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Chapter 3 Internet Consumers and Market Research © Prentice Hall, 2000 1 Learning Objectives Describe the essentials of consumer behavior Describe the characteristics of Internet surfers and EC purchasers Understand the process of consumer purchasing decision making Describe the way companies are building relationships with customers Explain the implementation of customer service Describe the consumer market research in EC Experience the role of intelligent agents in consumer applications Describe the organizational buyer behavior model © Prentice Hall, 2000 2 The Importance of Customers The major pressures are labeled the 3Cs Competition “fighting” on customers to succeed : control the 3Cs Customers customers becomes a King/Queen to succeed : finding and retaining customers Change EC is a new distribution channel to succeed : convince customers to go online and then to choose your company over the online competitors © Prentice Hall, 2000 3 A Model of EC Consumer Behavior Purchasing decision begins with customer’s reaction to stimuli Individual Characteristics Age, gender, ethnicity, education, lift style, psychological, knowledge, values, personality Environment Characteristics Social, family, communities Buyers’ Decisions Stimuli Marketing Others Price Economical Promotion Technology Product Political Quality Cultural Buy or not What to buy Where (vendor) When How much to spend Repeat purchases Decision Making Process Vendors’ controlled System Logistic Technical Customer service Support Payments, Delivery Support Web design, Intelligentagents FAQ, e-mail, Call centers, One-to-one © Prentice Hall, 2000 4 A Model of EC Consumer Behavior (cont.) Consumer Types Individual consumers: get much of the media attention Organizational buyers: do most of the shopping in cyberspace Purchasing Types Impulsive buyers: purchase products quickly Patient buyers: purchase products after making some comparisons Analytical buyers: do substantial research before making the decision to purchase products or services Purchasing Experiences Utilitarian: shopping “to achieve a goal” or “complete a task” Hedonic: shopping because “it is fun and I love it” © Prentice Hall, 2000 5 Variables Influencing Decision Making Process Environmental Variables Social variables people influenced by family members, friends, coworkers, “what’s in fashion this year”, Internet communities and discussion groups Cultural variables Psychology variables Other environmental variables available information, government regulations, legal constraints, and situational factors 6 Consumer Demographics Gender (61% male user & 39% female user) WOMEN’S PURCHASES BY CATEGORY (1998) Purchases Category Computer Software Books Music Magazines Flowers Women’s Clothing Computer Hardware Games Videos Crafts & Craft Supplier Toys Home Furnishings Children’s Clothing Men’s Clothing Art Jewelry Furniture TOTAL % of Total Category % of Total Respondents Buying (166) Purchases (299) 15% 14% 11% 11% 11% 7% 5% 5% 4% 4% 3% 2% 2% 2% 2% 1% 1% 100% © Prentice Hall, 2000 39% 35% 28% 28% 28% 19% 12% 11% 10% 10% 9% 6% 4% 4% 4% 3% 2% 7 Variables Influencing Decision Making Process (cont.) Consumer Demographics (1998) Age (mostly 21-30 year-old) Marital status (41% married & 39% single) Educational level (81% with at least some college education & 50% obtained at least baccalaureate degree) Ethnicity (87% white in America) Occupation (26% educational-related field, 22% computers & 22% other professionals) © Prentice Hall, 2000 8 Variables Influencing Decision Making Process (cont.) Consumer Demographics Household income (46% at least $50,000/year) Internet usage profile (Internet access option, length and frequency of web use & access cost) Internet access option (63% primarily form home & 58% primarily from work or school) Length and frequency of use (88% access daily & 33% access 10-20 hours a week) Access cost (67% pay for their own Internet access & 31% paid for by their employers) © Prentice Hall, 2000 9 Consumer Buying Patterns In last six months of 1998: Experience: 50 < 1 Year 1 - 3 Years > 4 Years 40 Percent 76% filling out a form on the Web Online purchases are more than paper catalog purchases for Net buyers 32% spent between $100.00$500.00 Spending of less than $50.00 decreases steadily as shoppers gain experience Women are more likely to purchase more in the under $50.00 level, and less likely to purchase at the above $500.00 level © Prentice Hall, 2000 30 20 10 0 less than $50 $50- $100$100 $500 $500 Don't or know more Amount Spe nt on We b in Last 6 M onths of 1998 10 Consumer Purchasing Decision-Making Roles that people play in the decision making process Initiator : the person who first suggests or thinks of the idea of buying a particular product or service Influencer : a person whose advice or views carry some weight in making a final buying decision Decider : the person who ultimately makes a buying decision or any part of it - whether to buy, what to buy, how to buy, or where to buy Buyer : the person who makes an actual purchase User : the person who consumes or uses a product or service © Prentice Hall, 2000 11 Consumer Purchasing Decision-Making (cont.) The Purchasing Decision-Making Model Need identification (Recognition) Information search (What? From whom?) Alternative evaluation, negotiation and selection Purchase and delivery After purchase service and evaluation © Prentice Hall, 2000 12 Model of Internet Consumer Satisfaction 3rd Party Seal of Approval Logistics Support Vendor Reputation Trust in Web-shopping Customer Service Pricing Attractiveness Customer Satisfaction Web-site Store Front Repeat Web Purchase (Brand Loyalty) Security Privacy Transaction Safety System Reliability Speed of Operation Ease of Use Content, Quality Format Timeliness Authentication Integrity Non-repudiation Reliability Completeness © Prentice Hall, 2000 13 One-to-One Marketing Relationship marketing “Overt attempt of exchange partners to build a long term association, characterized by purposeful cooperation and mutual dependence on the development of social, as well as structural, bonds” “Treat different customers differently” Able to change the manner its products are configured or its service is delivered, based on the individual needs of individual customers © Prentice Hall, 2000 14 One-to-One Marketing (cont.) Customer loyalty Purchase behavior One of the most significant contributors to profitability Increase profits; strengthen market position; become less sensitive to price competition; increase crossselling success; save cost, etc. Real world examples 1-800-FLOWERS Amazon.com Federal Express (FedEx) © Prentice Hall, 2000 15 One-to-One Marketing (cont.) Building and maintaining customer loyalty Maintain continuous interactions between consumers and business Make a commitment to provide all aspects of the business online Build different sites for different levels of customers Willing to invest capital, both human and financial, in the information systems, to insure continuous improvement in the supporting technology as it becomes available © Prentice Hall, 2000 16 One-to-One Marketing (cont.) Building and maintaining customer loyalty Make a commitment to use the information collected about customers in an ethical manner Realistic managerial expectations in the payback period and cost recovery Set acceptable standards for response time in customer service (24-48 hours); Use intelligent agents to expedite and standardize responses whenever possible Ability to change and customize information and services quickly and inexpensively is a must © Prentice Hall, 2000 17 One-to-One Marketing (cont.) Customer Service A new look and feel Put the burden on the customer to treat a problem or inquiry and receive information bit by bit © Prentice Hall, 2000 Install Web servers which allow each customer to create individual web pages that can be customized to record purchases and preferences 18 ISFLAVIA: One-to-One Marketing (cont.) Customer Service Information can be directed to the customer efficiently Creation of a database which records purchases, problems and requests is facilitated Information can now be traced and analyzed for immediate response If customer service options and solutions do not maintain the same level of excitement and interaction as the advertising and sales presentations, the level of intensity declines and the vendor runs the risk of losing customers © Prentice Hall, 2000 19 Implementing Customer Service in Cyberspace Product Life Cycle Phase 1. Requirements : assisting the customer to determine needs Phase 2. Acquisition : helping the customer to acquire a product or service Phase 3. Ownership : supporting the customer on an ongoing basis Phase 4. Retirement : helping the client to dispose of a service or product © Prentice Hall, 2000 20 Implementing Customer Service in Cyberspace (cont.) Types of Customer Service Functions Answering customer inquires Providing technical and other information Letting customers track accounts or order status Allowing customers to customize and order online © Prentice Hall, 2000 21 Implementing Customer Service in Cyberspace (cont.) Addressing Individual Customer Needs Companies understand their customers’ needs and buying habits better Companies customize their future marketing efforts Doing business via Web © Prentice Hall, 2000 22 Tools of Customer Service Personalized Web Pages used to record purchases and preference direct customized information to customers efficiently Chat Room discuss issues with company experts; with other customers E-mail used to disseminate information, send product information and conduct correspondence regarding any topic, but mostly inquiries from customers FAQs not customized, no personalized feeling and contribution to relationship marketing © Prentice Hall, 2000 23 Tools of Customer Service (cont.) Help Desks and Call Centers A comprehensive customer service entity EC vendors take care of customer service issues communicated through various contact channels Telewebs combines Web channels, such as automated e-mail reply, Web knowledge bases and portal-like self service with call center agents or field service personnel Internet a medium of instant gratification demand for both prompt replies and proactive alerts © Prentice Hall, 2000 24 Market Research for EC Aims Finding relationship between consumers, products, marketing methods, and marketers through information in order to discover marketing opportunities and issues, to establish marketing plans, to better understand the purchasing process, and to evaluate marketing performance Problem definition and Research objectives Research methodology, Data collection plan Data collection, Data analysis © Prentice Hall, 2000 Results, Recommendations, Implementation 25 Market Research for EC (cont.) Market Segmentation Market segmentation is the process of dividing a consumer market into meaningful groups for decision-making. In the past, most marketing approaches have focused on groupbased targeted markets, not on a personal way to identify individual consumers who actually purchased and used the products. © Prentice Hall, 2000 26 Market Research for EC (cont.) Market Segmentation Improved methods of marketing research based on information technologies allow marketers to collect, store, and analyze detailed and personal information in a cost-efficient way. Example : Wal-Mart Consumer life styles shape psychographic segmentation of the market. Lifestyles are typically established by consumers filling out questionnaires about their activities such as work and family, interests and opinions, etc. © Prentice Hall, 2000 27 Market Research for EC (cont.) Consumer Market Segmentation Tasks in the US Segmentation Bases/Descriptors Possible Categories Geographic Region Pacific; Mountains; West North Central; West South Central; East North Central; East south Central; South Atlantic; Middle Atlantic; New England Size of city, county, or standard metropolitan statistical area (SMSA) Under 5,000; 5,000 – 19,999; 20,000 – 49,999; 50,000 – 99,999; 100,000 – 249,999; 250,000 – 499,999; 500,000 – 999,999; 1,000,000 – 3,999,999; 4,000,000 or over Population density Climate Urban; suburban; rural Warm; cold © Prentice Hall, 2000 28 Market Research for EC (cont.) Online Market Research Using online technology to conduct surveys More efficient, faster, and cheaper data collection, and a more geographically diverse audience than those found in off-line surveys Ability to incorporate radio buttons, dataentry fields and check boxes in the surveys Eliminating the data reentry errors (from questionnaires to the computer, for analysis) Not suitable for every customer or product — it is skewed toward highly educated males with high disposal income © Prentice Hall, 2000 29 Market Research for EC (cont.) Online Market Research Risk of losing people who sign off if they had difficulty in logging on or communicating with researchers Companies such as E-valuations or Northstar can conduct the research for your company VALS 2 (values and lifestyles) is a wellknown segmentation dividing consumers in the U.S. (developed at SRI International in California) © Prentice Hall, 2000 30 Market Research for EC (cont.) Online Market Research Methods Process of conducting the research Define the research issue and the target market Identify newsgroups and Internet communities to study Identify specific topics for discussion Subscribe to pertinent groups, register in communities Search discussion group topics and content lists to find the target market Search e-mail discussion groups lists Subscribe to filtering services that monitor groups Read FAQ’s and instructions of your competitor © Prentice Hall, 2000 31 Market Research for EC (cont.) Online Market Research Method Content of the research instrument Post strategic queries to news groups Post surveys on your Web site Offer rewards for participation Post strategic queries on your Web site Post relevant content to groups with a pointer to your Web site survey Post a detailed survey in special e-mail questionnaires Create a chat room and try to build a community of consumers © Prentice Hall, 2000 32 Market Research for EC (cont.) Online Market Research Methods Target Audience of the Study Compare your audience to the target population Determine your editorial focus Determine your content Determine what Web services to create for each type of audience © Prentice Hall, 2000 33 Market Research for EC (cont.) Consumer Market Research Methods of conducting a survey: personal interviews; telephone survey and mail survey Online market research done on the Net, ranges from client-specific moderated focus groups conducted via chat rooms; to interactive surveys placed on Web sites The Internet is providing an efficient channel for faster, cheaper and more reliable collection and transmission of marketing information even in multimedia form © Prentice Hall, 2000 34 Market Research for EC (cont.) Consumer Market Research Mass marketing research Process orientation Two perspectives Content orientation Concept testing Tracking Keep track of consumers’ Web movements using cookies—files attached to a user’s browser © Prentice Hall, 2000 35 Intelligent Agents for Consumers Search Engines Computer programs that can automatically contact other network resources on the Internet, searching for specific information or key words, and reporting the results Intelligent Agents Computer programs that help the users to conduct routine tasks, to search and retrieve information, to support decision making and to act as domain experts © Prentice Hall, 2000 36 Intelligent Agents for Consumers (cont.) Intelligent Agents for Information Search and Filtering Help to determine what to buy to satisfy a specific need by looking for specific products’ information and critically evaluate them Example : Firefly uses a collaborative filtering process that can be described as “word of mouth” to build the profile asks a consumer to rate a number of products, then matches his ratings with the ratings of other consumers and, relying on the ratings of other consumers with similar tastes, recommend him products that he has not yet rated © Prentice Hall, 2000 37 Intelligent Agents for Consumers (cont.) Intelligent Agents for Product and Vendor Finding Bargainfinder form Andersen Consulting (a pointer) queries the price of a specific CD from a number of online vendors and returns a list of prices (unsuccessful) Jango from NetBot/Excite originates the requests from the user’s site instead of from Jango’s vendors have no way to determine whether the request is from a real customer or from the agent provides product reviews Kasbah from MIT Lab users wanting to sell or to buy a product, assign the task to an agent who is then sent out to proactively seek buyers or sellers © Prentice Hall, 2000 38 Intelligent Agents for Consumers (cont.) Negotiation Agents Price and other terms of transactions are determined Kasbah multiple agents; classified as system where users create agents for the purpose of selling or buying goods 3 strategies : anxious, cool-headed and frugal Tete-@-tete considering a number of different parameters: price, warranty, delivery time, service contracts, return policy, loan option and other value added services being argumentative (use information acquired during the first two stages of the purchasing decision model to evaluate each single offer) © Prentice Hall, 2000 39 Intelligent Agents for Consumers (cont.) Learning Agents Be capable of learning individuals’ preferences and make suggestions Memory Agent from IBM & Learn Sesame from Open Sesame use learning theory by monitoring customers’ interactions learns customers’ interests, preferences and behavior and delivers to them customized service accordingly Groaphens form Netperceptions personalizes content and creates customer loyalty programs with learning agent technology © Prentice Hall, 2000 40 Organizational Buyer’s Behavior Consumer Types Individual customers Vs. Organizational buyers Characteristic Demand Purchase volume Number of customers Location of buyers Distribution structure Nature of buying Nature of buying influence Type of negotiations Use of reciprocity Use of leasing Primary promotional method Retail Buyers Individual Smaller Many Dispersed More indirect More personal Single Simpler No Lesser Advertising Organizational Buyers Organizational Larger Fewer Geographically concentrated More direct More professional Multiple More complex Yes Greater Personal selling © Prentice Hall, 2000 41 Organizational Buyer’s Behavior (cont.) Individual Influences Interpersonal Influences Organizational Influences Age; gender; ethnicity; education, lift style; psychological; knowledge; values; personality Authority; status; persuasiveness Policies and procedures; organization structure; centralized/decentralized; systems used; contracts Stimuli Marketing Others Price Promotion Product Quality Economical Technology Political Cultural Behavioral Model © Prentice Hall, 2000 Decision Making Process (Group or Individual) Buyers’ Decisions Buy or not; What to buy; Where (vendor); When; Delivery terms Payments Vendors’ Controlled Systems Logistic support Technical support Customer service Payments, delivery Web design, FAQ,E-mail, IntelligentCall Centers, agentsHall, 2000 One-to-one © Prentice 42 Management Issues Reasons for customers visiting a web site: Benefit from lots of graphics (negative too, slows interaction) Easy linking when browsing for products and information Easy entry into specific product lines or service areas Foolproof experience to keep the customer focused on the immediate need and not get lost or placed off track © Prentice Hall, 2000 43