E-COMMERCE
MARKETING AND
ADVERTISING CONCEPTS
Chapter 6
Learning Objectives
• Identify the key features of the Internet audience
• Discuss the basic concepts of consumer behavior and
purchasing decisions
• Understand how consumers behave online
• Identify and describe the basic digital commerce
marketing and advertising strategies and tools
• Identify and describe the main technologies that support
online marketing
The Internet Audience
• Before firms can sell their products online, they first must
understand what kinds of people they will find online and
how those people behave in the online marketplace
• Questions:
• Who is online?
• How do people behave online?
The Internet Audience
• In 2013 in the US, around 243 million people of all ages
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had access to the Internet
Almost 85 million households in the US (over 70% of all
households) had broadband access to the Internet
By comparison, 98% of all US households currently have
televisions and 94% have telephones
Worldwide, around 2.56 billion people are online
Internet growth has slowed to about 2-3% a year in the
US and it is unlikely that Internet access will reach the
same levels as televisions or telephones in the near future
Intensity and Scope of Usage
• The slowing growth rate in the US Internet population is
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compensated for in part by an increasing intensity and
scope of use
Overall, over 80% of adult Internet users in the US report
logging on in a typical day
They also spend more time online – over 2 hours per day
In 2013, mobile smartphones and tablets are major
access points to the Internet and online commerce
About 143 million people, almost 60% of US Internet
users, access the Internet using a mobile device
Demographics and Access
• The demographic profile of the Internet – and e-
commerce – has changed greatly since 1995
• Up until 2000, single, white, young, college-educated
males with high incomes dominated the Internet
• This inequality in access and usage led to concerns about
a possible “digital divide”
• Demographic similarities and differences can be
assessed by looking at:
• Gender, age, ethnicity, community type, income level, and
education
Demographics and Access (cont.)
• Gender
• Fairly equal percentage of men and women users (85%)
• Age
• Young adults (18-29) form the age group with the highest
percentage of Internet use (98%)
• Teens (12-17) also have a very high percentage of their age group
online (97%)
• Adults in the 30-49 group (92%) are also strongly represented
• Another fast-growing group online is the 65 and over segment, 56%
of whom now use the Internet
Demographics and Access (cont.)
• Ethnicity
• Variation across ethnic groups is not as wide as across
age groups
• In 2004, there were significant differences among ethnic groups,
but this has receded
• Income level
• About 96% of households with income levels above $75,000 have
Internet access, compared with only 76% of households earning
less than $30,000
Demographics and Access (cont.)
• Education
• Of those individuals with a high school education or
less, 59% were online in 2013, compared to 96% of
individuals with a college degree or more
• In summary, the “digital divide” has indeed moderated, but
it still persists along the income, education, age, and
ethnic dimensions (Table 6.3 provides a summary)
Other Internet Access Issues
• In 2013, around 85 million US households had broadband
service in their homes
• The broadband audience is more educated and affluent
• Consumer purchases on the Internet are influenced by
“neighborhoods” where others purchase online
• Membership in social networks has a large influence on
discovering new independent music, but less influence on
already well-known products
Consumer Behavior
• Once firms have an understanding of who is online, they
need to focus on how consumers behave online
• The study of consumer behavior is a social science
discipline that attempts to model and understand the
behavior of humans in a marketplace
• Models of consumer behavior attempt to predict or
“explain” what consumers purchase and where, when,
how much, and why they buy
• The following slides describe a general model of
consumer behavior and a more detailed model of online
consumer behavior
Clickstream Behavior
• Clickstream behavior refers to the transaction log that
consumers establish as they move about the Web
• They may move from search engine, to a variety of sites,
then to a single site, then to a single page, and then,
finally, a decision to purchase
• Understanding individual user clickstream behavior may
enable websites to be designed to better support this
online purchase decision process
How Shoppers Find Vendors Online
• Given the prevalence of “click here” banner ads, one
might think customers are driven to online vendors by
spur-of-the-moment decisions
• In fact, only a tiny percentage of shoppers click on
banners to find vendors
• The three most common methods that shoppers use to
find vendors online include:
• Search engines
• Online marketplaces (for example Amazon and eBay)
• Go directly to a specific retail Web site
• Online buyers are “goal-oriented” and intentional
shoppers
Why More People Don’t Buy Online
• Probably the largest factor preventing more people from
shopping online is the “trust factor”
• Distrust for online merchants
• Credit card information loss
• Use of personal information and invasion of privacy
• Secondary factors can be summarized as “hassle factors”
• Shipping costs
• Returns
• Inability to touch and feel the product
Search Engine Marketing and Advertising
• In 2013, companies will spend an estimated $19.6 billion
on search engine marketing and advertising
• Search engine marketing (SEM) refers to the use of
search engines to build and sustain brands
• Search engine advertising refers to the use of search
engines to support direct sales to online customers
• There are at least three different types of search engine
advertising:
• Keyword paid inclusion (sponsored links)
• Advertising keywords (for example, Google’s AdWords)
• Search engine context ads (for example, Google’s AdSense)
• Originally, search engines performed unbiased searches
(organic search), but this has transformed to a pay model
Search Engine Issues
• While search engines have provided significant benefits
for merchants and customers, they also present risks and
costs
• Search engines have the power to crush small
businesses
• Merchants may be at the mercy of search engines for
access to the online marketplace
• Other practices that degrade the results and usefulness of
search engines include:
• Link farms
• Content farms
• Click fraud
Pricing Strategies
• In the early years of e-commerce, sellers were pricing
their products far below their marginal costs to attract new
customers and achieve short-term success
• Later, once the customer was part of a large, committed
audience, then prices could be raised to the point where
an online seller could achieve a profit through some
combination of revenue models
• Pricing is particularly difficult when information products
and services have a marginal cost near zero
• Several unique pricing strategies have been developed
for online content and services
Example Pricing Strategies
• Free and freemium
• Users are offered a basic service for free, but must pay for
premium or add-on services
• The freemium revenue subsidizes the free services
• Versioning
• Creating multiple versions of information goods and selling
essentially the same product to different market segments at
different prices
• Bundling
• Offers consumers two or more goods for a reduced price
• Dynamic pricing and flash marketing
• Different from fixed-price strategies
• Identifies different prices for different consumers, situations, and
time periods
Internet Marketing Technologies
• Online data sources
• Web transaction logs – records user activity at a Web site
• Registration forms
• Shopping carts
• Tracking files (cookies, etc.)
• Databases, data warehouses, data mining, and big data
• Customer relationship management (CRM) systems
Data Warehouse and Business
Intelligence Applications
Customer Relationship Management
(CRM) Systems
• A CRM system is a repository of customer information that
records all of the contacts that a customer has with a firm
and generates a customer profile available to everyone in
the firm with a need to “know the customer”
• Data is collected through customer touch points
• CRM systems assist firms in categorizing customers
(potential customer, current customer, high-value
customer, lost customer, etc.) and enabling them to best
serve each individual customer based on their individual
characteristics and needs
• The basic idea of CRM is to treat different customers
differently, because their needs differ and the value to the
company also may differ