Online Consumer Behavior

1
Online Consumer Behavior
2
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

3
Different Types of Buyers

• B2C
• US population is over 286 million
• 4.6 of world population
• Aging
• Becoming more ethnically diverse
• Growth in non-traditional households (76.5)

4
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

5
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

6
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

7
World Usage Statistics (2005)
Region of World Population Internet Penetration 5 yr. Growth Rate
Africa 14 1.8 258
Asia 57 8.9 183
Europe 11 36.8 161
Middle East 4 8.3 312
8
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

9
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)

10
Key Players

• Match.com
• Yahoo! Personals
• eHarmony
• Lavalife
• Traditional dating firms
• Its Just Lunch
• Social networking communities

11
Match.com

• Conceived in 1993
• Owned by Interactive Corporation
• Ticketmaster
• Worlds largest online dating firm
• 900,000 paying subscribers
• 12 million profiles posted
• January (2004), 29.6 million unique visitors

12
Match.com

• Partnered with several firms
• America Online Microsofts 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

13
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

14
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

15
Gaming Industry

• U.S. video game market, 6.9 billion in revenue
  (1999)
• PC Game market, 1.5 billion in revenue
• Online game revenue, 106 million (1999)
• From Sony Everquest, Electronic Arts Ultima
  Online, and Microsofts Asherons Call
• 10/month subscription fee
• Online game revenue, predicted to be over 800
  million by 2005

16
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

17
The Groove Alliance

• Game making firm
• 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

18
The Groove Alliance

• Since that time sold many more games
• Non-exclusive licensing agreements
• Tank Wars
• Merchandising rights retained by Groove Alliance

19
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

20
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

21
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

22
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

23
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

24
Types of communities

• Personal communities small network of linked
  individuals
• direct communication within a small group
• Extended communities many small sub-groups
  within an overarching structure
• flexible in scale and scope
• more personalization in smaller niches

25
Benefits of Community

• Changes width breadth of referrals
• most consumers rely on 3 people for WOM
• easy access to experts to more precise
  information

26
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

27
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

28
Interactivity The Six Is of Customer
Satisfaction

• Using Technology to be
• More Customer Focused

29
OnStar

• Started in 1995
• Nations leading provider of in-vehicle safety,
  security, communications services
• Wirelss Global Positioning systems
• Telematics
• 4 million subscribers
• 2005, Standard on all new GM vehicles
• More than 50 models

30
OnStar

• Over 10 years, serviced 53 million subscriber
  interactions
• Average month
• 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

31
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

32
OnStar

• Strategic Alliances
• Leading public safety emergency medical
  organizations
• Association of Public Safety Communications
  Officials (APCO)
• Agencies supporting efforts to find missing
  children
• Americas Most Wanted

33
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

34
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

35
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

36
Dimensions of Interactivity

• Ease of effort
• extent to which users must exert themselves to
  access content
• consumer confusion frustration with systems
  should decrease overtime

37
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

38
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

39
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

40
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

41
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

42
Interactivity

• Responsiveness is the most common feature used on
  web sites
• Systems are not yet meeting all consumer needs

43
Selling Online

• And Channel Issues

44
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

45
Channel Functions

• Market makers
• Buyers agents
• Seller agents
• Payment enablers
• Fulfillment providers
• Context providers

46
Two-Level
Three-Level
Four-Level
Five-Level
Manufacturer
Manufacturer
Manufacturer
Manufacturer
Agent
Wholesaler
Wholesaler
Retailer
Retailer
Retailer
Consumer
Consumer
Consumer
Consumer
The Channel Structure
47
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

48
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
• Internets ease of creating direct distribution
  channels already impacting industries

49
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

50
Distribution Strategies

• Some firms have created exclusive distribution
  agreements
• Levis (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

51
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

52
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

53
The Go-to-Market Strategy

• Make multiple channels work together
• Channels take on specific roles within the sales
  cycle
• Move lead generation to telephone sales
• Integrate the channels through information
  systems
• Management Information System (CRM)
• Designed for a specific target market
• Goal seamless customer experience

54
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

55
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

56
Staples

• Staples thought web would cannibalize other sales
• web actually increased sales
• Average yearly spending of small business
  customers increased 600 ? 2800 when shopped
  online
• When buyers shop all 3 channels, purchases are
  4.5 times greater than if shop only 1 channel

57
Web Channels

• Clicks only
• 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
• Most opportunities were cash burning companies
• just launched their services
• not attracted a customer base

58
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

59
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

60
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

61
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

62
The Case of Walmart

• Opened in 1962
• Largest mass merchandiser
• 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

63
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

64
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

65
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)

66
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

67
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

68
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

69
Customer Relationship Management (CRM)

• Managing the Individual Marketing Relationship
  Using Technology

70
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

71
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

72
Choice Assistance

• Online techniques databases can assist
  consumers in locating the best options for
  themselves
• set of products
• determine individuals tastes needs
• make recommendation
• simplify selection

73
Lands End

• Opened in 1963 as the Lands End Yacht Stores
• Averaged 15 mail orders per day
• Bought by Sears in 2002 for 1.9 billion
• 2005, Fifteenth largest mail order firm
• Annual sales of over 1.3 billion
• Target quality-conscious, middle-age consumers
  with traditional casual apparel

74
Lands End

• Direct merchant that acts as its own intermediary
• 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
• Today, every product in catalog sold online

75
Lands End

• 15 million web site visitors (1999)
• 61 million in revenue
• Considered worlds largest apparel website
• Known for customer service
• First firm with 24/7 order taking 800 number
• Lands End Live (talk with personal shopper)

76
Lands End

• Website also customer service oriented
• Lands End My Personal Shopper (live chat)
• Online style advice
• Swim suit fitting
• Three-dimensional model
• Build an oxford shirt

77
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

78
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

79
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

80
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