Download Instructor`s Manual Chapter 6

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Instructor’s Manual: Chapter 6
Teaching Objectives:
 Identify the key features of the Internet audience.
 Discuss the basic concepts of consumer behavior and purchasing decisions.
 Explain how consumers behave online.
 Describe the basic marketing concepts needed to understand Internet marketing.
 Identify and describe the main technologies that support online marketing.
 Identify and describe basic e-commerce marketing and branding strategies.
Key Terms
consumer behavior, p. 347
culture, p. 348
subculture, p. 349
direct reference groups, p. 349
indirect reference groups, p. 349
opinion leaders (viral influencers), p. 3495
lifestyle group, p. 349
psychological profile, p. 350
psychographic research, p. 351
clickstream behavior, p. 354
marketing, p. 359
Internet marketing, p. 359
feature set, p. 360
commodity, p. 360
core product, p. 360
actual product, p. 360
augmented product, p. 360
brand, p. 361
branding, p. 361
closed loop marketing, p. 362
brand strategy, p. 363
brand equity, p. 363
customer acquisition costs, p. 365
customer retention costs, p. 365
Law of One Price, p. 366
price dispersion, p. 366
library effect, p. 367
transaction log, p. 370
registration forms, p. 370
shopping cart database, p. 370
database, p. 377
database management system (DBMS), p. 377
SQL (Structured Query Language), p. 377
relational databases, p. 377
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data warehouse, p. 378
data mining, p. 379
customer profile, p. 379
query-driven data mining, p. 379
model-driven data mining, p. 380
rule-based data mining, p. 380
collaborative filtering, p. 380
customer relationship management (CRM) system, p. 383
advertising networks, p. 388
permission marketing, p. 389
affiliate marketing, p. 390
viral marketing, p. 391
social shopping, p. 393
brand leveraging, p. 393
one-to-one marketing, p. 396
customization, p. 398
customer co-production, p. 398
transactive content, p. 399
frequently asked questions (FAQs), p. 400
real-time customer service chat systems, p. 400
automated response system, p. 400
pricing, p. 401
demand curve, p. 401
price discrimination, p. 402
versioning, p. 403
bundling, p. 404
channel, p. 406
channel conflict, p. 406
Brief Outline
Netflix Develops and Defends Its Brand
6.1 Consumers Online: The Internet Audience and Consumer Behavior
The Internet Audience
Internet Traffic Patterns: The Online Consumer Profile
Consumer Behavior Models
Profiles of Online Consumers
The Online Purchasing Decision
A Model of Online Consumer Behavior
Shoppers: Browsers and Buyers
What Consumers Shop for and Buy Online
Intentional Acts: How Shoppers Find Vendors Online
Why More People Don’t Shop Online
Trust, Utility and Opportunism in Online Markets
6.2 Basic Marketing Concepts
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Feature Sets
Products, Brands, and the Branding Process
Segmenting, Targeting, and Positioning
Are Brands Rational?
Do Brands Last Forever?
Can Brands Survive the Internet? Brands and Price Dispersion on the Internet
6.3 Internet Marketing Technologies
The Revolution in Internet Marketing Technologies
Web Transaction Logs
Supplementing the Logs: Cookies and Web Bugs
Databases, Data Warehouses, and Data Mining: Developing Profiles
Insight on Society: Marketing With Web Bugs
Insight on Technology: The Long Tail: Big Hits and Big Misses
Customer Relationship Management (CRM) Systems
6.4 B2C and B2B E-commerce Marketing and Branding Strategies
Market Entry Strategies
Establishing the Customer Relationship
Insight on Business: Social Networking Marketing: New Influencers
Among the Chattering Masses
Customer Retention: Strengthening the Customer Relationship
Net Pricing Strategies
Channel Strategies: Managing Channel Conflict
6.5 Case Study: Liquidation.com: B2B Marketing Success Story
6.6 Review
Key Concepts
Questions
Projects
Web Site Resources
Figures
Figure 6.1 A General Model of Consumer Behavior, p. 348
Figure 6.2 Factors That Predict Online Buying Behavior, p. 351
Figure 6.3 The Consumer Decision Process and Supporting Communications, p. 352
Figure 6.4 A Model of Online Consumer Behavior, p. 353
Figure 6.5 Online Shoppers and Buyers. p. 355
Figure 6.6 What Consumers Buy Online, p. 358
Figure 6.7 Feature Set, p. 361
Figure 6.8 Marketing Activities: From Products to Brands, p. 362
Figure 6.9 Nash-equilibrium.com, p. 367
Figure 6.10 One Second from the Web Transaction Log of Azimuth-Interactive.com, p.
371
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Figure 6.11 Firefox Cookies Dialog Box, p. 373
Figure 6.12 A Relational Database View of E-commerce Customers, p. 378
Figure 6.13 Data Mining and Personalization, p. 379
Figure 6.14 A Customer Relationship Management System, p. 384
Figure 6.15 Generic Market Entry Strategies, p. 385
Figure 6.16 How an Advertising Network Such As Doubleclick Works, p. 389
Figure 6.17 The Mass Market-Personalization Continuum, p. 397
Figure 6.18 A Demand Curve, p. 402
Figure 6.19 The Demand for Bundles of 1-20 Goods, p. 405
Tables
Table 6.1 A Growing Range of Online Activities: An Average Day in the Life of an
Internet User, p. 342-343
Table 6.2 Changing Demographic Differences in Internet Access, p. 344
Table 6.3 The Impact of Broadband on Internet Activities, p. 346
Table 6.4 Why Consumers Choose the Online Channel, p. 350
Table 6.5 Media That Influence Consumers to Start Search for Merchandise Online, p.
356
Table 6.6 Internet Users’ Major Concerns About Purchasing Online, p. 359
Table 6.7 Major Types of Online Market Segmentation and Targeting, p. 364
Table 6.8 Impact of Unique Features of E-commerce Technology on Marketing, p. 369
Table 6.9 Marketing Uses of Data from Web Transaction Logs, p. 372
Teaching Suggestions
Chapters 6 and 7 introduce the student to online consumer behavior, marketing and
communications. Chapter 6 focuses on online consumer behavior and basic marketing.
The challenge in both of these chapters is one of level and depth. Some students will have
no background in marketing concepts, while others will have had some marketing
courses or even be marketing majors. You may want to poll your students first to identify
how much marketing and consumer behavior knowledge they already possess, and then
build your lecture accordingly.
The fundamental principles of marketing remain intact on the Web. Building online
brands is a major source of financial and strategic strength for online firms; it is a major
avenue for avoiding pure price competition and financial ruin. Nevertheless, the Web
provides consumers with a whole new environment for interacting with firms since online
behavior is different from offline behavior. Moreover, the tools and technologies for
online marketing are very different from those for offline marketing.
A good way to illustrate both the continuity and the novelty of Web marketing is to
discuss the opening case in Chapter 6. Netflix demonstrates that it is possible for a pureplay, Web-based new business to develop a powerful brand name in a few years and take
on the giants in its field. Review this case with students and consider what made this
possible. Netflix obviously created a business model with details that existing firms had
ignored. But then how was Netflix able to communicate to the consumer the benefits of
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this new business model? What alliances did it enter into and why? What was its business
value proposition to the consumer? What other firms have used the same value
proposition?
Key Points
Online Consumer Behavior. Most students are unaware of the basic behavioral realities
with respect to online consumers. A basic ingredient of the old dictum, “know thy
customer”-- who is on the Web, what they do when there, what they buy and look at-- is a
very important prerequisite for successful marketing campaigns. Table 6.1 deserves a
walk-through with students to establish what people do online; Table 6.2 provides insight
into the changing nature of the Internet audience. Figures 6.1 and 6.4 provide summary
models of the complex process of consumer purchasing.
Some key points to make in this section are:
 Online shopping includes both purchasers and browsers.
 Online shopping strongly influences offline purchases.
 Online shopping is largely intentional.
Basic Marketing Concepts. This section reviews some basic concepts in marketing and
applies them to the online world. The key concepts are brands, segmenting, targeting, and
positioning. Brands allow firms to differentiate themselves in the marketplace, charge
premium prices for their products, and thus achieve superior long-term returns on
invested capital. Figures 6.7 and 6.8 provide a quick overview of what a brand actually is.
It is important to note here that during e-commerce’s early years, many predicted the end
of brands in a more or less “perfect” digital marketplace (the Web). In fact, brands have
been the key ingredient for survival on the Web and have helped firms avoid the pitfalls
of relentless price competition. As the students learn in later chapters, online firms have
spent fortunes attempting to build national brands. Not only can brands survive the
Internet, brands thrive on the Internet.
Internet Marketing Technologies. The Internet and the Web provide marketers with a
whole new set of exciting tools for brand building. This section covers Web logs,
cookies, bugs, data warehouses, data mining, and customer relationship management
systems. You will want to spend some time on each of these new techniques, noting that
many of them come with a social cost, namely, the loss of privacy.
A good place to end the discussion of new marketing techniques is the Insight on Society
case, Marketing with Web Bugs, which describes the privacy implications of Web bugs.
You could ask students what kinds of controls might allow marketers to use Web bugs
but also protect individual privacy.
The Insight on Technology case, The Long Tail: Big Hits and Big Misses, contains a
description of a data mining technique called “collaborative filtering,” as it is coupled
with the use of recommender systems. This provides a good introduction to rule-based
models of data mining and the issue of who shall determine the rules.
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B2C and B2B Marketing and Branding Strategies. This section considers some strategic
marketing issues like how to enter the market, establish the customer relationship, retain
customers, price the product and manage the channels. Figure 6.15 gives an overview of
choices facing firms entering the online market. The most important finding, contrary to
what many commentators initially predicted, is that first movers into online markets have
done poorly. Historically, first-movers always have performed poorly. Many of today’s ecommerce success stories illustrate the viability of other strategies, particularly brand
extension and alliances.
New ways of reaching the customer-- advertising networks, and permission, affiliate,
viral, blog and social network marketing-- extend on the theme of this chapter that the
Web provides new ways for marketing. The Insight on Business case, Social Network
Marketing: New Influencers Among the Chattering Masses provides a more in-depth look
at some of these new social marketing techniques, and also some of the risks they pose.
This theme is emphasized again in the discussion of new ways to retain the customer; the
most important are customization and personalization, which are uniquely possible on the
Web.
Figure 6.18 describes the changes in the demand curve for a product that is developed in
digital markets where the marginal cost of the next unit of product is zero. You will want
to spend several minutes on this phenomenon and then have the students consider how
their own behavior is affected by bundling for digital products. For instance, how will
they react to the offers of digital music sites to download a bundle of songs for $10 a
month?
The concluding case on Liquidation.com provides an excellent overview and
opportunities for in-depth discussion on the variety of marketing techniques online firms
can use to build their businesses.
Case Study Questions
1. Why is Liquidation.com able to compete against eBay?
Liquidation.com targets small and medium sized businesses, and it is able to provide a
marketplace for large lot size liquidation. For example, Liquidation.com holds auctions
for lot sizes ranging from 10 to 1000 units. eBay is primarily oriented toward smaller
numbers of units and private individuals in lot sizes of 1.
2. How did Liquidation.com build trust in its site and services?
Liquidation.com added customer service buttons and trusted Web site logos to many of
its Web pages. It tried to associate with sites that were already trusted on the Web.
3. Why would retailers rather have a site dedicated to finding wholesalers rather than
use the existing Liquidation.com site?
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Liquidation.com is aimed at wholesalers who are looking to find retail buyers.
GoWholesale.com, another Liquidity Services company, targets retailers seeking longterm wholesale suppliers. Retailers might prefer this Web site because vendors who post
items for sale may do so more systematically and consistently than they do on
Liquidation.com. Liquidation.com is intended primarily for sales of discontinued,
outdated, or slightly blemished goods.
4. What are the key elements in Liquidation.com’s core product, and how does it create
an augmented product?
The core product is a marketplace where sellers can quickly liquidate large quantities of
goods and buyers can obtain large-lot low prices; the augmented product is a large variety
of services. Click the Buyer Help or Seller Help links on the home page, and you will
discover a large number of buyer and seller services. Perhaps the most important is "due
diligence" services to weed out fraud and misrepresentation.
5. Find a product on the Liquidation.com site that is also for sale on eBay. Compare the
prices per unit. What accounts for the price differential?
On October 16, 2008, a seller on Liquidation.com auctioned ten new xBox 360 Platinum
Systems with 20GB hard drives .The closing unit price was $107.50 and the total price,
$1075.01. On eBay, several sellers offered similar xBox 360 systems at Buy It Now
prices of around $300. The price differential is accounted for by lot size. A seller with a
large number of units on hand is much more motivated to sell by lowering the price than
a single private individual with a single unit.
At times it is difficult, but not impossible, to find exact comparison products when
comparing the sites, but encourage the students to try or come close in any event.
End of Chapter Questions
1. Is growth of the Internet, in terms of users, expected to continue indefinitely? What will
cause it to slow, if anything?
The growth of the Internet is slowing, and the market penetration rates that television and
the telephone (98% and 94%, respectively) have attained are not expected to be reached
due to the cost and complexity of computer use required for Internet use. The growth rate
will most likely continue to decrease until computer prices drop significantly, and
computers become more user-friendly.
2. Other than search engines, what are some of the most popular uses of the Internet?
Some of the most popular uses of the Internet are e-mail, which is the most popular;
getting news; looking for hobby and other interest-related information; surfing the Web
for fun, conducting work related research; and checking the weather. Users also often use
the Web to research a product or service before buying it, do research for school or
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training, get sports scores and information, banking online, look for maps and directions,
watch videos, and use instant messaging, among many other activities.
3. Would you say that the Internet fosters or impedes social activity? Explain your
position.
The Internet probably both fosters and impedes social activity at the same time. It fosters
it because e-mail, instant messaging and social networks help people to easily stay in
touch with friends and relatives. Online forums encourage people to ask questions and
interact with people with similar interests, or who are going through the same stages in
life.
The Internet may impede social activity because it causes people to spend less quality
time with family and friends since they spend more time in front of the computer. A
Stanford University study has indicated that Internet users lose touch with those around
them; they spend far less time talking with friends and family face-to-face and on the
phone.
4. Why would the amount of experience someone has using the Internet likely increase
future Internet usage?
The more time an individual spends on the Internet, the more likely they will increase
their future Internet usage. This is because the more time users spend online becoming
comfortable and familiar with Internet features and services, the more likely they are to
explore new services and offerings. Furthermore, the more time individuals devote to the
Internet, the more likely they are to use the Internet instead of traditional media such as
TV, newspapers, and radio.
5. Research has shown that many consumers use the Internet to investigate purchases
before actually buying, which is often done in a physical storefront. What implication
does this have for online merchants? What can they do to entice more online buying,
rather than pure research?
The fact that many consumers use the Internet to research products before actually
making purchases has many implications for online merchants because it suggests that ecommerce is a major conduit and generator of offline commerce. This could mean that ecommerce and traditional commerce should integrate to alleviate the concern. It is very
important for online merchants to build the information content on their sites to attract
browsers, put less attention on selling, per se, and offer products in offline settings where
users feel more comfortable and secure.
6. Name four improvements Web merchants could make to encourage more browsers to
become buyers.
Improvements that Web merchants could make to encourage more browsers to become
buyers are:
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Target the goal-oriented, intentional shoppers with communications directed at
them.
Design Web sites to provide easy-to-access and simple to use product
information.
Make it easier to comparison shop.
Make it easier to return merchandise.
Create policies for better credit card and personal information security.
Make it easier to locate items on the Web site.
Create customer service facilities where users can get the answers to their
questions and product advice.
Increase delivery speeds.
Present products more clearly.
Create loyalty reward programs.
Make the buying process quicker to complete.
7. Name the five stages in the buyer decision process, and briefly describe the online and
offline marketing activities used to influence each.
The five stages in the buyer decision process and the online and offline marketing
activities used to influence them are:
 Awareness of Need: Mass media advertising on TV, radio, in print media,
targeted banner ads, interstitials, and targeted event promotions online, are used to
promote the recognition of need in buyers.
 Search for Information: People use catalogs, print ads, mass media, store visits,
and product raters (e.g. Consumer Reports offline), search engines, online
catalogs, visits to Web sites, and targeted e-mails from merchants online to search
for products.
 Evaluation of Alternatives: Off line consumers use reference groups, opinion
leaders, the mass media, store visits, and product raters; online, they use search
engines, online catalogs, visits to Web sites, product reviews, and user evaluations
to evaluate the alternatives.
 Actual Purchase Decision: Promotions, direct mailings, mass media and various
print media affect the actual purchase decision offline; online promotions,
lotteries, discounts, and targeted e-mail push the actual purchase decision online.
 Post-Purchase Contact with Firm: Post purchase loyalty is inculcated by firms
offline using warranties, service calls, parts and repair services, and through
consumer groups. Online, post purchase loyalty is encouraged through the use of
communities of consumption, newsletters, e-mails to customers, and online
product updates.
8. Why are “little monopolies” desirable from a marketer’s point of view?
“Little monopolies” are desirable from a marketer’s point of view because if consumers
believe that a product is unique and highly differentiated from its competitors, a firm can
position itself as the one trusted firm who can supply this product or fulfill this need.
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Consumers will believe that no substitute will suffice, and new entrants will have a
difficult time matching the product or service’s feature set. Successful little monopolies
reduce the bargaining power of consumers since they are the sole sources of supply, and
they also give these firms a power advantage over their suppliers.
9. Describe a perfect market from the supplier’s and customer’s perspectives.
The perfect market from the supplier’s perspective is one in which there are no
substitutes. It should be difficult for new competitors to enter; customers and suppliers
should have little power to influence pricing; and there should be little competition in the
industry. The perfect market from the customer’s perspective is one in which there is lots
of competition resulting in pure price competition and available substitutes. The market
should be one in which new entrants can easily enter, and where customers and suppliers
have strong bargaining power. Frictionless commerce where prices are driven down to
their marginal costs, intermediaries are driven out of the market, and consumers deal
directly with producers, would be ideal for consumers from a strictly price-oriented
perspective.
10. Explain why an imperfect market is more advantageous for businesses.
An imperfect market in which there is widespread price dispersion that can be exploited
by marketers is more advantageous to businesses.
11. What are the components of the core product, actual product, and augmented product
in a feature set?
In a product feature set, the components of the core product are the core benefits a
customer receives from buying the basic product. The actual product consists of the set of
characteristics designed to deliver the product’s core benefits. For example, the
components of the actual product may consist of a brand name that signals a strong
product, reducing consumer risk and anxiety about a product and the features and
capabilities that the product will deliver. The augmented product consists of the
additional benefits the consumer receives. These include: warranties, support and repair
personnel, installation and delivery guarantees, credit terms, and any additional post-sales
support that a company offers.
12. List some of the major advantages of having a strong brand. How does a strong
brand positively influence consumer purchasing?
The major advantage of having a strong brand is that consumers are willing to pay a
premium price to reduce market uncertainty. Strong brands also lower customer
acquisition costs, increase customer retention rates, and can create a long-lasting,
unassailable, unfair competitive advantage. Brand names constitute an unfair competitive
advantage because they cannot be purchased or duplicated by competitors. A strong
brand positively influences consumer purchasing by introducing market efficiencies. In a
crowded marketplace, brands carry information to the consumer so that purchases can be
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made quickly and easily based on past consumption, and a set of expectations that the
consumer knows beforehand will be met. Search costs and decision-making costs are
reduced or eliminated, reducing the probability of nasty surprises in the marketplace.
13. How are product positioning and branding related? How are they different?
Product positioning and branding are related because a product is positioned within a
market segment based on the brand. Marketers attempt to present a unique, high value
product that is especially suited to the specific needs of the segment customers. These
tactics are different because positioning refers to creating a desired image for a company
and its products within a chosen user segment, whereas branding refers strictly to the set
of expectations that the company wants the general population to have.
14. List the differences among databases, data warehouses, and data mining.
A database stores records and attributes organized into tables. Databases are maintained
for e-commerce Web transactions, shopping carts, point-of-sale-terminals, warehouse
inventory levels, field sales reports, and many other types of records.
A data warehouse gathers all of the database information from customer and transaction
databases and stores it in one logical repository where it can be analyzed and modeled by
managers without disrupting or taxing the systems of a firm’s primary transactional
systems and databases. Using the data warehouse, managers can query multiple databases
to determine the answers to many marketing and financial questions enhancing their
strategic decision making capabilities.
Data mining is a different set of analytical techniques that look for patterns in database
information or seek to model the behavior of visitors and customers. Web site data can be
mined to develop customer profiles that identify patterns in group or individual behavior
on the site. Data mining can be either query driven, model driven, or rule-based. Querydriven data mining is the simplest type; both databases and data warehouses can be
queried. Marketers can answer specific questions such as, “What products sell better at
different hours of the day?” and adjust Web site content accordingly. In model-driven
data mining, a model analyzes the key variables in a strategic decision so that informed
decisions can be made. In rule-based data mining, demographic and transactional data is
examined, and general rules of behavior are derived for specific well-defined market
segments.
15. Name some of the drawbacks to the four data mining techniques used in Internet
marketing.
The drawbacks to rule-based data mining are that there may be million of rules, many of
them nonsensical, and many others of only short duration. Therefore, these rules need
extensive culling and validation. All of the four data mining techniques face difficulties
in that there can be millions of affinity groups and other patterns in the data that are
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temporal or meaningless. With all data mining techniques, it becomes tricky to isolate the
valid, and therefore profitable, data and then act on it quickly enough to make sales.
16. Why have advertising networks become controversial? What, if anything, can be done
to overcome any resistance to this technique?
Advertising networks have become controversial because their ability to track individual
consumers across the Internet is alarming to privacy advocates. Proposed legislation that
would curtail the use of Web bugs and other tracking devices without consumer
notification could help to overcome resistance to this technique. Giving consumers the
option to opt-in or opt-out and making Web bugs visible as an icon on the screen could
ease consumers concerns. Finally, privacy advocates believe that if a user clicks the icon,
a disclosure statement should indicate any or all of the following: what data is being
collected, how the data will be used, what other companies will receive the data, what
other data it will be combined with, and if a cookie is associated with the Web bug.
Consumers should be able to opt-out of any data collection done by the Web bug, and it
should never be used to collect sensitive data such as medical, financial, job-related, or
sexual matters.
17. Which of the four market entry strategies is most lucrative?
The market entry strategy that has proven to be the most lucrative is the brand extender.
This mixed clicks-and-bricks strategy integrates online marketing closely with offline
physical stores. It uses the Web as an extension to already existing order processing and
fulfillment, and marketing and branding campaigns. These firms have been the most
successful because they already possess the financial depth, marketing and sales
resources, loyal customers, strong brands, and production and/or fulfillment facilities
needed to meet customer demands.
18. Compare and contrast the four marketing strategies used in mass marketing, direct
marketing, micromarketing, and one-to-one marketing.
Mass marketing, which is appropriate for products that are relatively simple and
attractive to all consumers, uses national media messages aimed at a single national
audience with a single national price.
Direct marketing on the other hand, is directed at particular market segments that are
deemed to be “likely purchasers” and uses direct mail or phone messages. Direct
marketers generally do not offer wide price variations, but will offer special deals to loyal
customers. It is most often used for products that can be stratified into several different
categories.
Micromarketing is the first form of true database marketing. It is aimed at geographical
units such as neighborhoods or cities, or specialized market segments. Prices are
dynamically adjusted to reflect market conditions and competitor pricing, and this can
even be done on a daily basis.
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Personalized one-to-one marketing is suitable for products (1) that can be produced in
very complex forms, depending on individual tastes, (2) whose price can be adjusted to
the level of personalization, and (3) where the individual’s tastes and preferences can be
effectively gauged. The marketing message is changed based upon the merging of
internal behavioral, transaction, and demographic data.
19. What pricing strategy turned out to be deadly for many e-commerce ventures during
the early days of e-commerce? Why?
The pricing strategy that turned out to be deadly for many e-commerce firms in the early
days of e-commerce was a low price leader strategy, which even resulted in “free”
pricing. The idea was to attract enough eyeballs with free goods and services to amass a
large, committed audience. It was supposed to achieve profitability through advertising
and charging a small number of willing customers subscription fees for value-added
services. Unfortunately, many early e-commerce businesses were unable to convert
eyeballs into paying customers, and the strategy of piggybacking on a small number of
users who would be willing to pay for premium services was not a great success.
20. Is price discrimination different from versioning? If so, how?
Price discrimination is different from versioning because price discrimination is strictly
the selling of products to different people or groups based upon their willingness to pay.
Versioning involves creating multiple versions of a good or service and offering them at
different prices. In versioning, reduced value versions that have less functionality can be
offered for free or at reduced prices, while premium versions are sold at much higher
prices. In this situation, consumers are aware that they are “getting what they pay for.”
With price discrimination, it is the exact same product that is offered to different groups
at different prices, concealing from each group the amount the other groups are paying.
21. What are some of the reasons that freebies, such as free Internet service and
giveaways, don’t work to generate sales on a Web site?
Freebies such as free Internet service and giveaways often did not cause the stimulus to
sales that firms believed they would. This is because many so-called “freeloaders” never
had the intention of paying for the product or additional products. They would simply
switch to another free service if the one they were using began to charge fees or stop
usage altogether if alternatives no longer existed.
22. Explain how versioning works. How is this different from dynamic pricing?
Versioning works by having a set of slightly different products that can be sold
successfully to different market segments. Low-priced or free versions can be less
convenient, less comprehensive, slower, less powerful, and offer less support than higher
priced models. Versioning differs from dynamic pricing because each version is sold at a
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fixed, predetermined price, and there are slight differences in functionality between
versions.
In dynamic pricing, auctions can be used to establish an instant market price based upon
the price the market will bear. Yield management systems can be used to set prices for
different markets and appeal to different segments in order to sell excess capacity.
Auctions work for pricing unusual as well as commonplace goods; the differing price an
article will bring in the marketplace is not based upon the version of the good or service,
but rather upon the market dynamics at that particular moment in time. Yield
management systems are generally profitable for perishable goods or where there are
seasonal variations in demand or rapidly changing market conditions. Again, the product
itself is no more or less functional than its higher or lower yielding counterparts despite
the varying prices preset by managers.
23. Why do companies that bundle products and services have an advantage over those
that don’t or can’t offer this option?
Although consumers are apt to have very diverse ideas about the value of a single
product, there is much more agreement on the value of a bundle of products. This often
results in a price per product people are willing to pay for a bundle that is higher than the
price they would be willing to pay for each product sold separately. Bundling reduces the
variance in the market demand for goods, meaning that more people are willing to pay
the same price for the bundle of goods. Bundler firms can pay higher prices to their
suppliers for content, and they can charge higher prices to their customers for their
bundles than can single good firms.
Projects
1. Go to the SRI site (www.sric-bi.com/VALS/presurvey.shtml). Take the survey to
determine what lifestyle category you fit into. Write a brief, two-page paper describing
how your lifestyle and values impact your use of the Web for e-commerce. How is your
online consumer behavior affected by your lifestyle?
Student answers will vary depending on the VALS segment profile into which they fall.
For example, an “actualizer/achiever,” according to the profile, is supposed to be
interested in possessions and recreation that reflect a cultivated taste for the finer things
in life. They prefer established, prestige products and services that demonstrate success to
their peers. Such a consumer might use the Web to buy tickets to concerts, opera, and the
ballet. They might frequent eBay or other auction sites in search of fine art or antiques.
Actualizers and achievers might also be interested in product advertisements from such
sites as Tiffany or Bloomingdale’s. An “experiencer” on the other hand, is supposed to be
inclined towards exercise, sports, outdoor recreation, and social activities. This group of
individuals is supposedly comprised of avid consumers who spend much of their income
on clothing, fast food, music, movies, and videos. Students who fall into this segment
profile might express an online purchasing penchant for such sites as REI.com, CDNow,
Amazon, Music.com, and Moviefone.com.
Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall
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2. Find an example of a Web site that you feel does a good job of appealing to both goaldirected and experiential consumers. Explain your choice.
To approach this project, it might be helpful for students to read the Wolfinbarger and
Gilly article cited on page 358 of the text: “Shopping Online for Freedom, Control and
Fun,” California Management Review (Winter 2001). Goal-oriented consumers are
focused browsers looking for specific companies, products, and services. Features that
appeal to goal-oriented consumers include: accessibility, convenience, selection, and
information availability. According to Wolfinbarger and Gilley, goal-oriented consumers
want a complete selection and want to serve themselves so long as information is easily
accessible. They are not interested in “high-touch” customer service unless they
encounter a problem, in which case, they want speedy answers responsive to their
particular problem. Features that increase a sense of control and freedom such as order
tracking, purchase histories, opt-in email notifications, etc. all appeal to the goal-oriented
consumer. Experiential consumers are those who engage in “shopping for fun.” A
different set of features, which offer surprise and amusement, appeal to experiential
consumers who are looking for fun. These features might include: online community
tools (bulletin boards, “ask the experts”), auctions, online sales events, and interactive
content. Amazon is a good example of a site that appeals to both goal-directed and
experiential consumers.
An alternative approach to this project would be to supply the students with a site which
you feel does a good job of appealing to both goal-directed and experiential consumers
(such as Amazon), and ask students to list and explain the features of the site that do so.
3. Choose a digital content product available on the Web and describe its feature set.
Students can choose from a myriad of different digital content providers to complete this
project. For example, they could choose ClipArt.com, a graphic content publishing
business that offers online subscriptions for clip art, Web graphics, photos, and fonts. In
this case, the core product consists of a downloadable collection of clipart, photographs,
Web art, fonts, and sounds. The actual product as purchased includes:
 The brand name, which carries with it Jupiterimages’ position as a leading online
image vendor and the brand name recognition of its parent company, Jupitermedia
Corporation, which is a leading global provider of original images, information
and research for creative, information technology and business professionals.
 The quality of the product, including quick and easy access at one portal to over
millions of images, animations, photos, fonts, and sounds
 The product features, including the ability to use the content without paying a perimage cost, royalties, or extra payments (as long as you abide by the Usage
Guidelines)
 Site design, including simple keyword searching; links for specific types of art,
such as clipart, photos, Web graphics, fonts, etc; availability of site in different
languages such as Spanish, French, German and Italian.
Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall
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The packaging of the site, which would also include the above site, design
features.
The augmented product includes:
 BBBOnLine Reliability participation and Better Business Bureau membership;
VeriSign Secured SSL certificate for Web site
 Notification on the day your subscription expires (and reminders before then if
you are on the "Newsletter and Updates" mailing list and no automatic
subscription renewals without your expressed consent)
 Simple downloading for product delivery
 Online payment options including Visa, MasterCard, Discover, American
Express, PayPal, Fax, and by check through the mail.
4. Visit Eluxury.com and create an Internet marketing plan for it that includes each of the
following:
 One-to-one marketing
 Affiliate marketing
 Viral marketing
 Blog marketing
 Social network marketing
Describe how each plays a role, and create a presentation outlining your marketing plan.
To complete this project, all students need is the information in the chapter, a visit to the
Web site, and a marketer’s instincts. Creativity should be rewarded. The students might
suggest a campaign that includes the following with specific products on the eLuxury site
noted:

One-to-one marketing: The information from the market research study must be
recorded in one or more customer databases. Database mining can then be used to
compile individual profiles. These should be analyzed to identify new market
opportunities to specific customers, both current and new. Combine this data with
the historical purchasing data of eLuxury’s customers and create a
recommendation tool for the Web site. Aggregate the purchasing psychological
profile data to send buyers a personalized email message suggesting new products
they might be interested in buying. As a general rule, a company can expect that
80% of revenue will be contributed by 20% of their customers. Sustaining
existing customers is also much less costly than developing new ones. Needs,
specific “hot-button” messages, and offers can be tailored both in e-mail messages
and can be displayed on the Web site to different groups or individuals.

Affiliate marketing: Set up an affiliate program with other like sites. Students
might look for luxury hotel or vacation sites to partner with. They could try
luxury car dealerships such as Mercedes Benz, Ferrari, or Porsche. They might
also set up affiliates with clothing designers that are not direct competitors.
Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall
Laudon/Traver’s E-commerce 5/e
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
Viral marketing: Off the Internet, viral marketing has been referred to as “wordof-mouth,” “creating a buzz,” “leveraging the media,” or “network marketing.”
Send e-mails to all eLuxury customers with an offer for a free small product of
some sort: perhaps a bottle of cologne (men’s cologne to male customers) and a
$10 off coupon on subsequent referrals for each new customer they refer to the
site that makes a purchase. The new customer will also be offered a $10 off
coupon code that can be easily transferred to the new customer via e-mail. New
customers can then be offered additional incentives when they make their first
purchase to entice them to complete the VALS survey.

Blog marketing: Set up a store-sponsored blog with commentary on the latest
products and fashions; send product announcements/samples to leading fashion
blog commentators in order to encourage them to favorably mention products and
Eluxury in their blogs.

Social network marketing: Create videos featuring products to post on YouTube
and other video-sharing sites, encourage social shopping via Yub.com by
providing discounts or other incentives; set up product pages for specific products
on MySpace and similar sites.
Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall