CONSUMER BEHAVIOR, INTERNET MARKETING, AND ADVERTISING

1. CONSUMER BEHAVIOR, INTERNET MARKETING, AND ADVERTISING • Learning about consumer behavior online • The consumer purchasing decision-making process • Mass marketing, market segmentation, one-to-one marketing • Personalization and behavioral marketing • Loyalty, satisfaction, and trust in EC • Market research for EC • Web advertising • Online advertising methods • Advertising strategies ad promotions • Special advertising and implementation topics

2. A model of consumer behavior online Influential factors: Uncontrollable + Controllable variables 2 types: Individual consumers + Organizational buyers The attitude-behavior process: Intention + Purchase + Repurchase

3. Consumer Behavior Online • Major influential factors • 6 stages in the purchase decision process

4. Customer Decision Support in Web Purchasing ↓ ↓ ↓ ↓

5. From Mass Marketing to One-to-One Marketing • Mass marketing & advertising • Target to everyone (“the mass”), e.g. Using a newspaper / TV ad. • Effective for brand recognition, for introducing a new product/service. • E.g. In 2005, Ford Motor Company placed banner ads for 24 hours on AOL, MSN, and Yahoo! - introducing a 3-month campaign. • Marketing segmentation • To a subset of customers/prospects. • Adv: Match segments better than the “mass” ➡ A better response rate➡ Expense is lower ➡ Marketing efforts is faster. • E.g. Send e-mails to fewer people; place banner ads on fewer Web sites. • Relationship and one-to-one marketing (relationship marketing) • Sell as many products as possible to one customer - over a long period of time. • E.g. Amazon.com e-mail customers announcements of the availability of books in their areas of interest as soon as they are published.

6. From Mass Marketing to One-to-One Marketing

7. The New Marketing Model (One-to-One)

8. Personalization in E-Commerce • Personalization • “The matching of services, products, and advertising content with individual consumers and their preferences”. • 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 remote Web server, frequently without disclosure or the user’s consent, which collects information about the user’s activities at a site. • To increase sales • E.g. Amazon makes recommendations on the basis of • a customer’s browsing & buying history, • items viewed/purchased by customers, • items that seem related to the product being viewed.

9. Behavioral Marketing & Collaborative Filtering • Behavioral targeting • “Targeting that uses information collected about an individual’s Web-browsing behavior, such as the pages they have visited or the searches they have made, to select an advertisement to display to that individual”. • In conjunction with, e.g. location of the customers, demographics, etc.. • Collaborative filtering • “A market research and personalization method that uses customer data to predict, based on formulas derived from behavioral sciences, what other products or services a customer may enjoy; predictions can be extended to other customers with similar profiles”. • Uses the preferences & activities of customers with similar characteristics➡ Build new customers’ profiles ➡ Product recommendations. • E.g. Those who bought this item also bought the following items:

10. Behavioral Marketing & Collaborative Filtering • Other methods • Rule-based filtering • Ask a series of yes/no or multiple-choice questions (personal/specific) ➡ Predict the behavioral patterns. • E.g. “If customer age > 35 and customer income > $100,000, show ad A; else, show ad B”. • Content-based filtering • Identify customer preference by the attributes of the product(s) they intend to buy ➡ Recommend additional products with similar attributes. • E.g. Recommend more action movies after a customer rented one. • Legal and ethical issues in collaborative filtering • Information is collected without users’ knowledge/permission➡ Invasion of privacy issues.

11. Customer Loyalty • E.g. For Amazon.com, the expense of acquiring a new customer > $15; the cost of maintaining an existing customer is $2 - $4. • Customer loyalty ↑ • Cost saving (marketing & advertising costs; transaction costs; customer turnover expenses; failure costs, e.g. warranty claims) • Strengthen a company’s market position • High resistance to competitors • A decrease in pricesensitivity • An increase in favorable word-of-mouth • E.g. Gain reward points for redemption, like Octopus card, PARKnSHOP, ... • Internet technology & social networking undermine brands & discourage customer loyalty, • Customers can shop, compare, get quick advice from friends easily; • Customer switch to different vendors easily, quickly.

12. Customer Loyalty • E-loyalty • “Customer loyalty to an e-tailer or loyalty programs delivered online or supported electronically”. • Merchant ratings • The source of interpersonal communication, from other consumers. • +ve customer reviews➡ ↑ e-loyalty. • Word-of-mouth undermine the effects of competitor’s low prices. • E.g. Amazon.com has higher prices, but she is still preferred by many customers. • Satisfaction in EC • Repeat purchase, +ve word-of-mouth ➡ Higher customer loyalty. • 80% of satisfied online consumers would shop again within 2 months, • 90% would recommend Internet retailers to others, • 87% of dissatisfied consumers would permanently leave their Internet retailers without any complaints.

13. Factors that Affect Consumer Satisfaction with Internet Shopping

14. Trust in EC • EC vendors need to establish high levels of trust with current & potential customers. EC trust models

15. Trust in EC • How to increase trust in EC? • Affiliate with an objective 3rd party • Put hypertext link to trusted targets; Use 3rd-party seals of approval, e.g. TRUSTe; Use escrow providers. • Establish trustworthiness, through 3 key elements: • Integrity • To build an image of strong justice • Fulfill all of the promises that have been made to the customers • E.g. Offer a money-back guarantee with the products, clearly state the guarantee policy on the Web site. • Competence • Deliver a professional Web site: Basic features + Advanced features (internal search engine, order tracking, online chat room) • Security • E.g. Launched online secure shopping guarantee to online shoppers.

16. Objectives and Concepts of Market Research Online • Internet research methods • Faster, more efficient, allows the researcher to access a more geographically diverse audience. • Conduct a very large study much more cheaply. • What are marketers looking for in EC market research? • The purchase patterns for individuals & groups (market segmentation) • The factors encourage online purchasing • How to identify those who are real buyers from those who are just browsing? • How does an individual navigate: Consumers check information first ? Or, go directly to ordering? • What is the optimal Web page design? • Advertise properly, price items, design the Web site, provide appropriate customer service.

17. Representative Market Research Approaches • Market segmentation research • 4 online shopping segments: tentative shoppers, suspicious learners, shopping lovers, business users. • 4 online nonshopping segments: fearful browsers, +ve technology muddlers, -ve technology muddlers, adventurous browsers. • Online sampling methods • E-mail communication; focus groups conducted in chat rooms; questionnaires placed on Web sites; tracking customers’ movements on the Web; online voting polls. • Online surveys

18. Representative Market Research Approaches • Hearing directly from customers • Use chat rooms, newsgroups, blogs, electronic consumer forums. • Data collection in the Web 2.0 environment

19. Representative Market Research Approaches • Observing customers’ movements online • Transaction log • Log file analysis tools ➡ Get a good idea of where visitors are coming from, how often they return, how they navigate through a site. • Cookies, Web bugs, spyware • Web bugs: Tiny files embedded in e-mail messages and in Web sites that transmit information about users + their movements to a Web server. • Spyware - Gathers user information over an Internet connection without the user’s knowledge. • Clickstream analysis • Clickstream data (every Web site & page the user visits; how long the user remains on a page/site; in what order the pages were visited; e-mail addresses of mail that the user sends & receives). • Web mining: To discover & extract information from Web documents; explore both Web content & Web usage.

20. Limitations of Online Market Research and How to Overcome Them • Problems: • Too much data➡ Organize, edit, condense, summarize ➡ Expensive & time-consuming • Accuracy of responses, loss of respondents because of equipment problems, the ethics & legality of Web tracking. • Eye contact & body language are lost. • Difficult to obtain truly representative samples (skewed toward certain population groups) • Lack of clear understanding of the online communication process, how online respondents think & interact in cyberspace. • Overcome by • Identifying the intended target audience/demographic ➡ Perform right kind of sampling. • Allowing anonymous ➡ Encourage respondents to be more truthful. • Outsourcing market research to large & experienced companies.

21. Web Advertising • Interactive marketing • “Online marketing, facilitated by the Internet, by which marketers and advertisers can interact directly with customers, and consumers can interact with advertisers/vendors”. The advertising cycle

22. Some Internet Advertising Terminology

23. Why Internet Advertising? • Internet users are spending less time watching TV, more time using the Internet. • Many Internet users are well educated & have high incomes. • Advertising online and its advantages

24. Online Advertising Methods • Banners • Banner • Keyword banners: Appear when a predetermined word is queried from a search engine. • Random banners: Appear at random, not as the result of the user’s action. • Personalized banners: Specific banners for a targeted visitor. • Benefits & limitations of banner ads

25. Online Advertising Methods • Pop-up and similar ads • Pop-up ad: Appears in a separate window before, after, or during Internet surfing or when reading e-mail. • Pop-under ad: Appears underneath the current browser window, so when the user closes the active window the ad is still on the screen. • E-mail advertising (with brief audio/video clips; links) • Newspaper-like and classified ads • Newspaper-like ad: Larger & more noticeable than banner ads. • Classified ads: Found on special sites, e.g. online newspapers, portals.

26. Online Advertising Methods • Search engine advertising • URL listing • Keyword advertising • Advertisements appear on the screen along with the search results. • High relevance to user interests. • Advertisers who pay more will appear higher on the list. • Improving a company’s search engine ranking (optimization) • Search engine optimization (SEO): Uses the ranking algorithm, best search phrases, and tailors the ad. • Buy keyword ads. • Show ads on the side & top of the search results.

27. Online Advertising Methods • Advertising in chat rooms • Advertise to members of social networks, e.g. Facebook. • Place a chat link on their sites. • E.g. “Can anyone tell me about the new Electoy R3D3?” • Cycle through messages, target the chatters again & again. • Go to competitors’ chat rooms, observe the conversations there. • Other forms of advertising • Advertising in online newsletters, e.g. The Economist. • Posting press release online, on popular portals, e.g. Yahoo!, MSN, Google. • Video ads. • Advergaming: Using computer games to advertise a product, an organization.

28. Advertising Strategies and Promotions • Social networking advertising • Take advantage of the user’s demographic information, target to the users’ ads appropriately. • 3 Types of social network advertising • Direct advertising based on your network of friends • The most effective mode of viral advertisement. • E.g. “Bob has just bought a RadioHead CD from Music World.” • Direct advertising placed on your social network site • Banner ads on social network site. • Indirect advertising by creating “groups” / “pages” • Create a “group” that users can join. • Target the “subscribers” / “fans” to promote a new product, increase brand awareness. • Sponsored reviews by bloggers • Paid bloggers briefly mention their brands in regular blog entries.

29. Advertising Strategies and Promotions • Video ads on the Web and in social networking • Marketers add consumer-generated videos into their ads. • E.g. KFC uses consumer-generated videos, combines them to tell a story, shows the story online. • Tracking the success of an online video campaign • Web (online) video analytics: Measure what viewers do when they watch an online video (movie clip, video ad, movie trailer, TV show, movie). • How long did the viewer watch a particular video? • If there was an ad overlay with the video, did they watch it? If so, for how long? Did they click through to complete a sale proposed by the ad? • Where do the viewers come from? On a particular site? • Viral marketing (advocacy marketing) • By e-mails, text messaging, in conversations in chat rooms, instant messaging, posting messages in newsgroups, electronic consumer forums.

30. Advertising Strategies and Promotions • Other advertising strategies • Affiliate marketing and advertising • Affiliate marketing: An organization refers consumers to the selling company’s Web site. • Placing the company’s logo is free. • Ads as a commodity (paying people to watch ads) • Consumers fill out data on personal interests ➡ Receive targeted banners ➡ Click & read ➡ Passing some tests ➡ Paid. • Selling space by pixels • People bought pixels at $1 each ➡ Sell them at higher prices through auctions. • Personalized ads • Send customized ads to consumers.

31. Advertising Strategies and Promotions • Mobile marketing and advertising • E.g. Digital ads atop 12,000 taxis in various U.S. cities. • Mobile marketing • Mobile platform: For reaching young consumers. • Mobile advertising (m-advertising) • “Ads sent to and presented on mobile services”. • Most people carry their mobile phones with them everywhere, can be reached anytime. • Ads can be unique, personalized, customized. • In the form of text messages, video clips, photos, music, game downloads. • E.g. Apple’s iPhone runs thousands of software programs, available at Apple’s Application Store. • With GPS technology ➡ Alert people to the availability & discounts of stores/restaurants that they are walking/driving by.

32. Special Advertising and Implementation Topics • Permission advertising • Spamming: Using e-mail to send unwanted ads ➡ Upset users ➡ Block • Permission advertising (permission marketing / opt-in approach) • “Advertising (marketing) strategy in which customers agree to accept advertising and marketing materials”.

33. Special Advertising and Implementation Topics • Localization • “The process of converting media products developed in one environment (e.g. country) to a form culturally and linguisticallyacceptable in countries outside the original target market”. • Factors should be considered: • The English used may differ in terminology, spelling, culture (e.g. the UK vs Australia). • Some languages use accented characters (e.g. á, í, ó, ú ). The accent will disappear when a text is convert into English ➡ Incorrect translation. • Graphics & icons look different in different countries, e.g. A U.S. mailbox vs European trashcan. • When translating into Asian languages, cultural issues must be addressed. • Dates format - mm/dd/yy vs dd/mm/yy. • Consistent translation over several documents can be very difficult to achieve.