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Session 6

E-commerce Marketing Concepts

Copyright © 2010 Pearson Education, Inc. towards an era of e-transactions

Slide 6-1

Netflix
Strengthens and Defends Its Brand
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? How does Netflix distribute its videos? What is Netflix’s “recommender system?” How does Netflix use data mining? Is video on demand a threat to Netflix?
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towards an era of e-transactions

Consumers Online: The Internet Audience and Consumer Behavior

Around 70% (82 million) U.S. households have Internet access in 2010


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
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The Internet Audience and Consumer Behavior (cont’d) Broadband audience vs. dial-up audience  Purchasing behavior 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
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Consumer Behavior Models

Study of consumer behavior
 Social science  Attempts

to explain what consumers purchase and where, when, how much and why they buy wide range of consumer decisions

Consumer behavior models
 Predict  Based on background

demographic factors and other intervening, more immediate variables
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2009.A General Model of Consumer Behavior SOURCE: Adapted from Kotler and Armstrong. towards an era of e-transactions Slide 6-6 .

age.Background Demographic Factors   Culture: Broadest impact  Subculture (ethnicity. lifestyle. geography) Social  Reference groups     Direct reference groups Indirect reference groups Opinion leaders (viral influencers) Lifestyle groups  Psychological  Psychological profiles Slide 6-7 towards an era of e-transactions .

and/or personality characteristics  Five stages in the consumer decision process: 1. 5. lifestyle. 3. Awareness of need Search for more information Evaluation of alternatives Actual purchase decision Post-purchase contact with firm Slide 6-8 towards an era of e-transactions . 4.The Online Purchasing Decision  Psychographic research  Combines demographic and psychological data  Divides market into groups based on social class. 2.

The Consumer Decision Process and Supporting Communications towards an era of e-transactions Slide 6-9 .

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  Clickstream behavior: Transaction log for consumer from search engine to purchase Slide 6-10 towards an era of e-transactions .

A Model of Online Consumer Behavior towards an era of e-transactions Slide 6-11 .

A Model of Online Consumer Behavior  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 Slide 6-12 towards an era of e-transactions .

Shoppers: Browsers and Buyers  Shoppers: 87% of Internet users  72% buyers  16% browsers (purchase offline)  One-third 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 Slide 6-13   towards an era of e-transactions .

. 2010b towards an era of e-transactions Slide 6-14 . Inc.Online Shoppers and Buyers SOURCE: Based on data from eMarketer.

office supplies.What Consumers Shop for and Buy Online  Big ticket items ($500 plus)  Travel. software.  Sold by first movers on Web    Physically small items High margin items Broad selection of products available towards an era of e-transactions Slide 6-15 . etc. books. consumer electronics  Consumers more confident in purchasing costlier items  Small ticket items ($100 or less)  Apparel. computer hardware.

Internet Retailer. Inc.. towards an era of e-transactions Slide 6-16 .What Consumers Buy Online SOURCES: Based on data from eMarketer. 2010b. 2010.

services Slide 6-17 towards an era of e-transactions . looking for specific products.Intentional Acts: How Shoppers Find Vendors Online   Search engines (59%) Coupon Web sites (29%)   Comparison shopping sites (27%) E-mail newsletters (25%)  Online shoppers are highly intentional. companies.

2010c towards an era of e-transactions Slide 6-18 .SOURCES: Based on data from eMarketer. Inc..

Utility. and Opportunism in Online Markets  Two most important factors shaping decision to purchase online:  Utility:  Better prices. speed  Trust:  Asymmetry of information can lead to opportunistic behavior by sellers  Sellers can develop trust by building strong reputations for honesty. fairness. delivery towards an era of e-transactions Slide 6-19 . convenience.Trust.

Basic Marketing Concepts  Marketing  Strategies and actions to establish relationship with consumer and encourage purchases of products and services  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 towards an era of e-transactions Slide 6-20 .

Core product  e. cell phone 2.g.g.g.Feature Sets  Three levels of product or service 1. wide screen that connects to Internet 3. Actual product   Characteristics that deliver core benefits e. product warranty Slide 6-21 towards an era of e-transactions . Augmented product    Additional benefits Basis for building the product’s brand e.

Feature Set towards an era of e-transactions Slide 6-22 .

reputation Branding: Process of brand creation  Closed loop marketing  Brand strategy  Brand equity  towards an era of e-transactions Slide 6-23 . trust. reliability. Brands and the Branding Process  Brand:  Expectations consumers have when consuming. a specific product  Most important expectations: Quality.Products. affection. or thinking about consuming. loyalty. consistency.

Marketing Activities: From Products to Brands towards an era of e-transactions Slide 6-24 .

and Positioning  Major ways used to segment. Behavioral Demographic Psychographic Technical Contextual Search  Within segment.Segmenting. 2. high-value product. product is positioned and branded as a unique. 4. 5. 6. 3. target customers 1. Targeting. especially suited to needs of segment customers Slide 6-25 towards an era of e-transactions .

a qualified yes:  Brands introduce market efficiency by reducing search and decision-making costs  For business firms.Are Brands Rational?  For consumers. 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 Slide 6-26 towards an era of e-transactions .

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” towards an era of e-transactions Slide 6-27 .

data mining Advertising networks Customer relationship management systems Slide 6-28 towards an era of e-transactions .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 Cookies and Web bugs Databases. data warehouses.

where do users go first? Second? towards an era of e-transactions Slide 6-29 . especially combined with:   Registration forms  Shopping cart database  Answers questions such as:  What are major patterns of interest and purchase?  After home page.Web Transaction Logs Built into Web server software  Record user activity at Web site  Webtrends: Leading log analysis tool  Provides much marketing data.

Cookies and Web Bugs  Cookies:  Small text file Web sites place on visitor’s PC every time they visit. as specific pages are accessed  Provide Web marketers with very quick means of identifying customer and understanding prior behavior  Flash cookies  Web bugs:  Tiny (1 pixel) graphics embedded in e-mail and Web sites  Used to automatically transmit information about user and page being viewed to monitoring server towards an era of e-transactions Slide 6-30 .

Insight on Society Every Move You Make. We’ll Be Tracking You Class Discussion  Are Web bugs 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 bugs? Should online shopping be allowed to be a private activity? Slide 6-31 towards an era of e-transactions . Every Click You Make.

Databases    Database: Stores records and attributes Database management system (DBMS):  Software used to create. 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 towards an era of e-transactions Slide 6-32 . maintain.

A Relational Database View of E-commerce Customers towards an era of e-transactions Slide 6-33 .

develop customer profiles     Query-driven data mining Model-driven data mining Rule-based data mining Collaborative filtering Slide 6-34 towards an era of e-transactions .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.

Data Mining and Personalization towards an era of e-transactions Slide 6-35 .

including consumers.  What is the “Long Tail” and how do recommender systems support sales of items in the Long Tail? How can human editors.Insight on Technology The Long Tail: Big Hits and Big Misses Class Discussion  What are “recommender systems”? Give an example you have used. make recommender systems more helpful? Slide 6-36  towards an era of e-transactions .

Customer Relationship Management (CRM) Systems   Record all contact that customer has with firm 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 Slide 6-37 towards an era of e-transactions .

1998 towards an era of e-transactions Slide 6-38 .A Customer Relationship Management System SOURCE: Compaq.

Market Entry Strategies towards an era of e-transactions Slide 6-39 .

Establishing the Customer Relationship  Advertising Networks  Banner advertisements  Ad server selects appropriate banner ad based on cookies. backend user profile databases  Permission marketing  Affiliate marketing towards an era of e-transactions Slide 6-40 . Web bugs.

How an Advertising Network such as DoubleClick Works towards an era of e-transactions Slide 6-41 .

Establishing the Customer Relationship (cont’d)  Viral marketing  Getting customers to pass along company’s marketing message to friends. social shopping Mobile marketing Slide 6-42 towards an era of e-transactions . family. and colleagues  Blog marketing  Using blogs to market goods through commentary and advertising   Social network marketing.

Insight on Business Social Network Marketing: Let’s Buy Together Class Discussion  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? Slide 6-43   towards an era of e-transactions .

Establishing the Customer Relationship (cont’d)  Wisdom of crowds (Surowiecki. 2004)  Large aggregates produce better estimates and judgments  Examples:  Prediction markets  Folksonomies  Social tagging  Brand leveraging Slide 6-44 towards an era of e-transactions .

Customer Retention: Strengthening the Customer Relationship 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 Can increase consumers sense of control. freedom Can also result in unwanted offers or reduced anonymity Slide 6-45  Personalization   towards an era of e-transactions .

Page 404 towards an era of e-transactions Slide 6-46 .17.The Mass Market-Personalization Continuum Figure 6.

Other Customer Retention Marketing Techniques Customization  Customer co-production  Transactive content:   Combine traditional content with dynamic information tailored to each user’s profile  Customer service  FAQs  Real-time customer service chat systems  Automated response systems towards an era of e-transactions 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 Slide 6-48 towards an era of e-transactions .

Net Pricing Strategies (cont’d)   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 towards an era of e-transactions Slide 6-49 .

g. online airline/travel services and traditional offline travel agencies  Some manufacturers are using partnership model to avoid channel conflict Slide 6-50 towards an era of e-transactions .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.