Transcript Online Consumer Behavior

Online Consumer Behavior
Different Types of Buyers
 B2B
• Small business 1-75 employees
– Over 25 million businesses
• 66% buy online, 50% have web sites
• Large business 250+ employees
• 90% buy online & have websites
– Approximately 7 million businesses
Different Types of Buyers
 B2C
 US population is over 286 million
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4.6% of world population
Aging
Becoming more ethnically diverse
Growth in non-traditional households (76.5%)
Cyberspace Demographics
 64% of US population is online
 32% of users have college degree
• Higher incomes
 Most users tend to be 35-54 years old
• Teens (12-17) most rapidly growing group
– Digital wallets
• 100% of college students are online
Cyberspace Demographics
 52% of Internet users are women
• make most retail decisions
– 70% of online sales are by women
 Minority Groups
• 26% of African Americans online
• 49% of Hispanics
• 69% of Asian Americans
Cyberspace Demographics
 49% of users are in a city
• 70% of homes in Portland & Seattle online
• Only 14% of users are rural consumers
 8% of Internet users have a disability
• 4% are blind
World Usage Statistics (2005)
Region
Africa
% of World
Population
14%
% Internet 5 yr. Growth
Penetration Rate
1.8%
258%
Asia
57%
8.9%
183%
Europe
11%
36.8%
161%
8.3%
312%
Middle East 4%
What consumers do online
 Communicating
• email most used function
• ICQ fastest area of growth
 Seeking information
• Most sought information online is travel
– 35% of buyers book flights online
– 26% of consumers track stocks online
Online Dating Industry
 $516 million in revenues (2005)
 Over 850 online dating services
• 59% of daters find it “difficult” to meet
someone new
• Most likely place to meet people:
– Work (22%), Internet (18%), Bars (18%), Clubs (11%)
 Downsides: stigma & anonymity (married)
Key Players
 Match.com
 Yahoo! Personals
 eHarmony
 Lavalife
 Traditional dating firms
• It’s Just Lunch
 Social networking communities
Match.com
 Conceived in 1993
 Owned by Interactive Corporation
• Ticketmaster
 World’s largest online dating firm
• 900,000 paying subscribers
• 12 million profiles posted
• January (2004), 29.6 million unique visitors
Match.com
 Partnered with several firms
• America Online & Microsoft’s MSN
 Subscriptions as low as $12.99 per month
 New services include:
• video, off line speed dating, friend list, travel
site, MatchLive off line events
What consumers do online
 Purchasing
• B2C sales are steadily growing
• Higher income consumers more likely to buy online
• Women more likely to purchase online
• 81% of college students have purchased online
• US & European Teens spent $1.3 billion online in 2001
What consumers do online
 Gaming
• 30% of all Internet users play games online
– 62% of young adults
– 41% of those 50+
– Men are more loyal & largest group of gamers
– Prefer football & outer space games
– Women prefer business simulations & classic
arcade games
Gaming Industry
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U.S. video game market, $6.9 billion in revenue
(1999)
• PC Game market, $1.5 billion in revenue
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Online game revenue, $106 million (1999)
• From: Sony Everquest, Electronic Arts Ultima Online,
and Microsoft’s Asheron’s Call
• $10/month subscription fee
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Online game revenue, predicted to be over $800
million by 2005
Gaming Industry
 Traditional video and PC games cost
millions of dollars to produce
• Sell for about $30 each
 Online games are less complex and can be
made for approximately $75,000
The Groove Alliance
 Game making firm
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Started with Real Pool on CD-Rom
Trade show success
3D Groove Plug In
Ability to embed ads on pool table
 Real Pool sold out right to Shockwave.com
The Groove Alliance
 Since that time sold many more games
• Non-exclusive licensing agreements
– Tank Wars
• Merchandising rights retained by Groove
Alliance
What Consumers do online
 Entertaining
• Online music most popular among those less
than 20 years old
• Online music sales will be over $5.4 billion
(2005)
– Napster: Peer-to-Peer exchange phenomena
– iPod & iTune phenomena
Online shopping differs
 Online consumer behavior differs
 Quality cues
• Stability of firm and product quality hard to
judge
 Cognitive difficulty
• Consumers get frustrated when they cannot
easily find information
How is the Internet Unique?
 Product features
 Search versus Experience goods
• Search: products & services that are easy for a
consumer to evaluate
– predictable brand names, can test product features
• Experience: difficult to understand and
evaluate
– complex, highly subjective
How is the Internet Unique?
 Flow (peak/optimal experience)
• seamless sequence of responses
• loss of self-consciousness
• intrinsically enjoyable & self-reinforcing
 Experienced by web users
• Balance between capability & challenge
• Implies skill & learning on web
How is the Internet Unique?
 Community
• Rules that define membership
• A strong, brand focus
• Collaborative production of material by
members
• Repeat use by members
• Social bonds
Types of communities
 Personal communities:
linked individuals
small network of
• direct communication within a small group
 Extended communities:
many small subgroups within an overarching structure
• flexible in scale and scope
• more personalization in smaller niches
Benefits of Community

Changes width &
breadth of referrals
• most consumers rely
on 3 people for WOM
• easy access to experts
to more precise
information
Negative Consumer Behaviors
 Social isolation
• Increased usage online leads to
– Decline in social interaction
– Increase in depression
 Internet addiction
• Loss of sleep
• Loss of physical relationships
Negative Consumer Behaviors
 Anti-corporate activism
• Unprecedented consumer power
• Complaint & hate websites
– www.complaints.com
– www.walmart-blows.com
– www.gapsucks.org
 Corporate reactions
• Buy, Monitor, Respond, Ignore
Interactivity &
The Six I’s of Customer Satisfaction
Using Technology to be
More Customer Focused
OnStar
Started in 1995
 Nation’s leading provider of in-vehicle safety,
security, & communications services
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– Wirelss & Global Positioning systems
– Telematics
4 million subscribers
 2005, Standard on all new GM vehicles
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– More than 50 models
OnStar
Over 10 years, serviced 53+ million subscriber
interactions
 Average month:
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383,000 routing calls
43,000 remote door unlocks
23,000 road side assistance
27,000 remote vehicle diagnostic checks
15,000 emergency service requests
400 stolen vehicle assistance
OnStar
 Advanced Automatic Crash Notification
System (AACN)
• Started in Malibu, 26 models by 2006
 Hands free calling (2000)
• 630 million minutes sold to subscribers
 New Command Center
• With OnStar sound studio for digital
broadcasting
OnStar
 Strategic Alliances
• Leading public safety & emergency medical
organizations
– Association of Public Safety Communications
Officials (APCO)
• Agencies supporting efforts to find missing
children
– America’s Most Wanted
OnStar
 Award-winning advertising campaign
• “Real Stories” launched in 2002
– Users share life changing experiences
 2005, OnStar brand reached 100% brand
awareness among new vehicle buyers
– 80% of subscribers will only consider vehicles with
OnStar for next purchase
Growth in Interactive media
 Technology now offers more control of
information marketers’ receive
 Interactivity is one area where marketers
can use technology to more effectively
reach out to the consumer
Dimensions of Interactivity
 Selectivity
• extent to which users are offered content
choices
• such as entertainment or shopping
• expands consumers’ options & content
• able to deliver to more relevant & personalized
information to the customer
Dimensions of Interactivity
 Ease of effort
• extent to which users must exert themselves to
access content
• consumer confusion & frustration with
systems should decrease overtime
Dimensions of Interactivity
 Use monitoring
 extent to which the system monitors use
• monitor information, choices, track behaviors
• feedback to marketer, greater control with use
of databases
– raises privacy issues
Dimensions of Interactivity
 Responsiveness
• degree to which a medium reacts to a user
• circumvent users’ prejudgments to prevent
screening out of material
• allow for more focused shopping experiences
• can better cross sell
Dimensions of Interactivity
 Ease of Adding Content
• extent to which users may add material to the
system that a mass audience can access
• users become sources of information
• word of mouth/brand advocates
– consumer complaints become more relevant
Dimensions of Interactivity
 Interpersonal Communication Potential
• extent to which media facilitates interpersonal
communication
• Person-to-person interaction
• bi-directionality of communication &
relationship
• greater involvement with other consumers &
the marketer
Dimensions of Interactivity
 Asynchronicity
• extent to which messages can be preserved
and shifted at convenient times
• message permanence
• can combine information in personally
relevant ways
Interactivity
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Responsiveness is the
most common feature
used on web sites
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Systems are not yet
meeting all consumer
needs
Selling Online
And Channel Issues
Channels of Distribution
 Supply channel brings materials & supplies
to manufacturer
 Distribution channel moves product from
manufacturer to consumer
– thought to make the process of getting product to
market more efficient
– Can carry broader product lines & categories
– Are closer to the customer & can develop
knowledge/profile of target market
Channel Functions
 Market makers
 Buyers agents
 Seller agents
 Payment enablers
 Fulfillment providers
 Context providers
Two-Level
Three-Level
Four-Level
Five-Level
Manufacturer
Manufacturer
Manufacturer
Manufacturer
Agent
Wholesaler
Wholesaler
Retailer
Retailer
Retailer
Consumer
Consumer
Consumer
The Channel Structure
Consumer
Distribution Strategies
 Direct distribution: manufacturer to buyer
• Build-to-order direct sales
– mass customization
• Dell (1999) selling $40 million worth of
computers on the web daily
– 75% of orders placed online
– 50% technical support online
– 2002 extended direct sales to kiosks in retail malls
– try product, place order on kiosk
Distribution Strategies
 Direct digital distribution: some products
will be completely digital someday
– music, airline tickets, hotel reservations, video
games, magazines, newspapers, movie tickets,
financial services
 Internet’s ease of creating direct
distribution channels already impacting
industries
Distribution Strategies
 Disintermediation--dropping layers of
distribution channel
• travel agents, financial services, florists
– Delta sold 13% of tickets online in 2000
– 2001, travelers spent $19.4 billion purchasing
tickets online
 Reintermediation--add layers
• real estate
Distribution Strategies
 Some firms have created exclusive
distribution agreements
– Levi’s (1998 manufacturer sells online; 2000
exclusive arrangements created)
 Multichannel Distribution--2 or more
distribution channels to better reach
customers
– Gateway: web site, telephone, retail stores
– Charles Schwab: 24/7 channel strategy
The Go-to-Market Strategy
 A plan for reaching & serving the right
customers in the right markets through the
right channels with the right products and
the right value proposition
 Total customer experience
• Attract most desirable customers
• High sales
• Lowest possible cost
The Go-to-Market Strategy
 An integrated multi-channel model
 Low cost, low touch channels
• Direct mail, Internet, Telephone
 High cost, high touch channels
• Volume distributors, Value-added partners,
Field sales forces
 Take better advantage of low cost, low
touch channels where appropriate
The Go-to-Market Strategy
Make multiple channels work together
 Channels take on specific roles within the sales
cycle
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• Move lead generation to telephone sales
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Integrate the channels through information
systems
• Management Information System (CRM)
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Designed for a specific target market
• Goal: seamless customer experience
Distribution Issues
 Channel Cannibalization: loss of sales in
one channel when a new one is created
• sales shifting from catalog to online
 Channel conflict can exist
• Goals diverge among channel members
• Disputes arise over responsibility for functions
& technology
Staples
 Sells office supplies, business services,
furniture, and technology
 Locations in six countries
 $11 billion in annual sales
• $1 billion in online revenues (2001)
 1,400+ stores, catalog, kiosks
 Website first established in 1998
Staples
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Staples thought web would cannibalize other
sales
• web actually increased sales
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Average yearly spending of small business
customers increased $600  $2800 when
shopped online
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When buyers shop all 3 channels, purchases are
4.5 times greater than if shop only 1 channel
Web Channels
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Clicks only
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1998: Venture capital firms provided $26 billion+
to Internet start-ups
– Average return for venture Internet start-up funds 25% (1998)
– Leading funds returning 100%+
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Most opportunities were cash burning companies
• just launched their services
• not attracted a customer base
Web Channels
 Mid-2000: IPO Internet Bubble
 An estimated 700-1000 of these
Internet start-ups went bust
–Boo.com
–Toysmart.com
–Brandwise.com
–Clickradio.com
The Case of Amazon.com
 Opened virtual doors in 1995
 Evloved from books to department store
 Sells products in 220+ countries
 Created first catalog in 2001
The Case of Amazon.com
 Personalized customer interaction
 Top etailer for brand recognition &
customer satisfaction
 2003, earned first quarterly profit not tied
to the holiday shopping season
 Exclusive partnerships with Target, Circuit
City, Toys R’ Us, and Babies R’ Us
Web Channels
 Bricks & clicks
• 70% of online retailers are bricks & clicks
– outnumber clicks only
• In 2000, 33% of total bricks & clicks sales were
from the Internet
The Case of Walmart
 Opened in 1962
 Largest mass merchandiser
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1.4 million employees, 4000 stores
$218 billion in annual sales
100million customers visit each week
2001-2002 sales growth was 14%
 First website in 1995
Walmart.com
 Founded in January 2000, initially
independent from Wal-Mart Stores, Inc.
 Eventually integrated as separate business
unit
• Return policy for online purchases in store
 Offers more than 600,000 stock keeping
units
Walmart.com
 When independent had sales tax
advantage
 Considering rolling out in-store kiosks
 Strategy: “Serve customers in the way they
want to be served where they want to be
served…”
Etailing
 Internet retailing 3rd most significant
transformation of retail industry
• 1950s--shopping malls arrived
• 1970s--large discount stores & nationwide
chains arrived
• 1990s--Internet arrival
– 50% of Internet users were shopping online (2001)
Etailing
 $3.5 billion spent on online shopping in
month of March, 2001
– top categories: travel & apparel
– Amazon sales leader: 15.1% of online purchases,
EBay second: 14.5%
• Online customer acquisition costs are $18 per
person
• Online returns average 8% of online purchases
– higher in some categories, such as apparel
What consumers want from
online storefronts
 Convenience--75% of shoppers go online
for this reason
• want it for returns too
 Information
• about store policies, product information,
contact information,
– Sears estimates that 10% of its store appliance
sales are influenced by information from
Sears.com
An Etailer Predicament
 Shopping Basket Abandonment
• 65% of consumers leave their shopping basket
before sale is completed
• Reasons:
– Sticker shock at total & shipping costs
– 40% experience technical difficulties
– Too complex order forms that take too long to
download
– stock-outs, computer crash, rejected credit card, &
change mind at last minute
Customer Relationship
Management (CRM)
Managing the Individual Marketing
Relationship Using Technology
Marketing to Individuals
 Segment: homogenous group similar
characteristics/buying behaviors
• A one-to-many communication model
 With CRM, marketers target the individual
• Direct interaction to create customer value,
benefit the marketer, & build relationship
• A one-to-one interactive communication
model
Individual Personalization
 Beyond era of mass marketing
 Product differentiation through
personalization
• unique solution for each individual
• features that benefit the individual
• match customer tastes without waste
 Yet, hard for consumers to sort through so
many options & hard to implement
Choice Assistance
 Online techniques & databases can assist
consumers in locating the best options for
themselves
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set of products
determine individual’s tastes & needs
make recommendation
simplify selection
Lands End
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Opened in 1963 as the Lands’ End Yacht Stores
• Averaged 15 mail orders per day
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Bought by Sears in 2002 for $1.9 billion
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2005, Fifteenth largest mail order firm
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Annual sales of over $1.3 billion
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Target quality-conscious, middle-age consumers
with traditional casual apparel
Lands End
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Direct merchant that acts as its own intermediary
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Multi-channel merchant
• Catalogs, stores, and website
– 269 million catalogs mailed in 2001
– 16 outlet and inlet stores in three countries
– Website online in 1995, initially offering 100 products
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Today, every product in catalog sold online
Lands End
 15 million web site visitors (1999)
• $61 million in revenue
• Considered world’s largest apparel website
 Known for customer service
• First firm with 24/7 order taking & 800 number
• Lands End Live (talk with personal shopper)
Lands End
 Website also customer service oriented
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Lands End My Personal Shopper (live chat)
Online style advice
Swim suit fitting
Three-dimensional model
Build an oxford shirt
Lands End
 Online orders filled through catalog
warehouse
• Size of 16 football fields
• Sort 10,000 pieces per hour
• Ship 150,000 orders per day
 Example of CRM using a multi-channel
model resulting in seamless customer
experience
Peppers & Rogers Group
 13 offices around the world
• From US to Turkey
 400 annual seminars
 Coined term one-to-one marketing
• Turned into CRM
– Know customer & use that information to increase
ROI
Implementation: One-to-One
Marketing
 Focus on share of customer
 Communicate to customers as individuals
• Initiate & maintain dialogues to learn

Use the Internet & Databases to track, understand,
& communicate with individuals
• Differentiate customers, spend more on those
who are more valuable
Summary CRM steps
Identify & record
customers
 Sort them by needs,
ideally treat as
individuals
 Interact with them
effectively
 Record interactions

Customize marketing
offer
 Update information in
databases
 Sell the same
customers more
products in future
