner to access the
advertiser s Web site (ad clicks and click
throughs)
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Internet Advertising Terminology (cont.)

CPM (cost per thousand impressions)fee an
advertiser pays for each 1,000 times a page
with a banner ad is viewed
Hitrequest for data from a Web page or file
Visita series of requests during one
navigation of a Web a site; a pause of request
for a certain length of time ends a visit

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Why Internet Advertisement?

3/4 of PC users gave up some television
time
Well educated, high-income Internet users
are a desired target for advertisers
Internet is by far the fastest growing
communication medium
Advertisers are interested in a medium with
such potential reach, both locally and
globally
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Why Internet Advertisement? (cont.)

Cost
Online ads are cheaper than those in other media
Ads can be updated at any time with minimal cost

Richness of format
Use of text, audio, graphics, and animation
Games, entertainment, and promotions are easily
combined in online ads

Personalization
Can be interactive
Can target specific interest groups and/or
individuals
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Exhibit 4.11
Adoption Curves for Various Media

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Advertising Networks
Advertising networks (ad server networks)
specialized firms that offer customized Web
advertising, such as brokering ads and
helping target ads to selected groups of
consumers
One-to-one targeted ads and marketing can
be:
Expensive
Very rewarding
Very effective
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Targeted Advertisements:
The DoubleClick Approach
One-to-one targeted advertisements can take
many forms
3M Corp. wants to advertise its multimedia
projectors
3M approaches DoubleClick, Inc. and asks the
firm to identify such potential customers

How does DoubleClick find them?

Using cookies, DoubleClick
(doubleclick.com/us) monitors people
browsing the Web sites
Finds those people working for advertising
agencies
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DoubleClick (cont.)
DoubleClick then prepares an ad about
3M projectors that greets targeted people
whenever they browse participating sites
How is this financed?
DoubleClick charges 3M for the ad
Fee is then split with the participating Web
sites that carry the 3M ads
Based on how many times the ad is matched
with visitors
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DoubleClick (cont.)
DoubleClick expanded the service
Dynamic Advertising Reporting and
Targeting (DART):
Advertising control
Ad frequency determination
Providing verifiable measures of success

DoubleClick brings:
The right advertisement to
The right person at
The right time
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Advertisement Methods
Banner--on a Web page, a graphic advertising
display linked to the advertisers Web page
Keyword banners
Random banners

Benefits of banner ads

Customized to the target audience or one-toone ads
Utilize force advertising marketing strategy
Direct link to advertiser
Multi media capabilities
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Advertisement Methods (cont.)

Limitations of banner ads
High cost
Click ratiothe ratio between the
number of clicks on a banner ad and the
number of times it is seen by viewers;
measures the success of a banner in
attracting visitors to click on the ad
Declining click ratioviewers have
become immune to banners
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Advertisement Methods (cont.)

Banner swappingan agreement between two
companies to each display the others banner ad on
its Web site
Direct link between one site to the other site
Ad space bartering

Banner exchangesmarkets in which

companies can trade or exchange placement
of banner ads on each others Web sites
(bcentral.com)
Credit ratio of approximately 2:1
Still the largest Internet advertising medium
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Advertisement Methods (cont.)

Pop-under adan ad that appears underneath
the current browser window, so when the user
closes the active window, they see the ad
Interstitials an initial Web page or a portion of
it that is used to capture the users attention
for a short time while other content is loading
E-mail
Several million users may be reached directly
Problems: junk mail, spamming

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Advertisement Methods (cont.)

Standardized adson February 26, 2001, the
Internet Advertising Bureau, an industry
trade group, adopted five standard ad sizes
for the Internet:
Larger and more noticeable than banner ads
Look like the ads in a newspaper or magazine
Users read these ads four times more
frequently than banners
Appear on Web sites in columns or boxes

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Advertisement Methods (cont.)

Skyscraper adfull
column-deep

Classified ada
newspaper-like ad

Sometimes as
many as four on
one Web page
Interactiveclick
on a link inside
the ad for more
information
about a product
or service

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Special sites like

classifieds2000.com
Online newspapers,
exchanges, portals ,
Regular-size
classified ads is free
Larger size or with
some noticeable
features is done for
a fee
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Advertisement Methods (cont.)

URL (Universal Resource Locators)
Advantages:
Minimal cost is associated with it
Submit your URL to a search engine and be
listed
Keyword search is used

Disadvantages:
Search engines index their listings differently
Meta tags can be complicated

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Advertisement Methods (cont.)

Optimizing Web content improves
discovery by a search engine
Keywordcount.com
Searchenginewatch.com

Paid search-engine inclusion

Several search engines charge fees
for including URLs near the top of
the search results
A debatable issue is the ethics of
this strategy
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Advertisement Methods (cont.)

Advertising in chat rooms
Virtual meeting ground
Free addition to a business site
Allows advertisers to cycle through messages
and target the chatter again and again
Advertising can become more thematic
More effective than banners
Used for one-to-one connections

Advertorialan advertisement disguised to

look like an editorial or general information
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Advertising Strategies
and Promotions
Associated ad display (text links)an
advertising strategy that displays a banner ad
related to a term entered in a search engine
Ads as a commoditydirect payment made
by the advertisers for ads viewed
Viral marketing (advocacy marketing)word-ofmouth marketing by which customers promote a
product or service by telling others about it
Customizing adsone-to-one advertisement
(Webcasting)
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Advertising Strategies
and Promotions (cont.)
Online events, promotions, and
attractions
Promotions designed to attract visitors are
regular events on thousands of Web sites
Contests
Quizzes

Coupons
Giveaways

Bargains on the Internet

Lottery
Free samples,give-aways, and sweepstakes
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Advertising Strategies
and Promotions (cont.)
Major considerations when implementing
an online ad campaign:
Clearly understood online surfers as target
audience
Powerful enough server prepared to handle
the expected volume of traffic
Assuming the promotion is successful, what
will the result be?
Evaluate the budget
Promotion strategy

Consider co-brandingbring together two

or more powerful partners
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Special Advertising Topics

Pricing of advertising
Justifying the cost of Internet
advertisement is difficult for two
reasons:
1. The difficulty in measuring the
effectiveness of online advertising
and
2. Disagreements on pricing methods

Pricing based on ad views

Pricing based on click-through
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Special Advertising Topics (cont.)

Payment based on interactivity
The interactivity model bases ad pricing on
how the visitor interacts with the target ad

Payment based on actual purchase

Pay for ads only if an actual purchase has
been made (affiliate programs)

Permission advertising (permission

marketing)advertising (marketing)
strategy in which customers agree to accept
advertising and marketing materials
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Special Advertising Topics (cont.)

Measuring, auditing, and analyzing web traffic
Site audit validates the number of ad views and
hits claimed by the site
Ratinglooks at multiple criteria including
content, attractiveness, ease of navigation, and
privacy protection
Sites with higher ratings command higher prices
for advertising placed on their sites
Companies use software to assess if placing ads
really increases traffic to their sites

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Special Advertising Topics (cont.)

Localizationthe process of converting media
products developed in one country to a form
culturally and linguistically acceptable in
countries outside the original target market
Using internet radio for localization
Internet radioa Web site that provides music,
talk, and other entertainment, both live and
stored, from a variety of radio stations

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Software Agents in Customer-Related

Advertising Applications
EC agents support
Need identification
Product brokering
Merchant brokering and comparison
Buyer-seller negotiation
Agents that support purchase and
delivery
Agents that support after-sale service
and evaluation
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Fujitsu Uses Agents for Targeted

Advertising in Japan
Fujitsu (fujitsu.com) is a Japanesebased global provider of Internetfocused information technology
solutions
Has been using an agent-based
technology called Interactive
Marketing Interface (iMi) since 1996
Advertisers interact directly with
consumers while ensuring that
consumers remain anonymous
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Fujitsu (cont.)
Consumers submit a personal profile to iMi
Customers receive by e-mail :
Product announcements
Advertisements
Marketing surveys

Answer marketing surveys or

acknowledging receipt of ads
They earn iMi points redeemable for:
Gift certificates
Phone cards
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Software Agents in Customer-Related

Advertising Applications (cont.)
Character-Based Interactive Agents
Avatarsanimated computer characters that
exhibit human-like movements and
behaviors
Social computingan approach aimed at
making the human computer interface more
natural

Chatterbotsanimation characters that can

talk (chat)
Mr. Clean at mrclean.com
"Katie at dove.com
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Software Agents in Customer-Related

Advertising Applications (cont.)
Agents that support auctions
Agents often act as auction aggregators,
some provide real-time access to auctions

Agents support consumer behavior,

customer service, and advertising activities
EC agents found at:
Botspot.com
Agentland.com
Agents.umbc.edu

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Managerial Issues
Do we understand our customers?
What do customers want from technology?
How is our response time?
How do we improve and measure customer
service?
Should we use intelligent agents?
Is our market research leading to customer
acquisition?
Are customers satisfied with our Web site?
Should we advertise anywhere but our own site?
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Managerial Issues (cont.)

What is our commitment to Web advertising,
and how will we coordinate Web and
traditional advertising?
Should we integrate our Internet and nonInternet marketing campaigns?
What ethical issues should we consider?
Have we integrated advertising with ordering
and other business processes?
How important is branding?
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Summary
Essentials of consumer behavior
The online consumer decision-making process
Building one-to-one relationships with
customers
Increasing loyalty and trust
Online personalization
EC customer market research
Implementing customer service
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Summary (cont.)
Objectives and characteristics of Web
advertising
Major online advertising methods
Various advertising strategies
Types of promotions on the Web
Measuring the advertising success and
pricing ads
Intelligent agents
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