Transcript Chapter 3 Effects of IT on Strategy and Competition

Chapter 4
Consumer Behavior,
Online Market Research, and
Customer Relationship Management
Jason C. H. Chen, Ph.D.
Professor of MIS
School of Business Administration
Gonzaga University
Spokane, WA 99223 USA
[email protected]
http://barney.gonzaga.edu/~chen
Prentice Hall & Dr. Chen, Electronic Commerce
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Learning Objectives
1. Describe the factors that influence consumer
behavior online.
2. Understand the decision-making process of
consumer purchasing online.
3. Describe how companies are building one-toone relationships with customers.
4. Explain how personalization is accomplished
online.
5. Discuss the issues of e-loyalty and e-trust in EC.
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Learning Objectives (cont.)
6. Describe consumer market research in EC.
7. Describe CRM, its methods, and its
relationship with EC.
8. Explain the implementation of customer
service online and describe its tools.
9. Describe Internet marketing in B2B,
including organizational buyer behavior.
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OPENING VIGNETTE : Ritchey
Design Learns about Customers
• The Problem
– Ritchey Design, Inc. is a relatively small
designer and manufacturer of mountain bike
components
– Sells its products to distributors and/or retailers,
who then sell them to individual consumers
– Its 1995 Web site was more a status symbol
than a business tool
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Ritchey Design Learns
about Customers (cont.)
– Visitors could get information on Team Ritchey
or find out where Ritchey products were sold,
but that was where the site’s usefulness ended.
– It did not give customers all the information
they wanted
– It did not enable the company to gain insight
into its customers’ wants and needs
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Ritchey Design Learns
about Customers (cont.)
• The Solution
– In late 1995, Ritchey reworked the Web site so
that the company could hear from its customers
directly
set up customer surveys on the site
offered visitors who answer the surveys a chance
to win free Ritchey products
visitors enter their names and addresses and then
answer questions about the company’s products
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Ritchey Design Learns
about Customers (cont.)
– Web Trader software automatically organizes and
saves the answers in a database and is used to help
make marketing and advertising decisions
– Questions are changed to learn customers’ opinions
about any 15 new products Ritchey develops
– Saves $100,000 on product development per year
– An online catalog educates retailers and consumers
about the technological advantages of Ritchey’s
high-end components over competitors’ parts
– Visitors browse the product catalog that includes
detailed descriptions and graphics of Ritchey’s
products
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Ritchey Design Learns
about Customers (cont.)
• The Results
– ritcheylogic.com sells only team items such as
t-shirts, bags, water bottles, and other gear
directly to individuals online
– The company does not sell bike parts to
individuals directly online because it wants to
maintain its existing distribution system
– Dealers can place orders on the site
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Ritchey Design Learns
about Customers (cont.)
– The site is basically used in B2C EC only
for the basic activities in Internet
marketing:
communicating with customers
conducting market research
delivering advertising
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Ritchey Design Learns
about Customers (cont.)
• What we can learn …
– Illustrates the benefits a company can derive from
changing its Web site from a passive one to one
with interactivity
– Interactive Web site allows the company to:
learn more about its customers (CRM)
educate customers
use the site for customer service
 advertisement (chapter 5)
collaboration with business partners (chapters 6 – 8)
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End of the Case
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4.1 Learning about Consumer
Behavior Online
• Model of consumer behavior online
– independent (or uncontrollable) variables
Personal characteristics
Environmental characteristics
– intervening or moderating variables
Market stimuli
EC systems
– decision-making process
– dependent variables (Buyer’s decisions)
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Exhibit 4.1 EC Consumer Behavior Model
Personal
Characteristics
Independent
Variables
Age
Gender
Ethnicity
Education
Lifestyle
Psychological
Knowledge
Values
Personality
Environmental
Characteristics
Social
Cultural/community
Other: legal,
institutional,
governmental
Buyer’s Decision
Market Stimuli
Intervening
(vendorcontrolled)
Variables
Price
Brand
Promotions
Advertising
Product quality
Design
Decision
Probes
Buy or not?
What to buy?
Where (vendor)?
When?
How much to spend?
EC Systems
Logistics
Support
Technical
Support
Payments
Delivery
Web design
and content
Intelligent
agents
Security
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Customer
Service
Dependent
Variables
(Results)
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Learning about Consumer
Behavior Online (cont.)
• Independent variables
– Personal characteristics (demographic variables)
 Age, gender
 Ethnicity, education
 Lifestyle, knowledge
 Value, personality
– Environmental variables
 Social variables
 Cultural/community variables
 Institutional, governmental variables
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What are most-cited reasons for
not making purchase?
• Shipping charges (51%)
• Difficulty in judging the quality of the product
(44%)
• Can’t return items easily (32%)
• Credit and safety concerns (24%)
• Can’t ask questions (23%)
• Take too long to download the screen (16%)
• Delivery time (15%)
• Enjoy shopping offline (10%)
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Learning about Consumer
Behavior Online (cont.)
• Intervening (moderating) variables
variables are those that can be controlled by
vendors
• Dependent variables: the buying decisions
–
–
–
–
customer makes several decisions
“to buy or not to buy?”
“what to buy?”
“where, when, and how much to buy?”
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Decision-making Process
Is there a problem?
What are the alternatives?
Which should you choose?
Intelligence
Design
Choice
Is the choice working?
Implementation
Source: Simon, H. The New Science of Management Decisions, Prentice Hall, 1977
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Decision by Objectives
Objectives/
Perspectives
Finance
H.R.
Technology
Marketing
Measurement
Alternatives
Justifiable Recommendation
Well Established Process
Improved Communication
Best Overall Alternative
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4.2 Consumer Decision
Making Process
• Roles people play in the decision making
process
–
–
–
–
–
Initiator
Influencer
Decider
Buyer
User
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Consumer Decision
Making Process (cont.)
•
Five (5) phases of the generic purchase
decision model:
1.
2.
3.
4.
5.
need identification
information search
evaluation of alternatives
purchase and delivery
after-purchase evaluation
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Consumer Decision
Making Process (cont.)
• Product brokering: Deciding what product to buy
• Merchant brokering: Deciding from whom (from
what merchant) to buy a product
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Consumer Decision Making Process (p.135; cont.)
(Consumer DSS)
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(cont.)
(I)
(II)
(III)
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4.3 One-to-One Marketing and
Personalization in EC
• One-to-one marketing: Marketing that treats
each customer in a unique way
• Personalization: The matching of services,
products, and advertising content to
individual consumers
• User profile: The requirements, preferences,
behaviors, and demographic traits of a
particular customer
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Exhibit 4.5 The New Marketing Model - One-to-One Marketing and
Personalization in EC
Marketing/Advertising
Chose to Best
Server/Reach Customer
“Four P’s”
(Product, Place,
Price, and
Promotion)
Updated Uniquely
to Customer
[1]
Customer Receives
Marketing Exposure
Customer
Relationships
Customer Profile Based
on Behavior; Customer
Segmentation Developed
Database Update {…}
[2]
Customer decides
on marketing medium
for response
[3]
Customer makes
purchase decision
[4]
Detailed transaction/
Behavior Data Collected
Source: Linden, A. Management Update: Data Mining Trends Enterprises Should Know
About, Gartner Group, 2002
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Personalization in EC (cont.)
• Major strategies used to compile user
profiles
– Solicit information directly from the user
– Observe what people are doing online
cookie
– Build from previous purchase patterns
– Perform marketing research
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Personalization in EC (cont.)
• 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
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Collaborative Filtering in EC
(cont.)
• Collaborative filtering:
– A 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
– Why?
– How?
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Collaborative Filtering in EC
(cont.)
• Variations of collaborative filtering:
– Rule-based filtering
– Content-based filtering
– Activity-based filtering
• Legal and ethical issues in collaborative
filtering
– Invasion-of-privacy issues
– Permission-based personalization tools to
request customer permission
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Customer Loyalty in EC (cont.)
• Customer loyalty
– Customer loyalty: Degree to which a customer
will stay with a specific vendor or brand
– Increased customer loyalty produces cost
savings through:
lower marketing costs
lower transaction costs
lower customer turnover expenses
lower failure costs
– E-loyalty: Customer loyalty to an e-tailer
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Initial Trust Model
Disposition to Trust
Trust
Propensity to Trust
Cognitive
Processes
Demographic
Dissimilarity
Trusting
Beliefs
Trusting
Intention
Institution-based
Trust
Procedural Justice
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Trust in EC (cont.)
•
Trust in EC
–
–
Trust: The psychological status of involved
parties who are willing to pursue further
interaction to achieve a planned goal
Trust is influenced by many variables
 Culture
 EC computing environment (security etc.)
 EC infrastructure
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Exhibit 4.6 The EC Trust Model
Trust certificates, seals
Vendor evaluation (BBB)
Product evaluation
Free samples
Return policy
Privacy statement
Co-branding, alliances
Education efforts by vendor
stressing the use of security,
size and financial resources
Simplicity of shopping
Navigation, Web design
Seller
Competency
Trust in
internet
merchant
EC Trust
Benevolence
Reliability
Understandability
Security/payment
Business culture
Consumer protection
Effective law
Trust in internet
as shopping
channel
Trust in business
and regulatory
environments
Demographics, previous experience,
personality, cultural differences
Peers success stories
Referrals
Source: Lee, Matthew K.Q. and E. Turban, “A Trust Model for
Consumer Internet Shopping,” Vol. 6(1), M.E. Sharpe, Inc., 2001
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One-to-One Marketing and
Personalization in EC (cont.)
• How to increase EC trust
– between buyers and sellers trust is determined
by:
degree of initial success that each party
experienced with EC and with each other
well-defined roles and procedures for all parties
involved
realistic expectations as to outcomes from EC
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One-to-One Marketing and
Personalization in EC (cont.)
• Issues in personalization
– brand recognition
– security mechanisms help solidify trust
– disclose and update latest business status and
practices to potential customers and to build
transaction integrity into the system
– guarantee information and protection privacy
through various communication channels
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4.4 Market Research for EC
• Goal of market research is to find
information and knowledge that describes
the relationships among:
–
–
–
–
consumers
products
marketing methods
marketers
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Market Research for EC (cont.)
• Aim of marketing research is to:
–
–
–
–
–
discover marketing opportunities and issues
establish marketing plans
better understand the purchasing process
evaluate marketing performance
develop advertising strategy
• How?
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Market Research for EC (cont.)
• Market segmentation: The process of
dividing a consumer market into logical
groups for conducting marketing research,
advertising, and sales
• Why? How?
• Market research tools
– data modeling
– data warehousing (data mining)
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Market Research for EC (cont.)
• Conducting market research online
– faster and more efficient than off-line methods
– accesses a more geographically diverse
audience
– large studies done much more cheaply
– not well developed at this time
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Market Research for EC (cont.)
• What are we
looking for in EC
online research?
personal profile that
helps marketers
explain and predict
online buying
behavior
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Data Mining Examples
A telephone company used a data mining tool to
analyze their customers data warehouse. The
data mining tool found about 10,000 supposedly
residential customers that were expending over
$1,000 monthly in phone bills.
• After further study, the phone company
discovered that they were really small business
owners trying to avoid paying business rates
*
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Other Data Mining Examples
• 65% of customers who did not use the credit card
in the last six months are 88% likely to cancel
their accounts.
• If age < 30 and income <= $25,000 and credit
rating < 3 and credit amount > $25,000 then the
minimum loan term is 10 years.
• 82% of customers who bought a new TV 27" or
larger are 90% likely to buy an entertainment
center within the next 4 weeks.
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Market Research for EC (cont.)
• Online market research methods
–
–
–
–
–
–
Web-based surveys
Online focus groups
Hearing directly from customers
Customer scenarios
Tracking customer movements
Transaction log
A record of user activities at a company’s Web site
– Clickstream behavior
a pattern of customer movements on the Internet; and, what the
customer is doing there
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Market Research for EC (cont.)
– Cookies, Web Bugs, and Spyware
Web bugs: Tiny graphics files embedded on email messages and in Web sites that transmit
information about the user and their movements
to a Web server
Spyware: Software that gathers user information,
through an Internet connection, without the
user’s knowledge
– Analysis of B2C clickstream data
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Market Research for EC (cont.)
• Limitations of online market research
– too much data may be available: need business
intelligence to organize, edit, condense, and summarize
it
– accuracy of responses
– loss of respondents because of equipment problems
– ethics and legality of Web tracking
– Online shoppers tend to be wealthy, employed, and well
educated
– The lack of clear understanding of the online
communication process and how online respondents
think and interact in cyberspace
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4.5 CRM and Its
Relationship with EC
• Customer relationship management (CRM)
recognizes that customers are the core of a
business and that a company’s success depends on
effectively managing its relationship with them.
• Customer relationship management (CRM):
– A customer service approach or process that focuses on
building long-term and sustainable customer
relationships that add value both for the customer and
the company
– A business strategy to select and manage customers to
optimize long-term value
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CRM and Its
Relationship with EC (cont.)
• Types of CRM Activities
– Operational
Typical business functions involving customer services,
order management, invoice/billing, or sales and
marketing automation and management
– Analytical
Activities such as capture, store, extract, process,
interpret, and report customer data to a user then
analyzes them as needed
– Collaborative
Deal with all necessary communication, coordination,
and collaboration between vendors and customers
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CRM and Its
Relationship with EC (cont.)
• Classification of CRM programs
–
–
–
–
Loyalty program
Prospecting
Save or win back
Cross-sell/up-sell and ?
• e-CRM: Customer relationship management
conducted electronically
• e-Service vs. e-CRM
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CRM and Its
Relationship with EC (cont.)
•
Scope of CRM
1. Foundation of service
2. Customer-centered services
3. Value-added services
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CRM and Its
Relationship with EC (cont.)
•
Extent of service
1.
2.
3.
4.
Customer acquisition (prepurchase support)
Customer support during purchase
Customer fulfillment (purchase dispatch)
Customer continuance support (postpurchase)
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CRM and Its
Relationship with EC (cont.)
• Benefits of CRM
– Provides:
choices of products and services
fast problem resolution and response
easy and quick access to information
• Limitations of CRM
– Requires integration with a company’s other
information systems which is costly
– Difficult to support mobile employees
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Case 4.2 Online Weekend in Florence:
A Customer Service Success Story (p.150)
• Questions
– 1. List the site’s critical success factors
– 2. Relate the case to e-loyalty and trust
– 3. How can this business grow and contend
with competitors without any advertising
budget?
– 4. Enter waf.it and identity additional customer
service features
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CRM and Its
Relationship with EC (cont.)
•
CRM implementation issues
–
Steps in building EC strategy focused on:
1. the end customer
2. systems and business processes that are
designed for ease of use and from the end
customer’s point of view
3. efforts to foster customer loyalty (the key to
profitability in EC)
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CRM and Its
Relationship with EC (cont.)
•
Five factors required to implement a CRM
program effectively:
1.
2.
3.
4.
5.
Customer-centric strategy
Commitments from people
Improved or redesigned processes
Software technology
Infrastructure
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Focus on e-Business Applications
Knowledge Management/Business Intelligence
E-Commerce
Procurement
Network
M:1
Trading
Network
M:N
E-Channel
Management
1:N
E-Portal Management
E-Business, E-Services
SCM/ERP/Legacy Appls
Businesses &
Consumers (CRM)
Businesses (PRM)
E-Customer Relationship
CRM and Its
Relationship with EC (cont.)
• Justifying customer service and CRM
programs
• Metrics: Standards of performance; may be
quantitative or qualitative (see next slide)
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CRM and Its
Relationship with EC (cont.)
• Web-related metrics a company uses to
determine the appropriate level of customer
support:
–
–
–
–
–
–
–
–
Response time
Site availability
Download time
Timeliness
Security and privacy
On-time order fulfillment
Return policy
Navigability
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4.6 CRM Applications and Tools:
Delivering Customer Service in Cyberspace
• CRM applications improve upon traditional
customer service by means of easier
communications and speedier resolution of
customer problems
• Customer service adds value to products
and services
• It is an integral part of a successful business
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CRM Applications and Tools (cont.)
•
Classifications of CRM applications
1.
2.
3.
4.
Customer-facing applications
Customer-touching applications
Customer-centric intelligence applications
Online networking and other applications
Source: The Patricia Seybold Group (2002)
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CRM Applications and Tools (cont.)
• 1. Customer-facing applications
Customer interaction center (CIC): A
comprehensive service entity in which EC
vendors address customer service issues
communicated through various contact
channels
• Intelligent agents in customer service and
call centers
– help desks, sales force automation, field service
automation
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Exhibit 4.9 CRM Applications
Customers
Customer systems
Customers
Sellers
The Customer Experience
Self-service
Customer
support
E-Commerce
Sales
Force
Automation
Integration
Field
Service
Automation
Integration
Back Office Systems
Seller
Campaign
Management
Customer Intelligence
Customer- Facing Systems
Contact
Center
Users
Customer- Touching Systems
Suppliers
Supplier Systems
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Exhibit 4.10 Intelligent Agents in Call Centers
Customers
Call Center Agent
Customer Service
E-Commerce
Server
Web Guide Agent
EC Agent
Internet
Web
Server
Product Database
Messenger Agent
Sales Rep Agent
Autoresponse
Direct Sales
and Marketing
Mail Server
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CRM Applications and Tools (cont.)
• 2. Customer-touching applications
–
–
–
–
Personalized Web Pages
E-Commerce Applications
Campaign Management
Web Self-Service
Activities conducted by users on the Web to
provide answers to their questions (e.g., tracking)
or for product configuration
Self-tracking
Self-configuration and customization
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CRM Applications and Tools (cont.)
• 3. Customer-centric applications
– Data reports
– Data warehouse
A single, server-based data repository that allows
centralized analysis, security, and control over
the data
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CRM Applications and Tools (cont.)
• Data analysis and mining
– Analytic applications automate the processing
and analysis of CRM data
can be used to analyze the performance, efficiency,
and effectiveness of an operation’s CRM
applications
– Data mining involves sifting through an
immense amount of data to discover previously
unknown patterns
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CRM Applications and Tools (cont.)
• 4. Online networking and other applications
–
–
–
–
–
Forums
Chat rooms
Usenet groups
E-mail newsletters
Discussion lists
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4. Online networking and other
applications (cont.)
• Mobile CRM
the delivery of CRM applications to any
user, whenever and wherever needed
• Voice communication
people are more comfortable talking with a
person, even a virtual one, than they are
interacting with machines. The smile and the
clear pronunciation of the agent’s voice
increases shoppers’ confidence and trust
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CRM Applications and Tools (cont.)
• Role of knowledge management and
intelligent agents in CRM
– Automating inquiry routing and answering
queries requires knowledge
– Generated from historical data and from
human expertise and stored in knowledge
bases for use whenever needed
– Intelligent agents support the mechanics of
inquiry routing, autoresponders, and so on
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Case 4.3 American Airlines Offers
Personalized Web Sites (p. 157)
• Questions
– 1.What are the benefits of the personalized
pages to American Airlines?
– 2. What role do intelligent agents play in the
personalization process?
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4.7 Internet Marketing in B2B
• Organizational buyer behavior
– number of organizational buyers is much
smaller than the number of individual buyers
– transaction volumes are far larger
– terms of negotiations and purchasing are more
complex
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Internet Marketing in B2B (cont.) redraw
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Internet Marketing in B2B (cont.)
• Methods for B2B online marketing
– Targeting customers
contact all of its targeted customers individually
when they are part of a well-defined group
affiliation service (Amazon.com)
advertising
– Electronic wholesalers
intermediary sells directly to businesses, but
does so exclusively online
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Internet Marketing in B2B (cont.)
• Other B2B marketing services
– Digital Cement
provides corporate marketing portals that help
companies market their products to business
customers
– National Systems
tracks what is going on in an industry
– BusinessTown
provides information and services to small
businesses, including start-ups
– Vantagenet
offers free tools that help increase traffic to a
company’s Web site
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Internet Marketing in B2B (cont.)
• Affiliate programs
– Placing banners on another vendor’s Web site
– Content alliance program in which content is
exchanged so that all can obtain some free
content
• Infomediaries
• Online data mining services
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Managerial Issues
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
Do we understand our customers?
What do customers want from technology?
How is our response time?
How do we measure and improve customer service?
Is CRM for real?
Do we have to use electronically supported CRM?
Should we use intelligent agents?
Who will conduct the market research?
Are customers satisfied with our Web site?
Can we use B2C marketing methods and research in
B2B?
Prentice Hall & Dr. Chen, Electronic Commerce
76
Summary
1. Essentials of consumer behavior.
2. The online consumer decision-making process.
3. Building one-to-one relationships with
customers.
4. Online personalization.
5. Increasing loyalty and trust.
6. EC customer market research.
7. CRM, its technologies, and EC connection.
8. Implementing customer service online.
9. B2B Internet marketing and organizational
buyers.
Prentice Hall & Dr. Chen, Electronic Commerce
77
Prentice Hall & Dr. Chen, Electronic Commerce
78