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E-commerce
business. technology. society.
Second Edition
Kenneth C. Laudon
Carol Guercio Traver
Copyright © 2004 Pearson Education, Inc.
Slide 7-1
Chapter 7
E-commerce Marketing Concepts
Copyright © 2004 Pearson Education, Inc.
Slide 7-2
Learning Objectives
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Identify the key features of the Internet audience
Discuss the basic concepts of consumer behavior
and purchasing decisions
Understand how consumers behave online
Describe the basic marketing concepts need to
understand Internet marketing
Identify and describe the main technologies that
support online marketing
Identify and describe basic e-commerce marketing
and branding strategies
Explain how online market research is conducted
Copyright © 2004 Pearson Education, Inc.
Slide 7-3
NetFlix Develops a New Brand
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Example of pure-play online business that
built a nationally recognized successful brand
within a relatively short time period
Marketing strategies include:
 Strategic alliances
 Personalization
 Data mining and collaborative filtering
 Customer service
Copyright © 2004 Pearson Education, Inc.
Slide 7-4
NetFlix Develops a New Brand
Page 355
Copyright © 2004 Pearson Education, Inc.
Slide 7-5
The Internet Audience and
Consumer Behavior
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Around 160 million Americans (56% of total
population) have Internet access mid-2003
Growth rate has slowed to less than 10% a
year
Intensity and scope of use both increasing
Copyright © 2004 Pearson Education, Inc.
Slide 7-6
Top 10 Most Popular Internet
Activities (2002)
Table 7.1, Page 359
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A Growing Range of Online Activities: An
Average Day in the Life on an Internet User
Table 7.2, Page 360
Copyright © 2004 Pearson Education, Inc.
Slide 7-8
A Growing Range of Online Activities: An
Average Day in the Life on an Internet User
Table 7.2 (cont’d),
Page 361
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Slide 7-9
Internet Audience and
Consumer Behavior
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Demographics and access: some demographic
groups have much higher percentages of online
usage than other groups.
Demographics to examine include:
 Income
 Age
 Ethnicity
 Education
 Gender
Copyright © 2004 Pearson Education, Inc.
Slide 7-10
Changing Demographic
Differences in Internet Access
Table 7.3, Page 363
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Type of Internet Connection:
Broadband Impacts
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30 million Americans will have broadband
access by end of 2003
Broadband audience quite different from dialup audience:
 Wealthier
 More educated
 More middle-aged
 Greater intensity and scope of use
Copyright © 2004 Pearson Education, Inc.
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The Impact of Broadband on Internet Activities
Table 7.4, Page 365
Copyright © 2004 Pearson Education, Inc.
Slide 7-13
The Impact of Broadband on
Internet Activities (cont’d)
Table 7.4, Page 366
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Lifestyle Impacts
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Intense Internet usage may cause a decline
in traditional social activities
Social development of children using Internet
intensively instead of engaging in face-to-face
interactions or undirected play may also be
negatively impacted
The more time people spend on the Internet,
the less time spent using traditional media
Copyright © 2004 Pearson Education, Inc.
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Consumer Behavior Models
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Attempt to predict/explain what consumers
purchase and where, when, how much and
why they buy.
Consumer behavior models based on
background demographic factors and other
intervening, more immediate variables
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A General Model of Consumer
Behavior
Figure 7.1, Page 368
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Slide 7-17
Background Demographic Factors
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Culture: Shapes basic human values, wants perceptions
and behaviors
Subculture: Subset of culture; forms around major social
differences such as ethnicity, age, lifestyle, geography
Direct reference group: Include one’s family,
profession/occupation, religion, neighborhood, schools
Indirect reference group: Includes one’s life-cycle state,
social class and lifestyle group
Opinion leaders (viral influencers): Influence the behavior
of others through their personality, skills or other factors
Copyright © 2004 Pearson Education, Inc.
Slide 7-18
Background Demographic Factors
(cont’d)
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Psychological profile: set of needs, drives,
motivations, perceptions and learned
behaviors
Psychographic profiles: divides market into
different groups based on demographic and
psychological data
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Slide 7-19
Factors That Predict Online
Buying Behavior
Figure 7.2, Page 370
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The Purchasing Decision
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Five stages in the consumer decision
process:
 Awareness of need
 Search for more information
 Evaluation of alternatives
 Actual purchase decision
 Post-purchase contact with firm
Copyright © 2004 Pearson Education, Inc.
Slide 7-21
The Consumer Decision Process
and Supporting Communications
Figure 7.3, Page 371
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Slide 7-22
A Model of Online Consumer Behavior
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Adds two new factors:
 Web site capabilities – the content, design
and functionality of a site
 Consumer clickstream behavior – the
transaction log that consumers establish as
they move about the Web
Copyright © 2004 Pearson Education, Inc.
Slide 7-23
A Model of Online Consumer Behavior
Figure 7.4, Page 372
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Seven Types of Online Sessions
Table 7.5, Page 374
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Shoppers: Browsers and Buyers
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2003 UCLA Internet Report:
 About 40% of online users are “buyers” who
actually purchase online
 About 40% of online users research on the Web
(“browsers”) and purchase them online.
Significance of online browsing for offline purchasing
and vice versa should not be underestimated
E-commerce and traditional commerce are coupled
and should be viewed by merchants and researchers
as part of a continuum of consuming behavior
Copyright © 2004 Pearson Education, Inc.
Slide 7-26
Online Shoppers
Figure 7.5, Page 375
Copyright © 2004 Pearson Education, Inc.
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What Consumers Shop for and
Buy Online
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Online sales divided roughly into small ticket and big
ticket items
Small ticket items – traditional leaders include
apparel, books, health and beauty aids, office
supplies, music, software, videos, toys etc.
Top small ticket categories have similar
characteristics – sold by first movers, small purchase
price, physically small, high margin items, broad
selection of products available
Purchases of big ticket items (airline tickets, hotel
rooms, computer hardware, consumer electronics)
expanding
Copyright © 2004 Pearson Education, Inc.
Slide 7-28
What Consumers Buy on the Web –
Small Ticket Items (December 2002)
Figure 7.6,
Page 377
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Slide 7-29
What Consumers Buy on the Web – Big
Ticket Items (December 2002) (cont’d)
Figure 7.6, Page 377
Copyright © 2004 Pearson Education, Inc.
Slide 7-30
Intentional Acts: How Shoppers
Find Vendors Online
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Over 85% of shoppers find vendor sites by
typing product or store/brand name into
search engine or going directly to the site
Most (55%) online shoppers plan to purchase
product within a week, either online or at a
store
Most online shoppers (83%) have a specific
item in mind
Copyright © 2004 Pearson Education, Inc.
Slide 7-31
Shoppers’ Intention to Purchase
Figure 7.7, Page 378
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Most Online Shoppers Are
Focused Browsers
Figure 7.8, Page 378
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Why More People Don’t Shop Online
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There are a number of actions e-commerce
vendors could take to increase the likelihood
that shoppers and non-shoppers would
purchase online more frequently, including:
Better prices
Making comparison shopping easier
Making it easier to return merchandise
Providing better security for credit card and/or
personal information
Copyright © 2004 Pearson Education, Inc.
Slide 7-34
Factors That Would Encourage More
Online Purchasing
Table 7.6, Page 380
Copyright © 2004 Pearson Education, Inc.
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Trust, Utility, and Opportunism
in Online Markets
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Trust and utility among the most important factors
shaping decision to purchase online
Consumers are looking for utility (better prices,
convenience)
Asymmetry of information can lead to opportunistic
behavior by sellers
Consumers also need to trust merchants before
willing to purchase
Sellers can develop trust by building strong
reputations for honesty, fairness, delivery
Copyright © 2004 Pearson Education, Inc.
Slide 7-36
Basic Marketing Concepts
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Marketing: The strategies and actions firms take to
establish a relationship with a consumer and
encourage purchases of products and services
Internet marketing: Using the Web, as well as
traditional channels, to develop a positive, long-term
relationship with customers, thereby creating
competitive advantage for the firm by allowing it to
charge a higher price for products or services than its
competitors can charge
Copyright © 2004 Pearson Education, Inc.
Slide 7-37
Basic Marketing Concepts (cont’d)
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Firms within an industry compete with one another on
four dimensions:
 Differentiation
 Cost
 Focus
 Scope
Marketing seeks to create unique, highly
differentiated products or services that are produced
or supplied by one trusted firm (“little monopolies”)
Copyright © 2004 Pearson Education, Inc.
Slide 7-38
Feature Sets
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Defines as the bundle of capabilities and services
offered by the product or service
Includes:
 Core product – the core benefit the customer
receives from the product
 Actual product – the set of characteristics
designed to deliver the product’s core benefits
 Augmented product – a product with additional
benefits to customers beyond the core benefits
embodied in the actual product
Copyright © 2004 Pearson Education, Inc.
Slide 7-39
Feature Set
Figure 7.9, Page 382
Copyright © 2004 Pearson Education, Inc.
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Products, Brands and the Branding Process
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Brand: A set of expectations that consumers have
when consuming, or thinking about consuming, a
product or service from a specific company
Branding: The process of brand creation
Closed loop marketing: When marketers are able to
directly influence the design of the core product
based on market research and feedback.
 E-commerce enhances the ability to achieve
Brand strategy: Set of plans for differentiating a
product from its competitor, and communicating these
differences to the marketplace
Brand equity: estimated value of the premium
customers are willing to pay for a branded product
versus unbranded competitor
Copyright © 2004 Pearson Education, Inc.
Slide 7-41
Marketing Activities: From
Products to Brands
Figure 7.10, Page 383
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Are Brands Rational?
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For consumers, a qualified yes:
 Brands introduce market efficiency by reducing
search and decision-making costs
For business firms, a definite yes:
 Brands lower customer acquisition costs – the
overall costs of converting a prospect into a
consumer
 Brands increase customer retention –
 Successful brand constitutes a long-lasting
(although not necessarily permanent) unfair
competitive advantage
Copyright © 2004 Pearson Education, Inc.
Slide 7-43
Can Brands Survive the Internet?
Brands and Price Dispersion
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Researchers initially postulated that Web would result
in “Law of One Price” – with complete transparency in
a perfect marketplace, there would be one world
price for every product
Did not occur, and e-commerce firms continue to rely
heavily on brands to attract customers and charge
premium prices
Price dispersion – the difference between the highest
and lowest prices in a market
Research evidence indicates that brands are alive
and well on the Internet, and that consumers are
willing to pay premium prices for products and
services they view as differentiated
Copyright © 2004 Pearson Education, Inc.
Slide 7-44
www.nash-equilibrium.com
Page 387
Copyright © 2004 Pearson Education, Inc.
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Internet Marketing Technologies
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Web transaction logs
Cookies and Web bugs
Databases, data warehouses, and data
mining
Advertising networks
Customer relationship management (CRM)
systems
Copyright © 2004 Pearson Education, Inc.
Slide 7-46
Revolution in Internet Marketing
Technologies
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Three broad impacts:
 Internet has broadened the scope of
marketing communications
 Internet has increased the richness of
marketing communications
 Internet has greatly expanded the
information intensity of the marketplace
Copyright © 2004 Pearson Education, Inc.
Slide 7-47
Impact of Unique Features of Ecommerce Technology on Marketing
Table 7.7, Page 389
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Slide 7-48
Web Transaction Logs
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Built into Web server software
Records user activity at a Web site
WebTrends a leading log analysis tool
Can provide treasure trove of marketing
information, particularly when combined with:
 Registration forms – used to gather
personal data
 Shopping cart database – captures all item
selection, purchase and payment data
Copyright © 2004 Pearson Education, Inc.
Slide 7-49
Four Seconds from the Web Transaction Log of
Azimuth-Interactive.com
Figure 7.11, Page 391
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Slide 7-50
Marketing Uses of Data from Web
Transaction Logs
Table 7.8, Page 392
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Slide 7-51
Cookies
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Cookies: small text file that Web sites place
on a visitor’s client computer every time they
visit, and during the visit as specific pages are
accessed.
Cookies provide Web marketers with a very
quick means of identifying the customer and
understanding his or her prior behavior
Location of cookie files on computer depends
on browser version
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Slide 7-52
A Typical Netscape Cookie File
Figure 7.12,
Page 393
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Web Bugs
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Tiny (1 pixel) graphic files embedded in email messages and on Web sites
Used to automatically transmit information
about the user and the page being viewed to
a monitoring server
Copyright © 2004 Pearson Education, Inc.
Slide 7-54
Insight on Society: Should Web
Bugs Be Regulated?
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Marketers claim Web bugs are innocuous; privacy
advocates say, if so, why are they hidden
Different types include clear GIF, executable bugs
and script-based executable bugs
Privacy Foundation guidelines for Web bug usage:
 Should be visible and labeled to indicate function
 Should identify name of company that placed it
 Should display disclosure statement if clicked
 Should be able to opt-out
Network Advertising Initiative (NAI) calls them Web
beacons, and have issued their own guidelines
Currently, no government regulation
Copyright © 2004 Pearson Education, Inc.
Slide 7-55
Databases and Data Warehouses
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Database: Software that 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 databases
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
Data warehouse: Database that collects a firm’s
transactional and customer data in a single location for
offline analysis by marketers and site managers
Copyright © 2004 Pearson Education, Inc.
Slide 7-56
A Relational Database View of
E-commerce Customers
Figure 7.13, Page 398
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Slide 7-57
Data Mining
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Set of analytical techniques that look for patterns in data of
a database or data warehouse, or seek to model the
behavior of customers
Types include:
 Query-driven – based on specific queries
 Model-driven – involves use of a model that analyzes
key variables of interest to decision makers
 Rule-based – examines demographic and transactional
data of groups and individuals at a Web site and
attempts to derive general rules of behavior for visitors
 Collaborative filtering – behavioral approach; site
visitors classify themselves into affinity groups based
on common interests; products are then recommended
based on what other people in the group have recently
purchased
Copyright © 2004 Pearson Education, Inc.
Slide 7-58
Data Mining and Personalization
Figure 7.14, Page 399
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Slide 7-59
Insight on Technology: Enhancing the
Intelligence of Collaborative Filtering Systems
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Collaborative filtering automates the process
of collecting and distributing
recommendations from other users
Early efforts suffered from defects (start-up
effect, popularity effect, misplaced-consumer
effect)
Solutions include adding human editors,
asking consumers to establish own profiles
Copyright © 2004 Pearson Education, Inc.
Slide 7-60
Advertising Networks
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Best known for ability to present users with
banner advertisements based on a database
of user behavioral data
DoubleClick best-known example
Ad server selects appropriate banner ad
based on cookies, Web bugs, backend user
profile databases
Copyright © 2004 Pearson Education, Inc.
Slide 7-61
How an Advertising Network
such as DoubleClick Works
Figure 7.15, Page 404
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Slide 7-62
Customer Relationship
Management (CRM) Systems
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Repository of customer information that records all of
the contacts that a customer has with a firm and
generates a customer profile available to everyone in
the firm with an 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 © 2004 Pearson Education, Inc.
Slide 7-63
A Customer Relationship
Management System
Figure 7.16, Page 406
Copyright © 2004 Pearson Education, Inc.
Slide 7-64
Market Entry Strategies
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For new firms:
 Pure clicks/first mover
 Mixed “clicks and bricks”/alliances
For existing firms:
 Pure clicks/fast follower
 Mixed “clicks and bricks”/brand extensions
Copyright © 2004 Pearson Education, Inc.
Slide 7-65
Generic Market Entry Strategies
Figure 7.17, Page 408
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Slide 7-66
Establishing the Customer Relationship
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Permission marketing: Marketing strategy in which
companies obtain permission from consumers before
sending them information or promotional messages
(example: opt-in e-mail)
Affiliate marketing: Marketing strategy that relies on
referrals; Web site agrees to pay another Web site a
commission for new business opportunities it refers
to the site
Viral marketing: Process of getting customers to pass
along a company’s marketing message to friends,
family, and colleagues
Brand leveraging: Process of using power of an
existing brand to acquire new customers for a new
product or service
Copyright © 2004 Pearson Education, Inc.
Slide 7-67
Customer Retention
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Mass market-personalization continuum ranges from
mass marketing to direct marketing to
micromarketing to personalized, one-to-one
marketing
One-to-one marketing: Involves segmenting the
market on a precise and timely understanding of an
individual’s needs, targeting specific marketing
messages to these individuals and then positioning
the product vis-à-vis competitors to be truly unique
Copyright © 2004 Pearson Education, Inc.
Slide 7-68
The Mass MarketPersonalization Continuum
Figure 7.18, Page 414
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Slide 7-69
Other Customer Retention Marketing
Techniques
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Customization: Changing the product (not just
the marketing message) according to user
preferences
Customer co-production: Allows the customer to
interactively create the product
Transactive content: Results from the
combination of traditional content with dynamic
information tailored to each user’s profile
Copyright © 2004 Pearson Education, Inc.
Slide 7-70
Other Customer Retention
Marketing Techniques (cont’d)
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Customer service tools include:
Frequently asked questions (FAQs) – text-based
listing of common questions and answers
Real-time customer service chat systems –
company’s service representatives interactively
exchange text messages with one or more customers
on a real-time basis
Intelligent agent technology – bots
Automated response systems – send e-mail
confirmations and acknowledgments
Copyright © 2004 Pearson Education, Inc.
Slide 7-71
Net Pricing Strategies
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Pricing (putting a value on goods and services) an
integral part of marketing strategy
Traditionally, prices based on:
 Fixed cost (costs of building production facility
 Variable costs (costs involved in running
production facility)
 Market’s demand curve (quantity of goods that can
be sold at various prices)
Price discrimination: Selling products to different
people and groups based on their willingness to pay
Copyright © 2004 Pearson Education, Inc.
Slide 7-72
A Demand Curve
Figure 7.19, Page 419
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Slide 7-73
Net Pricing Strategies (cont’d)
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Free products/services: Can be used to build market
awareness
Versioning: Creating multiple versions of a good and
selling essentially the same product to different
market segments at different prices
Bundling: Offers consumers two or more goods for
one price
Dynamic pricing:
 Auctions – establish an instant market price for
goods
 Yield management – Managers set prices in
different markets, appealing to different segments
in order to sell excess capacity
Copyright © 2004 Pearson Education, Inc.
Slide 7-74
The Demand for Bundles of 1-20 Goods
Figure 7.20, Page 422
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Slide 7-75
Channel Management Strategies
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Channel: Refers to different methods by
which goods can be distributed and sold
Channel conflict: Occurs when a new venue
for selling products or services threatens or
destroys existing venues for selling goods
Examples: online airline/travel services and
traditional offline travel agencies
Some manufacturers are using partnership
model to avoid channel conflict
Copyright © 2004 Pearson Education, Inc.
Slide 7-76
Online Market Research
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Market research: Involves gathering information that
will help a firm identify potential products and
customers
Two general types:
Primary research – involves gathering first-hand
information using techniques such as surveys,
personal interviews and focus groups
Secondary research – relies on existing, published
information as basis for analyzing market
Copyright © 2004 Pearson Education, Inc.
Slide 7-77
Types of Survey Questions
Table 7.9, Page 425
Copyright © 2004 Pearson Education, Inc.
Slide 7-78
Insight on Business: Zoomerang
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Zoomerang.com: One of the first online
survey tools launched
Enables users to choose from pre-built
survey templates, create and distribute online
surveys, and collect and analyze survey
responses
Competitors include SurveyMonkey and
others
Copyright © 2004 Pearson Education, Inc.
Slide 7-79
Some Popular Secondary Research Tools
Table 7.10, Page 428
Copyright © 2004 Pearson Education, Inc.
Slide 7-80
Case Study: Liquidation.com: B2B
Marketing Basics on a Budget
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Liquidation.com: B2B auction business model,
focusing on liquidated goods
Marketing and branding tactics include:
 Trust building through alliances
 Web transaction log analysis, customer
registration forms
 Search engine marketing
 Guerilla marketing public relations campaign and
limited advertising
 E-mail marketing
Copyright © 2004 Pearson Education, Inc.
Slide 7-81
Liquidation.com: B2B Marketing
Basics on a Budget
Page 430
Copyright © 2004 Pearson Education, Inc.
Slide 7-82