E-Commerce – customer focus

1. E-Commerce – customer focus • Transactions, money, trust • Attracting and keeping customers • Key issue: trust, security • Legal issues • Personalization • Adverts

2. Transactions … in the beginning • Barter – exchange one good for another • Strictly a two way thing. • Exchange happens simultaneously (mostly). • Little, or no, trust needed

3. Transactions – commodity money • Exchange standard items with known (supposedly intrinsic) value. • These standard items are more liquid, easier to exhange, move faster. • Can store for later use. - e.g. Weights of metal, peppercorns, sheepskin, pigs, cattle - Limited trust in retained intrinsic value

4. Transactions – representative money Token money - Early on, might be linked to a commodity • probably not now • `just a way of keeping score’ • Even more liquid, easier to store, exchange • Need to trust that money will keep being tradeable in future, and of not much less value

5. Transactions – money Fiat money – money that gets value, because the government and the law says it has (and because we believe it). Paper money – only used widely in Europe for last 200-ish years, initial trust problems, bank runs. http://en.wikipedia.org/wiki/John_Law_(economist)

6. Money – modern • Cash • Money held in physical capital • Money in bank • Money invested in bonds, equities • Credit • Credit and debit cards • Electronic transfers of money

7. Money – modern • Electronic transfer of money central to e-commerce. • Ability to accept credit (or debit) cards central to success at scale of B2C and C2C. • Standards, e.g. https://www.pcisecuritystandards.org/

8. Transactions • Evolution of money and social mechanisms has enabled us to develop two-part transactions: money and goods (or services) exchanged at different times. • Also credit • Rely on • interpersonal trust, • social reputation, • law.

9. Money: trust, reliability, security • Need to be sure that it will continue being acceptable • Need to be sure that it won’t lose too much value • Need to trust that our electronically stored `score’ is kept safely by bank. • Need to be sure that electronic transfers out (and in) work properly and are secure. [Banks and systems connecting them] • Need to be sure that credit and debit system work correctly and are secure. • Need to trust that traders will deliver upon payment. • Traders need to be sure that they will be paid if they deliver.

10. PayPal • http://www.paypal.com • Users set up an account, linked to a bank account or credit card. • Enables small businesses and consumers to accept credit card payments via paypal. • A lot less overhead than accepting and processing credit card details directly. • Reduction in overheads enables many more participants, more trade. • Various competitors available, but economic network effects in play (naturalmonopolies and oligopolies emerge) • In the early days, eBay tried to set-up own alternative, but users insisted on Paypal. • eBay gave up and bought Paypal instead.

11. Internet Escrow • Escrow: money held by a third-party on behalf of transacting parties (roughy). • Used where transacting parties have limited trust in each other • Internet escrow: • Transaction between buyer and seller • Buyer places money in control of trusted, independent third party • If both verify delivery had taken place and is complete, then money is released • If not, then some dispute resolution process kicks in. • E.g. http://www.escrow.com

12. BitCoin • Emerged in last couple of years. • Open source, peer-to-peer network to track and verify transactions. • Cut-out middlemen (financial institutions) in electronic transactions using clever cryptograpic prototcols. • http://www.bitcoin.org/bitcoin.pdf • Teething problems • No fiat from any government (relies on designer/community?) • If protocols breached, value could disappear • Value of currency is not yet sticky (no irrational, but helpful, faith in it) • Economic problems related to design (limited monetary expansion) http://krugman.blogs.nytimes.com/2011/09/07/golden-cyberfetters/

13. Customer Focus

14. Customers are not all the same! • Consumer types • Individual consumers • Organizational buyers

15. Customers are not all the same! • Consumer types • Individual consumers • Organizational buyers • Goal of shopping • Pragmatic: buy something useful, cheaply • Hedonistic: have fun

16. Customers are not all the same! • Consumer types • Individual consumers • Organizational buyers • Goal of shopping • Pragmatic: buy something useful, cheaply • Hedonistic: have fun • Personality • Impulsive buyers — purchase quickly • Patient buyers — make some comparisons first • Analytical buyers — do substantial research before buying

17. Consumer Behaviour Prentice Hall, 2002

18. Consumer Satisfaction Prentice Hall, 2002

19. Trust/Security • Trust/Security • Will the company actually deliver the correct product/service in reasonable shape, in a reasonable time, at correct price • Will the customer pay up (is the credit card stolen, will it be repudiated) • Technical aspects • Human aspects: Focus here on trust and, to some extent, policies

20. Trust in physical shops • Experience: shoppers trust shops they’ve used before • Appearance: shoppers trust store that look reputable • Complaints: easy to complain, shop can’t hide • Transactions are simple

21. On-line trust • What makes you trust an e-commerce shop?

22. On-line Trust • Experience: I trust Amazon because I’ve used them before • Reputation: because my friends use them • Very important with e-shops • Specific technicalities; for example, accounts/cards compromised or not? • Appearance: Do I trust Amazon because they have a nice website? • Less important than with physical shops • Marketing helps

23. On-line trust • Complaints: Harder to complain since don’t know where shop is • Transactions are complex because of delivery • Where many e-shops mess up • Third-party: do I trust Amazon more if another web site says good things about Amazon?

24. Does Amazon Trust Me? • Amazon trusts me because • Experience: I’ve always paid Amazon before • Reputation: I’ve used other companies and always paid up • Marketing: vendors generally signal that nasty things happen to customers who don’t pay up • credit record affected • legal consequences

25. Trust • We know quite a bit about how trust is established in physical shops. • We are developing mechanisms for establishing trust in e-shops • Partially technology, but human factors (psychology, sociology, economics, law) probably matter as much • Lack of trust mechanisms is barrier to new e-shops

26. Legal Issues: Tax • In USA, one driving force behind early e-store success was lower tax • Because of a tax loophole, sales tax (VAT) was not charged on e-commerce sales • Automatically gave price advantage to e-commerce sites!

27. Legal Issues: Intl E-Commerce • In theory, e-commerce means sites can sell globally • In practice, difficult because of different tax rules, regulations, customs, etc • More common to set up subsidiaries in different countries, as Amazon has done • Lack of global legal/regulatory framework hinders ecommerce

28. Personalization • E-Commerce sites can treat customers differently • Offer recommendations, special deals • Personalise web site • Adjust prices • In theory, “personalised shop” one of the great benefits of e-commerce • Can also take advantage of more of long tail • Don’t need to keep stock in same way as traditional shop • Can do things like Print On Demand

29. One-to-One Marketing • Build a long term association • Meeting customers cognitive needs • Customer may have novice, intermediate or expert skill • E-loyalty—customer’s loyalty to an e-tailer • costs Amazon $15 to acquire a new customer • costs Amazon $2 to $4 to keep an existing customer • Trust in EC • Deterrence-based —threat of punishment • Knowledge-based —reputation • Identification-based —empathy and common values • Referrals – Viral Marketing • Personalisation…

30. Personalisation - Marketing Model“Treat different customers differently” Prentice Hall, 2002

31. Personalisation • “Process of matching content, services, or products to individuals’ preferences” • Build profiles – N.B. Privacy Issues • Solicit information from users • Use cookies to observe online behavior • Use data or Web mining

32. Recommendation • Build profiles • What has X bought? • What has X looked at? • Demographics: age, gender, etc • Recommendation • Rules: If X buys Harry Potter 6, recommend HP 7 • Data Mining: Other people who bought Harry Potter also bought Lord of the Rings • Collaborative: X’s overall buying profile is similar to Y, so recommend whatever Y bought

33. Automated prediction of trends and behaviors Example: from data on past promotional mailings, find out targets most likely to respond in future Automated discovery of previously unknown patterns Example: find seemingly unrelated products often purchased together Example: Find anomalous data representing data entry errors Mining tools: Neural computing Intelligent agents Association analysis - statistical rules Web Mining - Mining meaningful patterns from Web resources Web content mining – searching Web documents Web usage mining – searching Web access logs Data Mining searching for valuable information in extremely large databases

34. Recommendations • If done well, perceived very positively • Real benefit, not just marketing spam • Credit-card companies have done this well • Have the most purchasing data? • Data privacy issues • Can Visa sell data about you to Amazon? • Spyware to track all of your web browsing?

35. Personalise Web Sites • Let customers create their own “shop front” focusing on their interest • Adjust appearance (eg, for visually disabled, or strict, religious consumers) • Do-able, not huge success

36. Personalised Pricing • Companies would love to be able to charge people different amounts for the same product • Airline seats, cars, etc • Full price for people who are keen, in a rush, don’t care about money • Discount for choosy/finicky

37. Personalised Pricing • Amazon, etc have tried this, but customers hated it. • So has gone “underground” for now. • Technology permits this, but society’s expectations does not allow it

38. Advertising • E-Shops (and other sites) can make money via advertising • Google makes billions from its “sponsored links” • Amazon has adverts as well

39. Web Advertising • Conventional advertising focuses on visual appeal • Less successful on web • Flashy animated banner adverts are a nuisance and distraction

40. Targeted adverts • Web allows relevant adverts to be associated with a web page • Google sponsored links based on search • Amazon could display different adverts for sci-fi and romance novel • Very effective if done well • So Web sites can charge more for targeted adverts

41. Web adverts • Initially treated like TV adverts, put huge effort into flashy multimedia banner ads • Now focusing on simple targeted adverts instead • Advertising models cannot be blindly moved from TV to web • need new models!

42. E-Commerce Summary • Initially tried to make e-shops similar to high street shops. But • Need different business model • Trust issues much more important • Need appropriate legal framework

43. Customer Focus Summary • Sometimes technology really helps • Recommender systems, targeted adverts • Sometimes technology works, but society doesn’t like it • Differential pricing • Trust – sine qua non

44. Assessment 1 • Essay due 18thNovember. • Without delay, go to http://www.abdn.ac.uk/~csc245/teaching/CS5038/assessment/ for more detailed instructions. • Please read the instructions very carefully – and follow them!