Consumer Behavior and Customer Service in E-Commerce

1. Chapter 4Consumer Behavior, Customer Service, and Advertising Prentice Hall, 2003

2. Learning Objectives • Describe the factors that influence consumer behavior online • Understand the decision-making process of consumer purchasing online • Describe how companies are building one-to-one relationships with customers • Discuss the issues of e-loyalty and e-trust in EC Prentice Hall, 2003

3. Learning Objectives (cont.) • Explain how personalization is accomplished online • Describe consumer market research in EC • Explain the implementation of customer service online and describe its tools • Describe the objectives of Web advertising and its characteristics Prentice Hall, 2003

4. Learning Objectives (cont.) • Describe the major advertising methods used on the Web • Describe various online promotions • Describe the issues involved in measuring the success of Web advertisements as it relates to different pricing methods. • Understand the role of intelligent agents in consumer issues and advertising applications Prentice Hall, 2003

5. Ritchey Design LearnsAbout Customers • The Problem • Small business designing and manufacturing mountain bike components • 1995 Web site was a status symbol rather than a business tool • The site did not: • Offer enough customer information • Enable the company to gain insight into their customers’ needs and wants Prentice Hall, 2003

6. Ritchey Design LearnsAbout Customers (cont.) • The Solution • Customer surveys introduced the site • Web Trader automatically saves and organizes answers in the database—this information is used to make marketing decisions • Created an electronic product catalog • Visitors can browse through the product catalog with detailed descriptions and graphics of products Prentice Hall, 2003

7. Ritchey Design LearnsAbout Customers (cont.) • The Results • Ritchey does not yet sell directly to individuals online, because the company wants to maintain its existing distribution system • Dealers can: • Place orders on the site • Learn about new products quickly • site is basically used for market research and advertising Prentice Hall, 2003

8. Exhibit 4.1EC Consumer Behavior Model Prentice Hall, 2003

9. Consumer Behavior Online (cont.) • Consumer types—individual consumers who commands most of the media’s attention • Organizational buyers • Governments and public organizations • Private corporations • Resellers • Consumer behavior viewed in terms of: • Why is the consumer shopping? • How does the consumer benefit from shopping online? Prentice Hall, 2003

10. Variables in the Purchasing Environment • Social variables—people are influenced by: Family members, friends, co-workers, “what’s in fashion this year” • Cultural/community variables—where the consumer lives • Other environmental variables: Available information, government regulations, legal constraints, situational factors Prentice Hall, 2003

11. Age and gender Marital status Educational level Ethnicity Occupation Household income Personality Lifestyle characteristics Personal CharacteristicsPersonal Differences Prentice Hall, 2003

12. Exhibit 4.3Amount of Money Spent on the Web Prentice Hall, 2003

13. Consumer Purchasing Decision Making • Roles people play in decision-making • Initiator—suggests/thinks of buying a particular product or service • Influencer—advice/views carry weight in making a final buying decision • Decider—makes a buying decision or any part of it • Buyer—makes the actual purchase • User—consumes or uses a product or service Prentice Hall, 2003

14. General Purchasing Decision-Making Model • 5 major phases of a general model • Need identification • Information search • Evaluation of alternatives • Purchase and deliver • After-purchase evaluation Prentice Hall, 2003

15. How One-to-One Relationships Are Practiced • Relationships as a two-way street: • Customer information is collected and placed in a database • Customer’s profile is developed • Generate “four P’s” of marketing: • Product Place • Price Promotion Prentice Hall, 2003

16. How One-to-One Relationships Are Practiced (cont.) • Doing business over the Internet enables companies to: • Communicate better with customers • Understand customers’ needs and buying habits better • Improve and customize their future marketing efforts Prentice Hall, 2003

17. Exhibit 4.5The New Marketing Model Prentice Hall, 2003

18. Personalization • Personalization—the matching of services, products, and advertising content to individual consumer • User profile—the requirements, preferences, behaviors, and demographic traits of a particular customer • Cookie—a data file that is placed on a user’s hard drive by a Web server, frequently without disclosure or the user’s consent, that collects information about the user’s activities at a site Prentice Hall, 2003

19. Personalization (cont.) • Major strategies used to compile user profiles include: • Solicit information directly from the user. • Use cookies or other methods to observe what people are doing online • Perform marketing research • Build from previous purchase patterns Prentice Hall, 2003

20. Collaborative Filtering • Collaborative filtering—a personalization method that uses customer data to predict, based on formulas derived from behavioral studies, what other products or services a customer may enjoy; predictions can be extended to other customers with similar profiles • Variations of collaborative filtering Rule-based filtering, content-based filtering, activity-based filtering • Legal and ethical issues • Privacy issues • Permission-based personalization tools Prentice Hall, 2003

21. Customer Loyalty & E-Loyalty • Customer loyalty—degree to which customer stays with vendor or brand • Important element in consumer purchasing behavior • One of the most significant contributors to profitability • E-loyalty—customer’s loyalty to an e-tailer • Learn about customers’ needs • Interact with customers • Provide customer service Prentice Hall, 2003

22. Trust in EC • Trust—psychological status of involved parties who are willing to pursue further interactions to achieve a planned goal • EC vendors must establish high levels of trust with current and potential customers • Particularly important in global EC transactions • Level of trust determined by: • Degree of initial success experienced with EC • Well-defined roles and procedures for all parties involved • Realistic expectations as to outcomes from EC Prentice Hall, 2003

23. How to Increase EC Trust • Trust can be decreased by: • Any user uncertainty regarding the technology • Lack of initial face-to-face interactions • Lack of enthusiasm among the parties • Brand recognition is very important in EC trust • EC security mechanisms can also help solidify trust Prentice Hall, 2003

24. Goal–find information and knowledge that describes relationships among Consumers Products Marketing methods Marketers Aim—find relationship between Discover marketing opportunities and issues Establish marketing plans Better understand the purchasing process Evaluate marketing performance Market Research for EC Prentice Hall, 2003

25. Economy Industry Firms Products Pricing Distribution Competition Promotion Consumer purchasing behavior Market Research for EC (cont.) • Market research includes gathering information about: Prentice Hall, 2003

26. Market Research for EC (cont.) • Various tools are used to conduct consumer market research: • Questionnaires • Surveyors • Telephone surveys • Focus groups • Important first to understand how groups of consumers are classified Prentice Hall, 2003

27. Market Segmentation • Market segmentation—process of dividing a consumer market into logical groups for conducting marketing research, advertising, and sales • Geography Demographics • Psychographics Benefits sought • Segmentation is done with the aid of tools: • Data modeling • Data warehousing Prentice Hall, 2003

28. Conducting Market Research Online • Powerful tool for research regarding: • Consumer behavior • Discover of new markets • Consumer interest in new products • Internet-based market research • Interactive—allowing personal contact • Gives better understanding of customer, market, and competition Prentice Hall, 2003

29. Major factors used for prediction are: Product information requested Number of related e-mails Number of orders made What products/services are ordered Gender Online market research attempts to find: Purchase patterns for individuals and groups Factors that encourage online purchasing How to identify real buyers and browsers How an individual navigates Optimal Web page design What Are We Looking For in EC Market Research? Prentice Hall, 2003

30. EC Market Research (cont.) • Interactive Internet-based market research • Allows personal contact with customers • Provides marketing organizations with greater ability to understand customer, market, and competition • Identify early shifts in product and customer trends • Enables marketers to identify products and marketing opportunities • Develop products that customers really want to buy Prentice Hall, 2003

31. Online Market Research Methods • Web-based surveys • Free software to create survey forms and analyze results is available at • supersurvey.com • websurveyor.com • Online focus groups—help overcome some problems that limit the effectiveness of Web-based surveys (sample size, partial responses) Prentice Hall, 2003

32. Online Market Research Methods (cont.) • Tracking customer movements—learn about customers by observing their behavior rather than by asking them questions • Transaction • Clickstream behavior • Cookies • Web bugs Prentice Hall, 2003

33. Limitations of Online Market Research Methods • Accuracy of responses • Loss of respondents because of equipment problems • Ethics and legality of Web tracking • Focus group responses can lose something in the translation from an in-person group to an online group • Eye contact and body language are lost • Anonymity is necessary to elicit an unguarded response Prentice Hall, 2003

34. Data Mining • Data mining—the process of searching a large database to discover previously unknown patterns; automates the process of finding predictive information • New business opportunities generated by conducting: • Automated prediction of trends and behaviors • Automated discovery of previously unknown patterns and relationships Prentice Hall, 2003

35. Data Mining (cont.) • Data mining tools and techniques: • Neural computing • Intelligent agents • Association analysis • Sample data mining applications • Retailing and sales distribution • Banking Broadcasting • Airlines Marketing Prentice Hall, 2003

36. Web Mining • Web mining—application of data mining techniques to discover meaningful patterns, profiles, and trends from both the content and usage of Web sites • Web content mining • Web usage mining • Web mining is critical for EC due to the large number of visitors to EC sites Prentice Hall, 2003

37. Limitations of Online Market Research • Lack of representativeness in samples of online users Online shoppers tend to be wealthy, employed, and well educated; results may not be extendable to other markets • The right kind of sampling is achieved through verification of target audience or demographic Anonymity causes a loss of information about demographics and characteristics of the respondents Prentice Hall, 2003

38. Delivering Customer Servicein Cyberspace • Customer service—a series of activities designed to enhance customer satisfaction (the feeling that a product or service has met the customer’s expectations) • Traditional: do the work for the customer • EC delivered: gives tools to the customer to do the work for him/herself • E-service—customer services supplied over the Internet • Foundation of service • Customer-centered services • Value-added services Prentice Hall, 2003

39. Delivering Customer Servicein Cyberspace (cont.) • Value chain for Internet service • Customer acquisition (pre-purchase support) • Customer support during purchase—provides a shopping environment that is efficient, informative, productive • Customer fulfillment (purchase dispatch)—timely delivery • Customer continuance support (post- purchase)—maintain the customer relationship between purchases Prentice Hall, 2003

40. Customer Relationship Management • Customer relationship management (CRM)—a customer service approach that focuses on building long-term and sustainable customer relationships that add value both for the customer and the company • Building a customer-centered EC strategy • Focus on the end customer • Systems and business processes designed for ease of use • Foster customer loyalty Prentice Hall, 2003

41. Customer Relationship Management (cont.) • Actions for successful EC strategy • Deliver personalized services • Target the right customers • Help the customers do their jobs • Let customers help themselves • Streamline business processes that impact the customers • “Own” the customer ’s total experience by providing every possible customer contact • Provide a 360-degree view of the customer relationship Prentice Hall, 2003

42. Customer Service Tools • Personalized Web pages • Used to record purchases and preference • Direct customized information to customers efficiently • E-mail and automated response • Disseminate general information • Send specific product information • Conduct correspondence regarding any topic (mostly inquiries from customers) Prentice Hall, 2003

43. American Airlines Offers Personalized Web Sites • American Airlines (aa.com) unveiled a the most advanced personalized, one-to-one interactions and transactions on its Web site in 1998 Intelligent agents enable the generation of personalized Web pages for each of its 1 million registered, travel-planning customers • Broadvision’s application dynamically matches customer profiles to a database Output of the matching process triggers the creation of a real-time customized Web page Prentice Hall, 2003

44. American Airlines (cont.) • The use of intelligent-agent technology built a considerable edge over AA’s competitors • Personalizing Web pages is becoming more important in: • Increasing customer loyalty • Cementing relationships with customers • Fostering the community of AA frequent flyers Prentice Hall, 2003

45. Customer Service Tools (cont.) • Call center—a comprehensive service entity in which EC vendors address customer service issues communicated through various contact channels Telewebs—call centers that combine Web channels with portal-like self-service; combine • Justifying CRM programs—two problems • Most of the benefits are intangible • Substantial benefits reaped only from loyal customers, after several years Prentice Hall, 2003

46. Response times Site availability Download times Timeliness Security and privacy On-time order fulfillment Return policy Navigability Metrics • Metrics—measures of performance; may be quantitative or qualitative Prentice Hall, 2003

47. Web Advertising • Advertising is an attempt to disseminate information in order to affect a buyer-seller transaction • Interactive marketing—marketing that allows a consumer to interact with an online seller • Two-way communication and e-mail capabilities • Vendors also can target specific groups and individuals • Enables truly one-to-one advertising Prentice Hall, 2003

48. Internet Advertising Terminology • Ad views—number of times users call up a page that has a banner on it during a specific time period; known as impressions or page views. • Button—a small banner that is linked to a Web site • Page—HTML document • Click—a count made each time a visitor clicks on an advertising banner to access the advertiser ‘s Web site (ad clicks and click throughs) Prentice Hall, 2003

49. Internet Advertising Terminology (cont.) • CPM (cost per thousand impressions)—fee an advertiser pays for each 1,000 times a page with a banner ad is viewed • Hit—request for data from a Web page or file • Visit—a series of requests during one navigation of a Web a site; a pause of request for a certain length of time ends a visit Prentice Hall, 2003

50. Why Internet Advertisement? • 3/4 of PC users gave up some television time • Well educated, high-income Internet users are a desired target for advertisers • Internet is by far the fastest growing communication medium • Advertisers are interested in a medium with such potential reach, both locally and globally Prentice Hall, 2003