Chapter 4
Consumer Behavior
Market Research, and
Advertisement
Faculty of Information Communication and Technology
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Learning Objectives
1.
Online Decision Making of Consumers
2. Describe how companies are building one-to one relationships (personalization) with
customers.
– e-loyalty and e-trust
3. Describe consumer market research in EC.
4. Web advertising and marketing
5. Intelligent agents in consumer issues and
advertising applications – Avatars & Chatterbots
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Learning about Consumer Behavior Online
A Model of Consumer Behavior Online
– The purpose of a consumer behavior model is to help vendors
understand how a consumer makes a purchasing decision
• Independent (or uncontrollable) variables
• Intervening or moderating variables
• Dependent variables
• Roles people play in the decision-making process:
– Initiator
– Influencer
– Decider
– Buyer
– User
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A General Model of Consumer Behavior
Faculty of Information Communication and Technology
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The Consumer Decision Process and Supporting Communications
Faculty of Information Communication and Technology
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A model of online consumer behavior
Adds two new factors:
transaction log that consumers
establish as they
move about the Web
•
Web site capabilities – the content, design and functionality of a site
•
Consumer clickstream behavior – the transaction log that consumers establish as they
move about the Web
Faculty of Information Communication and Technology
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Shoppers: Browsers and Buyers
2003 UCLA Internet Report:
About 40% of online users are “buyers” who actually purchase online
About 40% of online users research on the Web (“browsers”) and purchase them online.
• 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
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One-to-One Marketing, Loyalty, and Trust in EC
One of the greatest benefit of EC is its ability to match
products and services with individual customers give
rise to one-to-one marketing
one-to-one marketing
Marketing that treats each customer in a unique way.
Includes personalization
EC enables companies to better communicate with
customers and better understand customers’ needs and
buying habits, and do it more cost-effectively.
Faculty of Information Communication and Technology
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One-to-One Marketing, Loyalty, and Trust in EC
•
personalization
The matching of services, products, and advertising content with
individual consumers
•
user profile
The preferences, requirements, behaviors, and demographic traits
of a particular customer e.g. name, sex, age, interests.
•
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
Faculty of Information Communication and Technology
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One-to-One Marketing, Loyalty, and Trust in EC
Customer Loyalty
– Customer loyalty is the degree to which a customer will
stay with a specific vendor or brand for repeat
purchasing
– Customer loyalty is expected to produce more sales
and increased profits over time
– E.g. loyalty to Guess jeans.
– Can include switching costs
e-loyalty
Customer loyalty to an e-tailer
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One-to-One Marketing, Loyalty, and Trust in EC
Satisfaction in EC
– Satisfaction is one of the most important consumer
reactions in the B2C online environment
– Recent statistics show:
• 80% of highly satisfied online consumers would shop
again within 2 months
• 90% would recommend the Internet retailers to others
• However, 87% of dissatisfied consumers would
permanently leave their Internet retailers without any
complaints
Faculty of Information Communication and Technology
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Market Research for EC
•
market segmentation
The process of dividing a consumer market into logical groups for conducting marketing
research, advertising, and sales
• Segmentation is done with the aid of tools
such as data modeling and data warehousing
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One-to-One Marketing, Loyalty, and Trust in EC
trust
The psychological status of involved parties who
are willing to pursue further interaction to achieve a
planned goal
• How to Increase Trust in EC
– Trust between buyers and sellers
– Brand recognition
– EC security mechanisms can help solidify trust e.g.
escrow providers and reputation finders.
– Against
fraud on the internet
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Market Research for EC
The Goal of Market Research
To find information and knowledge that describes
the relationships among consumers, products,
marketing methods, and marketers
• The Aim of Market Research
To discover marketing opportunities and issues, to
establish marketing plans, to better understand the
purchasing process, and to evaluate marketing
performance
On the Web, the aim is to turn browsers into buyers.
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Market Research for EC
Background
Companies use direct mail to contact customers. They frequently do so regardless of whether the
products or services were suitable for various customers. E.g. ABC company sends out 4 mailing of
1,000,000. The cost of direct mailing is $1.25 and 1% customers respond. Hence, cost per
responding customer is $125.
market segmentation
The process of dividing a consumer market into logical groups for conducting marketing research,
advertising, and sales e.g. teenagers
english medium
english medium, chinese medium, malay medium, then
sports loving
• Segmentation can be done with the aid of tools such as data modeling and data warehousing e.g.
customer buying patterns
• E.g. Royal Bank of Canada uses segments its 10 million customers at least once a month to determine
profitability, risk etc. Response to their advertising campaign increased from 3 to 30%
Faculty of Information Communication and Technology
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Market Research for EC
Online Market Research Methods
Market Research for One-to-one
– Implementing Web-based surveys
– Online focus groups
– Hearing directly from customers
– Tracking Customer Online Movements
Observing Costumers
• transaction log
A record of user activities at a company’s Web site
• clickstream behavior
Customer movements on the Internet
Faculty of Information Communication and Technology
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Market Research for EC
Cookies – Allow a Web site to store data on the user’s PC. So, when the
customer returns to the site, the cookies can be used to find out what the customer
did in the past.
• Web Bugs - Tiny graphics files embedded on e-mail messages and in Web sites
that transmit information about the users and their movements to a Web server
• Spyware - Software that gathers user information over an Internet connection
without the user’s knowledge.
– Usually used to gather information for advertising purposes.
– Typically downloaded with freeware
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One-to-One Marketing, Loyalty, and Trust in EC
•
collaborative filtering
Once a company knows a consumer’s preferences (e.g. what music they like), it would be
useful if the company could predict without asking, what other products or services this
consumer might
enjoy. One way is through collaborative filtering.
Collaborative Filtering is 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
• E.g. method
– Rule-based filtering E.g. if customer age > 35 and income >
$100,000, display Mazda 606 else display Proton
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Web Advertising
Traditional Advertising
One way mass communication, impersonal
Web Advertising
• interactive marketing
Online marketing, enabled by the Internet, in which advertisers
can interact directly with customers and consumers can interact with advertisers/vendors
– Two major business models for advertising online:
• Using the Web as a channel to advertise a firm’s own products and services
• Making a firm’s site a public portal site and using captive audiences to advertise
products offered by other firms
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Online Advertising
Paid message on a Web site, online service or other interactive medium, such as interactive
messaging
• 2002: $6.3 billion spent, expected to grow to $9.1 billion by 2007
• Advantages:
-Ability to target ads to narrow segments and track performance in almost real time
- Provide greater opportunity for interactivity
• Disadvantages:
- Concerns about cost versus benefit
- Concerns about how to adequately measure results
Faculty of Information Communication and Technology
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Web Advertising
Why Internet Advertising?
– Another channel to advertise
– Television viewers are migrating to the Internet
– Advertisers are limited in the amount of information they can gather about the television and print ads
– Other reasons why Web advertising is growing rapidly:
• Cost (Cheaper)
• Richness of format
• Personalization
• Timeliness
• Location-basis
• Branding
Faculty of Information Communication and Technology
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Web Advertising
Some Internet Advertising Terminology
ad views
The number of times users call up a page that has a banner
on it e.g. ad views per day
click (click-through or ad click)
A count is made each time a visitor clicks on an advertising banner to access
the advertiser ’s Web site
Faculty of Information Communication and Technology
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Web Advertising
CPM (cost per thousand impressions)
The fee an advertiser pays for each 1,000 times a page with a banner ad is shown
conversion rate
The percentage of visitors who actually make a purchase
•
•
As an example, a website that generated $100,000 of sales through 2,000 orders in a
month with 40,000 visits, has an Average Order Value of $50 and Conversion Rate of
5% (which is quite high):
$100,000 ÷ 2,000 = $50 AOV
2,000 ÷ 40,000 = 0.5 = 5% CR
click-through rate (or ratio)
The percentage of visitors that are exposed to a banner ad and click on it
Faculty of Information Communication and Technology
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Web Advertising
click-through ratio
The ratio between the number of clicks on a banner ad and the number of times it is
seen by viewers;
measures the success of a banner in attracting visitors to click on the ad hit
A request for a Web page or file. To determine popularity or traffic of a site.
visit
A series of requests during one navigation or visit to a Web site; a pause of a certain
length of time ends a visit
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Web Advertising
unique visit
A count of the number of visitors to a site, regardless of how many pages are viewed per
visit
stickiness
Characteristic that influences the average length of time a visitor stays in a site
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Advertising Methods
Banners
banner
On a Web page, a graphic advertising display linked to the advertiser’s
Web page
keyword banners
Banner ads that appear when a predetermined word is queried from a
search engine
random banners
Banner ads that appear at random, not as the result of the user’s action
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Advertising Methods
• Benefits of Banner Ads
– By clicking on them users are transferred to an advertiser’s site, and frequently directly
to the shopping page of that site
– The ability to customize them for individual surfers or a market segment of surfers
– Viewing of banners is fairly high because “forced advertising” is used
– Banners may include attention-grabbing multimedia
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Advertising Methods
Limitations of Banner Ads
– Cost
– A limited amount of information can be placed on the banner
– Viewers have become somewhat immune to
banners and simply do not notice them as they once did
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Advertising Methods
banner swapping
An agreement between two companies to each display the other’s banner ad on its Web
site
banner exchanges
Markets in which 3 or more companies can trade or exchange placement of banner ads
on each other’s Web sites e.g. Co A shows Co B banner, Co B shows Co C banner
and Co C shows Co A banner
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Advertising Methods
pop-up ad
An ad that appears in a separate window before, during, or after Internet surfing or
when reading email
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Advertising Methods
E-Mail Advertising
• Search Engine Advertisement—The major advantage of using URLs as an advertising
tool is that it is free
– Improving a company’s search-engine ranking
(optimization) e.g. include keywords
– Paid search-engine inclusion
Question – What are the advantages & limitations of listing a company’s URL onto a
search engine?
• Advertising in chat rooms
• Advertising in newsletters
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Does Online Advertising Work?
•
True that clickthrough rates may be low, but these are just one measure of
effectiveness
• Research indicates that most powerful marketing campaigns include both online and
offline advertising
Faculty of Information Communication and Technology
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Pricing Model for OnlineAdvertising
4 types of pricing model :• Exposure Model
• Click-Through Model
• Interactivity Model
• Purchase Model
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Exposure Model
Passive advertising exposure, in which consumer does not consciously decide to
view the banner/
advertisement.
• Based on CPMs( cost-per-thousand exposures) or flat-fees applied to site
exposure or banner
advertisement exposure.
• Dominant pricing model
• Simply count the number of visitors exposed to a banner on that site.
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Click-Through Model
Advertiser does not pay for all viewers.
• Advertiser pays only for customers that actually click on the banner and visit the site.
• Only 4% website visitors click on banner advertisement
(DoubleClick, 1996)
• Strength
Measures customers who are attracted (by the banner) to visit the site.
• Weakness
-Low level of acceptance by companies selling ad space (depends on the creativity of
advertisement and level of interest generated).
-Difficulty in effectively measuring click-through rate.
-No guarantee that visitor will spend substantial time to view the website.
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Interactivity Model
Advertisers pay only for customers who spend time on their site after clicking on the
banner ad.
• Strength
- Advertisers only pay for customers who actually looks like considering to buy.
• Weaknesses
-Low level of acceptance by companies selling ad space
(Web publishers like print medium not responsible for
activity related to advertisement).
-Effective measurement of time spend/ pages visited ?
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Purchase Model
• Outcome-based
“One hundred thousand people going to a site is worth something, But a site that only
five person visit can be worht more if they are the right five person’ (Murphy, 1996)
• Advertisers pay only for customers who actually follow the banner ad link and follow
through the process to purchase.
• Strength
- Advertisers pay only when the ad is successful
• Weaknesses
- Very low acceptance by
companies selling ad space
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What is Avatar?
Avatar – Animated computer characters that exhibit humanlike movements or
behaviors
• In 3D or virtual reality games and in some chat forums on the Web, your avatar is
the visual
"handle" or display appearance you use to represent yourself.
• In the Hindu religion, an avatar
is an incarnation of a deity; hence, an embodiment or manifestation of an idea or
greater reality.
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What is Chatterbot?
•
A Chatterbot is a program that attempts to simulate typed conversation, with the aim
of at least temporarily fooling a human into thinking they were talking to another
person.
E.g.http://romahi.com/yazann/Mitbolel/Mitbolel.html
Faculty of Information Communication and Technology
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Summary
1. Online Decision Making of Consumers
2. Describe how companies are building one toone relationships (personalization)
with customers.
– e-loyalty and e-trust
3. Describe consumer market research in EC.
4. Web advertising and marketing
5. Intelligent agents in consumer issues and
advertising applications – Avatars & Chatterbots