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IT 361: E-Commerce Systems
Chapter 4
E-commerce Marketing &
Advertising
Readings: Chapter 6
Slide 5-1
• First Principle in marketing and sales is:
“Know the customer”
• Who uses the web, who shop on the web and
why, and what do they buy?
2
Consumers Online: The Internet
Audience and Consumer
Behavior
• Around 85 million American households (70% of households)
had broadband Internet access in 2013
• Growth rate has slowed (2000 30%, now 2-3%)
• Intensity and scope of use both increasing
(↑usage → ↑comfort & familiarity →↑service to explore)
• Some demographic groups have much higher percentages of
online usage than other groups
– Demographics to examine include gender, age, ethnicity, community
type, income; education
• Differences between broadband audience and dial-up
need to be taken into consideration when marketing
Slide 4-3
Consumers Online: The Internet
Audience and Consumer
Behavior
• Location vs. Neighborhood effects (online – offline social ties)
Being located nearby other users of the online grocery
increased the likelihood of purchasing at the site by 50%
(Importance of social ties and communication)
Ex: Amazon’s recommender Systems
Slide 4-4
Consumer Behavior Models
• Who is your customer & How (s)he behaves
• Attempt to predict/explain what consumers
purchase and where, when, how much and why
they buy.
• Rule: If the consumer decision-making process
can be understood, firms will have a much better
idea how to market ad sell their products
• Consumer behavior models based on background
demographic factors and other intervening, more
immediate variables
Slide 4-5
A General Model of Consumer
Behavior
Slide 4-6
Background Demographic Factors
• Cultural
– Culture and subculture (ethnicity, age, lifestyle, geography)
• Social
– Reference groups
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Direct (family, profession, religion, neighborhood, school)
Indirect (social class, lifestyle)
Opinion leaders (viral influencers)
Lifestyle groups (activities: hobbies, spots, events
interests :food, fashion, family
opinions: government, business, social)
Theory: once you understand a consumer's lifestyle or the lifestyle of a group of
people, then you can design products and marketing messages that appeal
specifically to that lifestyle group
• Psychological
– Psychological profiles
– "People do not want your product or service." They do want answers
to problems, solutions to needs, pathways to wants, or a secret door to
their heart's desires.
Slide 4-7
• Gillette knows that it doesn't sell blades. It
sells clean shaves.
• Revlon knows it doesn't sell nail polish. It sells
romance.
• Betty Crocker knows it doesn't sell cake mix.
It sells, "Gee, mom, this cake is great!“
Why consumers choose the
online channel?
The Purchasing Decision
• Five stages in the consumer decision process:
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Awareness of need
Search for more information
Evaluation of alternatives
Actual purchase decision
Post-purchase contact with firm
Slide 4-10
The Consumer Decision Process
and Supporting Communications
Slide 4-11
• The consumer decision-making process and
types of offline and online marketing
communications that supports this process and
seek to influence the consumer before, during
and after the purchase decision.
• Both offline and online communication tools
can be used to support the online consumer
decision process in each of the 5 stages,
The Purchase Decision Process
A Model of Online Consumer
Behavior
Figure 6.4, Page 349
Slide 4-14
Clickstream behavior
• “deep” knowledge of the customer
dynamically developed
• Clickstream behavior of people online very
close to the moment of purchase, enable
marketers to understand what the consumer
was looking for at each moment, and how
much they are willing to pay, thus allowing
marketers to precisely target their
communications.
Most clickstream factors
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Number of days since last visit
Speed of clickstream behavior
Number of products viewed during last visit
Number of pages viewed
Number of products viewed
Supplying personal information
Number of days since last purchase
Number of past purchases
Shoppers: Browsers and Buyers
• 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
Slide 4-17
Online Shoppers and Buyers
Slide 4-18
• Ecommerce and traditional commerce are
coupled and should be viewed by merchants as
part of continuum of consuming behavior and
not as radical alternatives once
• Consumes use a variety & multiple of media.
• Online merchants should:
– build the information content of the site to attract
browsers looking for information
– Build content to rank high in SE
– Put less attention on selling per se
– Promote services and products in offline media
What Consumers Shop for and
Buy Online
• Online sales divided roughly into small
ticket and big ticket items
– Purchases of big ticket items (>$1000) (travel,
computer hardware, consumer electronics) expanding
– Top small ticket categories (apparel, books, office
supplies, software, etc.) have similar characteristics—
sold by first movers, small purchase price, physically
small, high margin items (CDs, software), broad
selection of products available
Slide 4-20
What Consumers Buy Online
Slide 4-21
Source: “ Factors affecting E-commerce uses in Saudi Arabia”, Khalil H., University of Liverpool, 2010
Intentional Acts: How Shoppers
Find Vendors Online
• 54% of shoppers use search engines
• 20% of consumers go directly to site
• 12% use comparison shopping or product
rating sites
• Most online shoppers plan to purchase
product within a week, either online or at a
store
• Most online shoppers have a specific item
in mind
Slide 4-23
• Merchants can convert “goal-oriented”
consumers into buyers by
– Targeting their communications
– Design their sites (easy access, product
information, full selection, customer service)
– At the very moment the consumer is searching
Why More People Don’t Shop
Online
• Major online buying
concerns:
– Trust
• Security
• Privacy
– Hassle
• Shipping costs
• Inability to see/touch
product
• Return policy
Source: “ Factors affecting E-commerce uses in Saudi Arabia”, Khalil H., University of Liverpool, 2010
Slide 4-25
Trust, Utility, and Opportunism in
Online Markets
• Factors shaping the decision to purchase online:
– Utility (Good deals, convenience, speed of delivery, ..)
– Trust (opportunities behaviors by sellers) (reputation of
honesty, fairness, and delivery of quality product = basic
elements of brands). Ex: Amazon’s Book reviews
• Online sellers who develop trust are able to charge premium
price
• Factors leading to trusting online relationship: Perception of
web site credibility, ease of use, and perceived risk
• Traditional ads are far more trusted than online ads
• Personal friends & families are far more trusted than SN
members
Slide 4-26
Basic Marketing Concepts
• Marketing:
– Strategies and actions firms take to establish
relationship with consumer and encourage purchases of
products and services
– It is an integrated process through which companies
build strong customer relationships and create value for
their customers and for themselves.
• Internet marketing
– Using Web to develop positive, long-term relationship
with customers, thereby creating competitive advantage
for firm by allowing it to charge higher prices for
products or services than competitors can charge
(superior product or communicating the brands
features)
– is the marketing of Slide
products
or services over the
4-27
Internet .
Features of Internet Marketing
– Can be more personalized
– Participatory
– Peer-to-peer
• Not all types of internet marketing have these
features (video ad vs. TV commercial, targeted
videos)
Digital Commerce Marketing &
Advertising Strategies & Tools
• Elements of comprehensive multi-channel
marketing plan:
– Website
– Traditional online marketing: search engine,email
campaigns,…
– Social networking
– Mobile marketing
– Offline marketing
Strategic Issues & Questions
Strategic Questions
1. priorities
• Where should you focus first? Build a website, develop a
blog, or facebook page
• Where second? Develop SN presence or offline
• Do you have the resources to maintain a SN marketing
campaign?
2. Integration of the different marketing platforms to deliver a
single coherent branding message
• 3. Resource allocation
Websites as Marketing Platform
– Establishing the Customer
Relationship
• Website performs 4 functions:
– Establish the brand identity & consumer
expectations (identify quality, price, support, reliability – create
expectations)
– Inform and educate the consumer
– Shape the customer experience
– Anchors the brand
• The one place where one can find the complete
story vs. ad
Online Marketing & Advertising
Tools
• Paid message on Web site, online service or other
interactive medium, such as interactive messaging
• 2013: $42 billion spent, expected to grow
• Advantages:
– Ability to target ads to narrow segments and track performance in
almost real time. Ad targeting
– Provide greater opportunity for interactivity
• Disadvantages:
– Concerns about cost versus benefit
– Concerns about how to adequately measure results
Slide 5-33
Online Advertising from 2004-2017
Slide 5-34
Forms of Online Advertisements
• Search engine advertising: Paid search engine
inclusion and placement
• Display ads: banners, rich media &video ads
• Sponsorships
• Referrals (affiliate relationship marketing)
• E-mail marketing
• Online catalogs
• Lead Generation
Slide 5-35
Search Engine Advertising: Paid
Search Engine Inclusion and
Placement
• One of fastest growing and most effective forms of online
marketing communications
• Types:
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Organic serach
Paid inclusion
Paid placement
Keyword advertising: Google AdWords
Network keyword advertising: Google AdSense
Slide 5-37
Search Engine Advertising: Paid
Search Engine Inclusion and
Placement (cont’d)
• Google, Yahoo, MSN are leaders in this
technology
• Issues:
– Appropriate disclosure of paid inclusion and placement
practices
– Link Farm
– Content Farm
– Search engine click fraud (when competitor hires third
parties to fraudulently click on competitor ads to drive up
costs)
– Ad nonsense (Google AdSense ads that are inappropriate
for content)
Slide 5-38
• Search engine optimization:
– Register with as many search engines as possible
– Ensure that keywords used in Web site description match
keywords likely to be used as search terms by user
– Link site to as many other sites as possible
– Update the content frequently
– Design the site to become easily read by SE
• Social Search attempts to use social contacts to
provide search results (Google +1)
Display and Rich Media/Video Ads
• Display ads: provided by 5 Top companies
(banners, Rich media ads, sponsorship, video ads)
• Banner Ads (oldest, least effective, lowest cost)
advantages over traditional
– click through
– identify & track users
– Animation
• Rich media:
– boosts visits to websites by 300% (6X)
– Interstitials
– A good interstitials uses “animation”, “skip through” or
“stop”
Slide 5-40
• Video Ads
– small spending compared to SE, fastest growing,
most effective display ad
– 12X rich media, 27X banner ads
– 3 types: pre-roll, mid-roll, post-roll
– Say Media, Advertising.com,
Online Advertising Placement
Methods
• Banner swapping: Arrangements among
firms allow each firm to have its banners
displayed on other affiliate sites for no cost
• Advertising Networks
• Advertising exchanges: Act as brokers
between advertisers and publishers, placing
ads and tracking all activity related to ad
(RTB & managing) (Google DoubleClick
Ad Exchange)
Slide 5-42
Sponsorships and Affiliate
Marketing
• Sponsorship: Paid effort to tie advertiser’s
name to particular information, event, venue in
way that reinforces brand in positive, yet not
overtly commercial manner
• Affiliate Marketing: Permits firm to put logo
or banner ad on another firm’s Web site from
which users of that site can click through to
affiliate’s sit
– pay-per-click vs. pay-for-performance
– 10% of retail sales
– Affiliate brokers
Slide 5-44
Viral & Lead Generation
Marketing
• Viral Marketing
– Advantages
• Less expensive
• Less use of online support
– Online venues for viral marketing: Email,
Facebook, Google+, YouTube, social games
• Local Generation Marketing (inbound
marketing) helps firms build websites, email
campaign, manage leads: initiate further
contacts, track interactions, .. (Hutspot.com)
E-mail Marketing and the Spam
Explosion
• Direct e-mail marketing: E-mail sent
directly to interested consumers who “optin” or have not “opted-out”
• Spam: Unsolicited commercial e-mail
– Spam is exploding out of control—70%–80% of all email purportedly is spam
– Efforts to control spam:
• Technology (Filtering software) (only partly effective)
• Government regulation (CAN-SPAM and state laws) (largely
unsuccessful)
• Self-regulation by industry (ineffective)
• Volunteer efforts (not enough)
Slide 5-46
Other Forms of Online
Marketing Communications
• Online catalog: Provides equivalent of paperbased catalog
• Blog advertising: Online ads related to content
of blogs
• Social network advertising: Ads on MySpace,
Facebook, YouTube, etc.
• Game advertising: downloadable ‘advergames’,
placing brand-name products within games
Slide 5-47
How does social media influence
consumer behavior?
Multi-channel Marketing:
Integrating Offline and Online
Marketing
• Media consumption patters has changed: videos,
twitters, facebook ..
• Marketers use multiple channel to “touch” consumer
(email, SN, SE, display ads on mobile, affiliate
programs) to increase total media exposure.
• Early vision; in the Internet economy, nearly all
marketing communications would be online.
• The most effective online ads are those that consistent
imagery with campaigns running in other media at the
same time.
Slide 5-49
Other Marketing Strategy: Customer
Retention Strategy
Personalization marketing
• Internet enables personalization on mass market (Amazon)
Behavioral targeting of ads (interest-based ads) (deliver tailored
message + measure the results)
4 methods used to behaviorally target ads:
• SE queries
• Browsing history (clickstream)
• Data from SN sites
• Integration of online with offline
• Times, Yahoo, MSN, AOL)
Slide 4-50
Other Marketing Strategy: Customer
Retention Strategy
Customization
• Customer co-production
• “build-to-order” products create product differentiation (Niki,
M&Ms..)
• Information goods (New York Times, Yahoo, MSN, AOL)
Slide 4-51
Other Marketing Strategy:
Customer Retention Strategy
Customer service (make or break a marketing effort): user ability
to communicate with a company & obtain required information.
• Help reduce customer frustration, cut the number of abandoned
shopping carts & increase sales
• “customer loyalty increases substantially when online buyers
learn that customer service rep are available”
• “customers are willing to pay more for superior customer
services”
Customer Service Tools include:
– Frequently asked questions (FAQs)
– Real-time customer service chat systems :↓shopping cart abandonment
rate ↑# of items purchased
– Automated response systems
Net Pricing Strategies
• Early view: Web would lead to a new world of
information symmetry & empowered customers =>
Law of One Price
• Pricing (putting a value on goods and services) an
integral part of marketing strategy
• Traditionally, prices based on:
– Fixed cost
– Variable costs
– Market’s demand curve
• Prices set to maximize profit: marginal cost =
marginal revenue
• Early years of ecommerce, marginal cost < marginal
revenue (attract eyeballs + piggyback)
Slide 4-53
Net Pricing Strategies (cont’d)
• Price discrimination: Selling products to
different people and groups based on
willingness to pay
• Only work if firms can:
– Identify the price each individual is willing to
pay
– Segregate the customers
Slide 4-54
Demand Curve
Net Pricing Strategies (cont’d)
• Free products/services: Can be used to build market
awareness. Difficult to convert the eyeballs into paying
customers. Exceptions to free (valuable, exclusive, expensive,
not widely distributed, unique, immediate consumption value)
• Versioning: Creating multiple versions of product and
selling essentially same product to different market
segments at different prices
• Bundling: Offers consumers two or more goods for one
price. Based on the idea:
•
– The marginal cost = 0
– Many people would buy bundle for same or slightly higher price
Dynamic pricing: The value of the product = what the market is
willing to pay
– Auctions: for unique or unusual products
– Yield management: different pricing for different markets to sell
excess capacity (perishable, variation in demand, clearly defined
segment, competitive market, market condition change rapidly)
– Flash management
Slide 4-56
Internet Marketing Technologies
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Web transaction logs
Registration forms
Shopping carts
Cookies and Web bugs
Databases, data warehouses, data mining and
big data.
• Customer relationship management (CRM)
systems
Slide 4-57
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
– Shopping cart database
Slide 4-58
Cookies and Web Bugs
• 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
– Provide Web marketers with a very quick means of identifying
customer and understanding prior behavior
– Location of cookie files on computer depends on browser version
• Web bugs: Tiny (1 pixel) graphic files embedded in e-mail
messages and on Web sites
– Used to automatically transmit information about user and page
being viewed to monitoring server
Slide 4-60
Customer Relationship
Management (CRM) Systems
• Repository of customer information that records all contacts
that customer has with firm and generates customer profile
available to everyone in firm with need to “know the
customer”
• Customer profiles can contain:
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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
Slide 4-61
A Customer Relationship
Management System
Slide 4-62
Online Marketing Metrics: Lexicon
• Metrics that focus on success of Web site in
achieving audience or market share
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Impressions
Click-through rate (CTR)
View-through rate (VTR)
Hits
Page views
Stickiness (duration)
Unique visitors
Loyalty
Reach
Recency
Slide 5-63
Online Marketing Metrics: Lexicon
(cont’d)
• Metrics that focus on conversion of visitor to
customer
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Acquisition rate
Conversion rate
Browse-to-buy-ratio
View-to-cart ratio
Cart conversion rate
Checkout conversion rate
Abandonment rate
Retention rate
Attrition rate
Slide 5-64
Online Marketing Metrics: Lexicon
(cont’d)
• Social Network metrics
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Group rating point
Applause ratio
Conversation ration
Amplification
Sentiment ratio
Duration of engagement
• E-mail metrics
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Open rate
Delivery rate
Click-through rate (e-mail)
Bounce-back rate
Unsubscribe rate
Conversion rate (e-mail)
Slide 5-65
An Online Consumer Purchasing
Model
Slide 5-66
How Well Does Online Advertising
Work? What is the most effective
kind of online ads? Vs. offline?
• Depends on; goal of campaign, nature o
product, & quality of Web site.
• Click-through rates may be low, but this is just
one measure of effectiveness (Table 7.5)
• ROI that counts
• Research indicates that most powerful
marketing campaigns include both online and
offline advertising
Slide 5-67
Click-through Rates by Format
2000–2005
* As consumers become more accustomed to new online ads format, click-through rate tend
to fall
SOURCE: SOURCES: Doubleclick, 2007a, b; eMarketer, Inc., 2007c; author estimates.
Slide 5-68
Comparative ROI
How effective is online ads compared to offline?
Business to Consumer
Marketing Best Practices
• The most powerful marketing campaign used
multiple forms of marketing including online,
catalog, TV, radio, newspapers and retail
stores.
• Traditional media (TV & print material)
remain the primary means for consumers to
find out about new products
The Costs of Online Advertising
• Cost per thousand (CPM): Advertiser pays
for impressions in 1,000 unit lots
• Cost per click (CPC): Advertiser pays prenegotiated fee for each click ad receives
• Cost per action (CPA): Advertiser pays prenegotiated amount only when user performs
a specific action
• Hybrid: Two or more of the above models
used together
Slide 5-72
Web Analytics
• Software that analyzes and presents data on each
stage of the customer conversion process
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Awareness
Engagement
Interaction
Purchase
Loyalty and post-purchase
• Helps managers
– Optimize ROI on Web site and marketing efforts
– Build detailed customer profiles
– Measure impact of marketing campaigns
• Google Analytics, IBM Coremetrics, Adobe Analytics
Web Analytics and the Online
Purchasing Process
Slide 5-74
Web Site Activity Analysis
Copyright © 2007 Pearson
Education, Inc.
Slide 5-75
The Web Site as a Marketing
Communications Tool
• Web site can be viewed as extended online
advertisement
• Domain name: First communication ecommerce site has with prospective
customer
Slide 5-76
Web Site Functionality
• Factors affecting effectiveness of a software
interface:
– Utility
– Ease of use
• Factors in credibility of Web sites:
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Design look
Information design/structure
Information focus
Responsiveness
Slide 5-77
Web Design Guides
•
Web site design: The web designer must make various issues into consideration:
– Speed vs. aesthetics: Some of the fancier sites have serious problems
functioning practically. Consumers may be impressed by a fancy site, or may
lack confidence in a firm that offers a simple one. Yet, fancier sites with
extensive graphics take time to download—particularly for users dialing in
with a modem as opposed to being “hard” wired—and may result in site
crashes.
– Keeping users on the site: A large number of “baskets” are abandoned online
as consumers fail to complete the “check-out” process for the products they
have selected. One problem here is that many consumers are drawn away from
a site and then are unlikely to come back. A large number of links may be
desirable to consumers, but they tend to draw people away. Taking banner
advertisers on your site from other sites may be profitable, but it may result in
customers lost.
– Information collection: An increasing number of consumers resist collection
of information about them, and a number of consumers have set up their
browsers to disallow “cookies,” files that contain information about their
computers and shopping habits.
Web Design Guides (cont.)
• Site content. The content of a site should generally be based on the
purposes of operating a site. For most sites, however, having a clear
purpose be evident is essential. The site should generally provide some
evidence for this position. For example, if the site claims a large selection,
the vast choices offered should be evident. Sites that claim convenience
should make this evident. A main purpose of the Internet is to make
information readily available, and the site should be designed so that
finding the needed information among all the content of the site is as easy
as possible. Since it is easy for consumers to move to other sites, the site
should be made interesting. To provide the information and options desired
by customers, two-way interaction capabilities are essential.
Factors in
the
Credibility of
Web Sites
SOURCE: Based on data from Fogg, et al, 2002.
Slide 5-80
Attribute encourage to use Estore
Factors for not using Ecommerce
Attributes of e-store feature
Reasons for not using online
purchase