e-commerce

business. technology. society.

eighth edition

Kenneth C. Laudon
Carol Guercio Traver

Copyright © 2012 Pearson Education, Inc.

Chapter 6
E-commerce Marketing Concepts:
Social, Mobile, Local
 Netflix: The Next Blockbuster?
Class Discussion

 What was Netflix’s first business model? Why

did this model not work and what new model
did it develop?
 Why is Netflix attractive to customers?
 What is Netflix’s “recommender system”?
 How does Netflix use data mining?
 Has Netflix’s changes in business model
damaged its brand permanently?
Copyright © 2012 Pearson Education, Inc. Slide 6-3
 Consumers Online: The Internet
Audience and Consumer Behavior
 Around 73% (86 million) U.S. households
have Internet access in 2011
 Growth rate has slowed
 Intensity and scope of use both increasing
 Some demographic groups have much higher
percentages of online usage than others
 Gender, age, ethnicity, community type, income,
education

Copyright © 2012 Pearson Education, Inc. Slide 6-4

 The Internet Audience and
Consumer Behavior (cont.)
 Broadband vs. dial-up audiences, new mobile
audience
 Internet purchasing affected by neighborhood
 Lifestyle and sociological impacts
 Use of Internet by children, teens
 Use of Internet as substitute for other social activities

 Media choices
 Traditional media competes with Internet for attention
 Television viewing has increased with Internet usage
Copyright © 2012 Pearson Education, Inc. Slide 6-5
 Consumer Behavior Models
 Study of consumer behavior
 Attempts to explain what consumers purchase
and where, when, how much and why they buy
 Consumer behavior models
 Predict wide range of consumer decisions
 Based on background demographic factors and
other intervening, more immediate variables

Copyright © 2012 Pearson Education, Inc. Slide 6-6

 A General Model of Consumer Behavior

Figure 6.1, Page 355 SOURCE: Adapted from Kotler and Armstrong, 2009.
Copyright © 2012 Pearson Education, Inc. Slide 6-7
 Background Demographic Factors
 Culture: Affects entire nations
 Subculture
 Subsets formed around major social differences
(ethnicity, age, lifestyle, geography)
 Social networks and communities
 Direct reference groups
 Indirect reference groups
 Opinion leaders
 Lifestyle groups

 Psychological profile
Copyright © 2012 Pearson Education, Inc. Slide 6-8
 The Online Purchasing Decision
 Psychographic research
 Combines demographic and psychological data
 Divides market into various groups based on social
class, lifestyle, and/or personality characteristics
 Stages in consumer decision process:
 Awareness of need
 Search for more information
 Evaluation of alternatives
 Actual purchase decision
 Post-purchase contact with firm

Copyright © 2012 Pearson Education, Inc. Slide 6-9

 The Consumer Decision Process and
Supporting Communications

Figure 6.2, Page 359

Copyright © 2012 Pearson Education, Inc. Slide 6-10
 A Model of Online Consumer Behavior
 Decision process similar for online and
offline behavior
 General online behavior model
 Consumer skills
 Product characteristics
 Attitudes toward online purchasing
 Perceptions about control over Web environment
 Web site features: latency, usability, security

 Clickstream behavior
Copyright © 2012 Pearson Education, Inc. Slide 6-11
 A Model of Online Consumer Behavior

Figure 6.3, Page 360

Copyright © 2012 Pearson Education, Inc. Slide 6-12
A Model of Online Consumer Behavior (cont.)
 Clickstream factors include:
 Number of days since last visit
 Speed of clickstream behavior
 Number of products viewed during last visit
 Number of pages viewed
 Supplying personal information
 Number of days since last purchase
 Number of past purchases

 Clickstream marketing
 Developed dynamically as customers use Internet

Copyright © 2012 Pearson Education, Inc. Slide 6-13

 Shoppers: Browsers and Buyers
 Shoppers: 87% of Internet users
 73% buyers
 15% browsers (purchase offline)

 One-third of offline retail purchases

influenced by online activities
 Online traffic also influenced by offline
brands and shopping
 E-commerce and traditional commerce are
coupled: Part of a continuum of consuming
behavior
Copyright © 2012 Pearson Education, Inc. Slide 6-14
 Online Shoppers and Buyers

Figure 6.4, Page 363 SOURCE: Based on data from eMarketer, Inc., 2011d.
Copyright © 2012 Pearson Education, Inc. Slide 6-15
 What Consumers Shop for and
Buy Online
 Big ticket items
 Travel, computer hardware, electronics
 Consumers now more confident in purchasing
costlier items
 Small ticket items ($100 or less)
 Apparel, books, office supplies, software, etc.
 Sold by first movers on Web
 Physically small items
 High margin items
Copyright © 2012 Pearson Education, Inc. Slide 6-16
 What Consumers Buy Online

Figure 6.5, Page 365 SOURCES: Based on data from Internet Retailer, 2011.
Copyright © 2012 Pearson Education, Inc. Slide 6-17
 How Consumers Shop
 How shoppers find online vendors
 Search engines—59%
 Marketplaces (Amazon, eBay)—28%
 Direct to retail sites—10%
 Other methods—3%

 Online shoppers are highly intentional

 Look for specific products, companies, services

 StumbleUpon
 Recommender systems
Copyright © 2012 Pearson Education, Inc. Slide 6-18
Table 6.7, Page 366 SOURCES: Based on data from eMarketer, Inc., 2011d.
Copyright © 2012 Pearson Education, Inc. Slide 6-19
 Trust, Utility, and Opportunism
in Online Markets
 Two most important factors shaping
decision to purchase online:
 Utility:
 Better prices, convenience, speed

 Trust:
 Asymmetry of information can lead to opportunistic
behavior by sellers
 Sellers can develop trust by building strong
reputations for honesty, fairness, delivery

Copyright © 2012 Pearson Education, Inc. Slide 6-20

 Basic Marketing Concepts
 Marketing
 Strategies and actions to establish relationship
with consumer and encourage purchases
 Addresses competitive situation of industries
and firms
 Seeks to create unique, highly differentiated
products or services that are produced or
supplied by one trusted firm
 Unmatchable feature set
 Avoidance of becoming commodity

Copyright © 2012 Pearson Education, Inc. Slide 6-21

 Feature Sets
 Three levels of product or service
 Core product
 e.g., cell phone

 Actual product
 Characteristics that deliver core benefits
 e.g., wide screen that connects to Internet

 Augmented product
 Additional benefits
 Basis for building the product’s brand
 e.g., product warranty

Copyright © 2012 Pearson Education, Inc. Slide 6-22

 Feature Set

Figure 6.6, Page 368

Copyright © 2012 Pearson Education, Inc. Slide 6-23
 Products, Brands, and
the Branding Process
 Brand:
 Expectations consumers have when consuming, or
thinking about consuming, a specific product
 Most important expectations: Quality, reliability,
consistency, trust, affection, loyalty, reputation
 Branding: Process of brand creation
 Closed loop marketing
 Brand strategy
 Brand equity
Copyright © 2012 Pearson Education, Inc. Slide 6-24
 Marketing Activities:
from Products to Brands

Figure 6.7, Page 369

Copyright © 2012 Pearson Education, Inc. Slide 6-25
Segmenting, Targeting, and Positioning
 Major ways used to segment, target
customers
 Behavioral
 Demographic
 Psychographic
 Technical
 Contextual
 Search
 Within segment, product is positioned and
branded as a unique, high-value product,
especially suited to needs of segment
customers
Copyright © 2012 Pearson Education, Inc. Slide 6-26
 Are Brands Rational?
 For consumers, a qualified yes:
 Brands introduce market efficiency by reducing
search and decision-making costs
 For business firms, a definite yes:
 A major source of revenue
 Lower customer acquisition cost
 Increased customer retention
 Successful brand constitutes a long-lasting
(though not necessarily permanent) unfair
competitive advantage
Copyright © 2012 Pearson Education, Inc. Slide 6-27
 Can Brands Survive the Internet?
Brands and Price Dispersion
 Early postulation: “Law of One Price”—end of
brands
 Instead:
 Consumers still pay premium prices for differentiated
products
 E-commerce firms rely heavily on brands to attract
customers and charge premium prices
 Substantial price dispersion
 Large differences in price sensitivity for same product
 “Library effect”

Copyright © 2012 Pearson Education, Inc. Slide 6-28

 The Revolution in
Internet Marketing Technologies
 Three broad impacts:
 Scope of marketing communications broadened
 Richness of marketing communications increased
 Information intensity of marketplace expanded

 Internet marketing technologies:

 Web transaction logs
 Tracking files
 Databases, data warehouses, data mining
 Advertising networks
 Customer relationship management systems
Copyright © 2012 Pearson Education, Inc. Slide 6-29
 Web Transaction Logs
 Built into Web server software
 Record user activity at Web site
 Webtrends: Leading log analysis tool
 Provides much marketing data, especially
combined with:
 Registration forms
 Shopping cart database

 Answers questions such as:

 What are major patterns of interest and purchase?
 After home page, where do users go first? Second?
Copyright © 2012 Pearson Education, Inc. Slide 6-30
 Tracking Files
 Allow users browsing activities to be
tracked as they move from site to site
 Four types of tracking files
 Cookies
 Small text file placed by Web site
 Allows Web marketers to gather data

 Flash cookies
 Beacons (“bugs”)
 Apps

Copyright © 2012 Pearson Education, Inc. Slide 6-31

 Insight on Society: Class Discussion

Every Move You Make, Every Click You Make,

We’ll Be Tracking You
 Are beacons innocuous? Or are they an
invasion of personal privacy?
 Do you think your Web browsing should be
known to marketers?
 What are the Privacy Foundation guidelines
for Web beacons?
 Should online shopping be allowed to be a
private activity?
Copyright © 2012 Pearson Education, Inc. Slide 6-32
 Databases
 Database: Stores records and attributes
 Database management system (DBMS):
 Software used to create, maintain, and access databases
 SQL (Structured Query Language):
 Industry-standard database query and manipulation
language used in a relational database
 Relational database:
 Represents data as two-dimensional tables with
records organized in rows and attributes in columns;
data within different tables can be flexibly related as
long as the tables share a common data element

Copyright © 2012 Pearson Education, Inc. Slide 6-33

 A Relational Database View of
E-commerce Customers

Figure 6.9, Page 383

Copyright © 2012 Pearson Education, Inc. Slide 6-34
 Data Warehouses and Data Mining
 Data warehouse:
 Collects firm’s transactional and customer data in single
location for offline analysis by marketers and site
managers
 Data mining:
 Analytical techniques to find patterns in data, model
behavior of customers, develop customer profiles
 Query-driven data mining
 Model-driven data mining
 Rule-based data mining
 Collaborative filtering

Copyright © 2012 Pearson Education, Inc. Slide 6-35

 Insight on Technology: Class Discussion

The Long Tail: Big Hits and Big Misses

 What are “recommender systems”? Give an
example you have used.
 What is the “Long Tail” and how do
recommender systems support sales of items
in the Long Tail?
 How can human editors, including
consumers, make recommender systems
more helpful?

Copyright © 2012 Pearson Education, Inc. Slide 6-36

 Customer Relationship
Management (CRM) Systems
 Record all contact that customer has with firm
 Generate 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

Copyright © 2012 Pearson Education, Inc. Slide 6-37

 A Customer Relationship Management System

Figure 6.10, Page 389

Copyright © 2012 Pearson Education, Inc. Slide 6-38
 Generic Market Entry Strategies

Figure 6-11, Page 391

Copyright © 2012 Pearson Education, Inc. Slide 6-39
Establishing the Customer Relationship
 Advertising networks
 Ad server selects appropriate ad based on
cookies, Web bugs, backend user profile
databases
 Advertising exchanges
 Auction ad slots over many advertising networks

 Permission marketing
 Affiliate marketing

Copyright © 2012 Pearson Education, Inc. Slide 6-40

 How an Advertising Network
Such as DoubleClick Works

Figure 6.12, Page 394

Copyright © 2012 Pearson Education, Inc. Slide 6-41
Establishing the Customer Relationship
 Viral marketing
 Blog marketing
 Social network marketing
 Driven by social e-commerce
 Social sign-on
 Collaborative shopping
 Network notification
 Social search (recommendation)

 Mobile marketing
Copyright © 2012 Pearson Education, Inc. Slide 6-42
 Insight on Business: Class Discussion

Social Network Marketing: Let’s Buy Together

 Why do social networks represent such a
promising opportunity for marketers?
 What are some of the new types of marketing
that social networks have spawned?
 What are some of the risks of social network
marketing? What makes it dangerous?
 Have you ever responded to marketing
messages on Facebook or another network?

Copyright © 2012 Pearson Education, Inc. Slide 6-43

Establishing the Customer Relationship
 Social marketing and wisdom of crowds
 Large aggregates produce better estimates and
judgments, e.g.,
 “Like” button
 Folksonomies
 Social tagging

 Mobile platform marketing

 Local marketing
 Brand leveraging
Copyright © 2012 Pearson Education, Inc. Slide 6-44
 Customer Retention
 Mass marketing
 Direct marketing
 Micromarketing
 Personalized, one-to-one marketing
 Segmenting market on precise and timely understanding of individual’s
needs
 Targeting specific marketing messages to these individuals
 Positioning product vis-à-vis competitors to be truly unique

 Personalization
 Can increase consumers sense of control, freedom
 Can also result in unwanted offers or reduced anonymity

Copyright © 2012 Pearson Education, Inc. Slide 6-45

 The Mass Market-Personalization Continuum

Figure 6.13, Page 407

Copyright © 2012 Pearson Education, Inc. Slide 6-46
 Other Customer Retention
Marketing Techniques
 Customization
 Customizing product to user preferences

 Customer co-production
 Customer interactively involved in product creation

 Customer service
 FAQs
 Real-time customer service chat systems
 Automated response systems

Copyright © 2012 Pearson Education, Inc. Slide 6-47

 Net Pricing Strategies
 Pricing
 Integral part of marketing strategy
 Traditionally based on:
 Fixed cost
 Variable costs
 Demand curve

 Price discrimination
 Selling products to different people and groups
based on willingness to pay

Copyright © 2012 Pearson Education, Inc. Slide 6-48

 Net Pricing Strategies (cont.)
 Free and freemium
 Can be used to build market awareness

 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

 Dynamic pricing:
 Auctions
 Yield management
 Flash marketing
Copyright © 2012 Pearson Education, Inc. Slide 6-49
 Channel Management Strategies
 Channels:
 Different methods by which goods can be distributed
and sold
 Channel conflict:
 When new venue for selling products or services
threatens or destroys existing sales venues
 e.g., online airline/travel services and traditional offline
travel agencies
 Some manufacturers are using partnership
model to avoid channel conflict
Copyright © 2012 Pearson Education, Inc. Slide 6-50
Copyright © 2012 Pearson Education, Inc. Slide 6-51