UNDERSTANDING
CUSTOMERS
LECTURE #2
15.823
Spring 2001
Understanding consumers
• Decision Flow Chart --Information
Processing Theory
– Traditional Buying
– Internet Value
– Market Research
• Why is Conversion so Low on Web sites?
• B2B vs B2C
FLOW COMPONENTS
PRECIPITATING CIRCUMSTANCES
INPUT SEARCH
SHOPPING ACTIVITIES
DECISION RULES
ACTION TRIGGERS
POST PURCHASE PROCESSING
KEY CONCEPTS
LIMITED INFORMATION PROCESSING
MOTIVATION, INVOLVEMENT, AND SEARCH
LONG AND SHORT TERM MEMORY
HEURISTIC DECISION RULES
WORD-OF-MOUTH COMMUNICATION
ULTIPERSON DECISION MAKING
INPUT
Exposure, Attention
Motivation
Search
DECISION MAKING
Comprehension
Memory, Recall, Forgetting
Attitudes
Decision Rules
OUTPUT
Buy
Use, Evaluate
Communicate
CLASS EXAMPLES
• Traditional Buying
WHAT VALUE DOES INTERNET ADD?
VALUE ADDED
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More Information
Enhance Comparison Shopping
More Variety
Availability and Delivery
Minimize Time and Travel
Less Discrimination -- Clerk Bias
Privacy/Security (or Risk)
Limit Impulsive Buying (Keeney)
CLASS EXAMPLE
• Internet
MARKET RESEARCH
• Traditional Flow Chart
– Focus Group
– Protocol Analysis / tracking “Why We Buy”
– Statistics
• Internet Flow Chart
– Observe Site Use/Use
Testing
– Click Stream Analysis
– Experimentation
MARKET RESEARCH (CONT)
• Paco Underhill -- Anthropological
– film and analyze
– e.g. longer in store/more buy
– recommend self/store layout
• Inman and Winer-- 4,200 Field Intercepts
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59% unplanned
30% specific plan (list)
11% mixed (plan but switch)
Depends on Display, Deal Proneness, Greater
Income
CONVERSION RATES
• Empirically only .5% to 3% of single visits
result in a sale -- 1-6% over 3 months
• In actual stores 20 to 50% buy if they visit?
(Underhill 48% in Chain Store)
• Why so low on Internet?
WHY?
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Data problem not real? Many visits.
Browsing?
Security? Risk of Fraud? Credit Card.
Not Understand? Too Much Variety
Not Enough Information? Critical question not answered.
Not Motivated? NO “Close the sale”? No Promotion.
Not Trust? Site, Info, fulfillment.
Poor Delivery Perception? Complaint Resolution?
Want to Touch and Feel?
Not Sure Price is a Good One?
Just Being Smart? Take Price and Buy in Traditional Outlet?
Not Support Multi-channel
No Advice (like sales person)
No Word of Mouth Advice
Enter site
100%
Browse
70% leave
30%
Consider
29.5% leave
.5%
Buy
One of the largest web sales volume sites
What Makes Industrial Different
INDUSTRIAL BUYING
DIAGNOSING THE CUSTOMER
Steps in buying
specification
approved bidders
bids
select
buying
Participants
dominant influencer
multi-person DECISION MAKING UNIT
matrix
INDUSTRIAL BUYING
DIAGNOSING THE CUSTOMER
Information
sources
how fit in process
reliance
Buying Criteria
performance
cost
quality
delivery
service
Criteria Importance
BUSINESS TO BUSINESS
GENERIC PROCESSES
Sequential Dominant
Staff
Outside
Outside
D
D
Approval
Manager
Manager
Business To Business
Generic Processes
Dominant Influencer (D1)
Staff
Suppliers
Managers
D1
W.O.M.
&
Outside
Info
Approval
By Top
Management
BUSINESS TO BUSINESS
GENERIC PROCESSES
W.O.M.
info
Team
Staff
W.O.M.
info
W.O.M.
info
Manager
Manager
Supplier
Changes
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Ordering -- Automation
Sales Force Automation
Buy/Rebuy -- Sales Person and Internet
Auctions/bidding
Shorten Channel
Customer Relationship Management
eLeads
eService
TAKE AWAY
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Think How Customer Makes Decision
Flow Chart Tool -- Limited Information processing
Add Value with Internet and Build Conversion
B2B Multi-person Decision Unit