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Chapter 4 Consumer Behavior, Customer Service, and Advertising. Learning Objectives. Describe the factors that influence consumer behavior online Understand the decision-making process of consumer purchasing online Describe how companies are building one-to-one relationships with customers

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Chapter 4 Consumer Behavior, Customer Service, and Advertising


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learning objectives
Learning Objectives
  • Describe the factors that influence consumer behavior online
  • Understand the decision-making process of consumer purchasing online
  • Describe how companies are building one-to-one relationships with customers
  • Discuss the issues of e-loyalty and e-trust in EC

Prentice Hall, 2003

learning objectives cont
Learning Objectives (cont.)
  • Explain how personalization is accomplished online
  • Describe consumer market research in EC
  • Explain the implementation of customer service online and describe its tools
  • Describe the objectives of Web advertising and its characteristics

Prentice Hall, 2003

learning objectives cont4
Learning Objectives (cont.)
  • Describe the major advertising methods used on the Web
  • Describe various online promotions
  • Describe the issues involved in measuring the success of Web advertisements as it relates to different pricing methods.
  • Understand the role of intelligent agents in consumer issues and advertising applications

Prentice Hall, 2003

ritchey design learns about customers
Ritchey Design LearnsAbout Customers
  • The Problem
    • Small business designing and manufacturing mountain bike components
    • 1995 Web site was a status symbol rather than a business tool
    • The site did not:
      • Offer enough customer information
      • Enable the company to gain insight into their customers’ needs and wants

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ritchey design learns about customers cont
Ritchey Design LearnsAbout Customers (cont.)
  • The Solution
    • Customer surveys introduced the site
      • Web Trader automatically saves and organizes answers in the database—this information is used to make marketing decisions
    • Created an electronic product catalog
      • Visitors can browse through the product catalog with detailed descriptions and graphics of products

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ritchey design learns about customers cont7
Ritchey Design LearnsAbout Customers (cont.)
  • The Results
    • Ritchey does not yet sell directly to individuals online, because the company wants to maintain its existing distribution system
    • Dealers can:
      • Place orders on the site
      • Learn about new products quickly
      • site is basically used for market research and advertising

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consumer behavior online cont
Consumer Behavior Online (cont.)
  • Consumer types—individual consumers who commands most of the media’s attention
  • Organizational buyers
    • Governments and public organizations
    • Private corporations
    • Resellers
  • Consumer behavior viewed in terms of:
    • Why is the consumer shopping?
    • How does the consumer benefit from shopping online?

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variables in the purchasing environment
Variables in the Purchasing Environment
  • Social variables—people are influenced by:

Family members, friends, co-workers, “what’s in fashion this year”

  • Cultural/community variables—where the consumer lives
  • Other environmental variables:

Available information, government regulations, legal constraints, situational factors

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personal characteristics personal differences
Age and gender

Marital status

Educational level

Ethnicity

Occupation

Household income

Personality

Lifestyle characteristics

Personal CharacteristicsPersonal Differences

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consumer purchasing decision making
Consumer Purchasing Decision Making
  • Roles people play in decision-making
    • Initiator—suggests/thinks of buying a particular product or service
    • Influencer—advice/views carry weight in making a final buying decision
    • Decider—makes a buying decision or any part of it
    • Buyer—makes the actual purchase
    • User—consumes or uses a product or service

Prentice Hall, 2003

general purchasing decision making model
General Purchasing Decision-Making Model
  • 5 major phases of a general model
    • Need identification
    • Information search
    • Evaluation of alternatives
    • Purchase and deliver
    • After-purchase evaluation

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how one to one relationships are practiced
How One-to-One Relationships Are Practiced
  • Relationships as a two-way street:
    • Customer information is collected and placed in a database
    • Customer’s profile is developed
  • Generate “four P’s” of marketing:
    • Product Place
    • Price Promotion

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how one to one relationships are practiced cont
How One-to-One Relationships Are Practiced (cont.)
  • Doing business over the Internet enables companies to:
    • Communicate better with customers
    • Understand customers’ needs and buying habits better
    • Improve and customize their future marketing efforts

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personalization
Personalization
  • Personalization—the matching of services, products, and advertising content to individual consumer
  • User profile—the requirements, preferences, behaviors, and demographic traits of a particular customer
  • 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

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personalization cont
Personalization (cont.)
  • Major strategies used to compile user profiles include:
    • Solicit information directly from the user.
    • Use cookies or other methods to observe what people are doing online
    • Perform marketing research
    • Build from previous purchase patterns

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collaborative filtering
Collaborative Filtering
  • Collaborative filtering—a personalization method that uses customer data to predict, based on formulas derived from behavioral studies, what other products or services a customer may enjoy; predictions can be extended to other customers with similar profiles
  • Variations of collaborative filtering

Rule-based filtering, content-based filtering, activity-based filtering

  • Legal and ethical issues
    • Privacy issues
    • Permission-based personalization tools

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customer loyalty e loyalty
Customer Loyalty & E-Loyalty
  • Customer loyalty—degree to which customer stays with vendor or brand
    • Important element in consumer purchasing behavior
    • One of the most significant contributors to profitability
  • E-loyalty—customer’s loyalty to an e-tailer
    • Learn about customers’ needs
    • Interact with customers
    • Provide customer service

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trust in ec
Trust in EC
  • Trust—psychological status of involved parties who are willing to pursue further interactions to achieve a planned goal
    • EC vendors must establish high levels of trust with current and potential customers
    • Particularly important in global EC transactions
  • Level of trust determined by:
    • Degree of initial success experienced with EC
    • Well-defined roles and procedures for all parties involved
    • Realistic expectations as to outcomes from EC

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how to increase ec trust
How to Increase EC Trust
  • Trust can be decreased by:
    • Any user uncertainty regarding the technology
    • Lack of initial face-to-face interactions
    • Lack of enthusiasm among the parties
  • Brand recognition is very important in EC trust
  • EC security mechanisms can also help solidify trust

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market research for ec
Goal–find information and knowledge that describes relationships among

Consumers

Products

Marketing methods

Marketers

Aim—find relationship between

Discover marketing opportunities and issues

Establish marketing plans

Better understand the purchasing process

Evaluate marketing performance

Market Research for EC

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market research for ec cont
Economy

Industry

Firms

Products

Pricing

Distribution

Competition

Promotion

Consumer purchasing behavior

Market Research for EC (cont.)
  • Market research includes gathering information about:

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market research for ec cont26
Market Research for EC (cont.)
  • Various tools are used to conduct consumer market research:
    • Questionnaires
    • Surveyors
    • Telephone surveys
    • Focus groups
  • Important first to understand how groups of consumers are classified

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market segmentation
Market Segmentation
  • Market segmentation—process of dividing a consumer market into logical groups for conducting marketing research, advertising, and sales
    • Geography Demographics
    • Psychographics Benefits sought
  • Segmentation is done with the aid of tools:
    • Data modeling
    • Data warehousing

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conducting market research online
Conducting Market Research Online
  • Powerful tool for research regarding:
    • Consumer behavior
    • Discover of new markets
    • Consumer interest in new products
  • Internet-based market research
    • Interactive—allowing personal contact
    • Gives better understanding of customer, market, and competition

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what are we looking for in ec market research
Major factors used for prediction are:

Product information requested

Number of related e-mails

Number of orders made

What products/services are ordered

Gender

Online market research attempts to find:

Purchase patterns for individuals and groups

Factors that encourage online purchasing

How to identify real buyers and browsers

How an individual navigates

Optimal Web page design

What Are We Looking For in EC Market Research?

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ec market research cont
EC Market Research (cont.)
  • Interactive Internet-based market research
    • Allows personal contact with customers
    • Provides marketing organizations with greater ability to understand customer, market, and competition
  • Identify early shifts in product and customer trends
    • Enables marketers to identify products and marketing opportunities
    • Develop products that customers really want to buy

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online market research methods
Online Market Research Methods
  • Web-based surveys
    • Free software to create survey forms and analyze results is available at
      • supersurvey.com
      • websurveyor.com
  • Online focus groups—help overcome some problems that limit the effectiveness of Web-based surveys (sample size, partial responses)

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online market research methods cont
Online Market Research Methods (cont.)
  • Tracking customer movements—learn about customers by observing their behavior rather than by asking them questions
    • Transaction
    • Clickstream behavior
    • Cookies
    • Web bugs

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limitations of online market research methods
Limitations of Online Market Research Methods
  • Accuracy of responses
  • Loss of respondents because of equipment problems
  • Ethics and legality of Web tracking
  • Focus group responses can lose something in the translation from an in-person group to an online group
    • Eye contact and body language are lost
    • Anonymity is necessary to elicit an unguarded response

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data mining
Data Mining
  • Data mining—the process of searching a large database to discover previously unknown patterns; automates the process of finding predictive information
  • New business opportunities generated by conducting:
    • Automated prediction of trends and behaviors
    • Automated discovery of previously unknown patterns and relationships

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data mining cont
Data Mining (cont.)
  • Data mining tools and techniques:
    • Neural computing
    • Intelligent agents
    • Association analysis
  • Sample data mining applications
    • Retailing and sales distribution
    • Banking Broadcasting
    • Airlines Marketing

Prentice Hall, 2003

web mining
Web Mining
  • Web mining—application of data mining techniques to discover meaningful patterns, profiles, and trends from both the content and usage of Web sites
    • Web content mining
    • Web usage mining
  • Web mining is critical for EC due to the large number of visitors to EC sites

Prentice Hall, 2003

limitations of online market research
Limitations of Online Market Research
  • Lack of representativeness in samples of online users

Online shoppers tend to be wealthy, employed, and well educated; results may not be extendable to other markets

  • The right kind of sampling is achieved through verification of target audience or demographic

Anonymity causes a loss of information about demographics and characteristics of the respondents

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delivering customer service in cyberspace
Delivering Customer Servicein Cyberspace
  • Customer service—a series of activities designed to enhance customer satisfaction (the feeling that a product or service has met the customer’s expectations)
    • Traditional: do the work for the customer
    • EC delivered: gives tools to the customer to do the work for him/herself
  • E-service—customer services supplied over the Internet
    • Foundation of service
    • Customer-centered services
    • Value-added services

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delivering customer service in cyberspace cont
Delivering Customer Servicein Cyberspace (cont.)
  • Value chain for Internet service
    • Customer acquisition (pre-purchase support)
    • Customer support during purchase—provides a shopping environment that is efficient, informative, productive
    • Customer fulfillment (purchase dispatch)—timely delivery
    • Customer continuance support (post- purchase)—maintain the customer relationship between purchases

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customer relationship management
Customer Relationship Management
  • Customer relationship management (CRM)—a customer service approach that focuses on building long-term and sustainable customer relationships that add value both for the customer and the company
  • Building a customer-centered EC strategy
    • Focus on the end customer
    • Systems and business processes designed for ease of use
    • Foster customer loyalty

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customer relationship management cont
Customer Relationship Management (cont.)
  • Actions for successful EC strategy
    • Deliver personalized services
    • Target the right customers
    • Help the customers do their jobs
    • Let customers help themselves
    • Streamline business processes that impact the customers
    • “Own” the customer ’s total experience by providing every possible customer contact
    • Provide a 360-degree view of the customer relationship

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customer service tools
Customer Service Tools
  • Personalized Web pages
    • Used to record purchases and preference
    • Direct customized information to customers efficiently
  • E-mail and automated response
    • Disseminate general information
    • Send specific product information
    • Conduct correspondence regarding any topic (mostly inquiries from customers)

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american airlines offers personalized web sites
American Airlines Offers Personalized Web Sites
  • American Airlines (aa.com) unveiled a the most advanced personalized, one-to-one interactions and transactions on its Web site in 1998

Intelligent agents enable the generation of personalized Web pages for each of its 1 million registered, travel-planning customers

  • Broadvision’s application dynamically matches customer profiles to a database

Output of the matching process triggers the creation of a real-time customized Web page

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american airlines cont
American Airlines (cont.)
  • The use of intelligent-agent technology built a considerable edge over AA’s competitors
  • Personalizing Web pages is becoming more important in:
    • Increasing customer loyalty
    • Cementing relationships with customers
    • Fostering the community of AA frequent flyers

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customer service tools cont
Customer Service Tools (cont.)
  • Call center—a comprehensive service entity in which EC vendors address customer service issues communicated through various contact channels

Telewebs—call centers that combine Web channels with portal-like self-service; combine

  • Justifying CRM programs—two problems
    • Most of the benefits are intangible
    • Substantial benefits reaped only from loyal customers, after several years

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metrics
Response times

Site availability

Download times

Timeliness

Security and privacy

On-time order fulfillment

Return policy

Navigability

Metrics
  • Metrics—measures of performance; may be quantitative or qualitative

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web advertising
Web Advertising
  • Advertising is an attempt to disseminate information in order to affect a buyer-seller transaction
  • Interactive marketing—marketing that allows a consumer to interact with an online seller
    • Two-way communication and e-mail capabilities
    • Vendors also can target specific groups and individuals
    • Enables truly one-to-one advertising

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internet advertising terminology
Internet Advertising Terminology
  • Ad views—number of times users call up a page that has a banner on it during a specific time period; known as impressions or page views.
  • Button—a small banner that is linked to a Web site
  • Page—HTML document
  • Click—a count made each time a visitor clicks on an advertising banner to access the advertiser ‘s Web site (ad clicks and click throughs)

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internet advertising terminology cont
Internet Advertising Terminology (cont.)
  • CPM (cost per thousand impressions)—fee an advertiser pays for each 1,000 times a page with a banner ad is viewed
  • Hit—request for data from a Web page or file
  • Visit—a series of requests during one navigation of a Web a site; a pause of request for a certain length of time ends a visit

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why internet advertisement
Why Internet Advertisement?
  • 3/4 of PC users gave up some television time
  • Well educated, high-income Internet users are a desired target for advertisers
  • Internet is by far the fastest growing communication medium
  • Advertisers are interested in a medium with such potential reach, both locally and globally

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why internet advertisement cont
Why Internet Advertisement? (cont.)
  • Cost
    • Online ads are cheaper than those in other media
    • Ads can be updated at any time with minimal cost
  • Richness of format
    • Use of text, audio, graphics, and animation
    • Games, entertainment, and promotions are easily combined in online ads
  • Personalization
    • Can be interactive
    • Can target specific interest groups and/or individuals

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advertising networks
Advertising Networks
  • Advertising networks (ad server networks)—specialized firms that offer customized Web advertising, such as brokering ads and helping target ads to selected groups of consumers
  • One-to-one targeted ads and marketing can be:
    • Expensive
    • Very rewarding
    • Very effective

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targeted advertisements the doubleclick approach
Targeted Advertisements:The DoubleClick Approach
  • One-to-one targeted advertisements can take many forms
    • 3M Corp. wants to advertise its multimedia projectors
    • 3M approaches DoubleClick, Inc. and asks the firm to identify such potential customers
  • How does DoubleClick find them?
    • Using cookies, DoubleClick (doubleclick.com/us) monitors people browsing the Web sites
    • Finds those people working for advertising agencies

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doubleclick cont
DoubleClick (cont.)
  • DoubleClick then prepares an ad about 3M projectors that greets targeted people whenever they browse participating sites
  • How is this financed?
    • DoubleClick charges 3M for the ad
    • Fee is then split with the participating Web sites that carry the 3M ads
    • Based on how many times the ad is matched with visitors

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doubleclick cont56
DoubleClick (cont.)
  • DoubleClick expanded the service—Dynamic Advertising Reporting and Targeting (DART):
    • Advertising control
    • Ad frequency determination
    • Providing verifiable measures of success
  • DoubleClick brings:
    • The right advertisement to
    • The right person at
    • The right time

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advertisement methods
Advertisement Methods
  • Banner--on a Web page, a graphic advertising display linked to the advertiser’s Web page
    • Keyword banners
    • Random banners
  • Benefits of banner ads
    • Customized to the target audience or one-to-one ads
    • Utilize “force advertising” marketing strategy
    • Direct link to advertiser
    • Multi media capabilities

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advertisement methods cont
Advertisement Methods (cont.)
  • Limitations of banner ads
    • High cost
    • Click 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
    • Declining click ratio—viewers have become immune to banners

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advertisement methods cont59
Advertisement Methods (cont.)
  • Banner swapping—an agreement between two companies to each display the other’s banner ad on its Web site
    • Direct link between one site to the other site
    • Ad space bartering
  • Banner exchanges—markets in which companies can trade or exchange placement of banner ads on each other’s Web sites (bcentral.com)
    • Credit ratio of approximately 2:1
    • Still the largest Internet advertising medium

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advertisement methods cont60
Advertisement Methods (cont.)
  • Pop-under ad—an ad that appears underneath the current browser window, so when the user closes the active window, they see the ad
  • Interstitials– an initial Web page or a portion of it that is used to capture the user’s attention for a short time while other content is loading
  • E-mail
    • Several million users may be reached directly
    • Problems: junk mail, spamming

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advertisement methods cont61
Advertisement Methods (cont.)
  • Standardized ads—on February 26, 2001, the Internet Advertising Bureau, an industry trade group, adopted five standard ad sizes for the Internet:
    • Larger and more noticeable than banner ads
    • Look like the ads in a newspaper or magazine
    • Users read these ads four times more frequently than banners
    • Appear on Web sites in columns or boxes

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advertisement methods cont62
Skyscraper ad—full column-deep

Sometimes as many as four on one Web page

Interactive—click on a link inside the ad for more information about a product or service

Classified ad—a newspaper-like ad

Special sites like classifieds2000.com

Online newspapers, exchanges, portals ,

Regular-size classified ads is free

Larger size or with some noticeable features is done for a fee

Advertisement Methods (cont.)

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advertisement methods cont63
Advertisement Methods (cont.)
  • URL (Universal Resource Locators)
    • Advantages:
      • Minimal cost is associated with it
      • Submit your URL to a search engine and be listed
      • Keyword search is used
    • Disadvantages:
      • Search engines index their listings differently
      • Meta tags can be complicated

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advertisement methods cont64
Advertisement Methods (cont.)
  • Optimizing Web content improves discovery by a search engine
    • Keywordcount.com
    • Searchenginewatch.com
  • Paid search-engine inclusion
    • Several search engines charge fees for including URLs near the top of the search results
    • A debatable issue is the ethics of this strategy

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advertisement methods cont65
Advertisement Methods (cont.)
  • Advertising in chat rooms
    • Virtual meeting ground
    • Free addition to a business site
    • Allows advertisers to cycle through messages and target the chatter again and again
    • Advertising can become more thematic
    • More effective than banners
    • Used for one-to-one connections
  • Advertorial—an advertisement “disguised” to look like an editorial or general information

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advertising strategies and promotions
Advertising Strategies and Promotions
  • Associated ad display (text links)—anadvertising strategy that displays a banner ad related to a term entered in a search engine
  • Ads as a commodity—direct payment made by the advertisers for ads viewed
  • Viral marketing (advocacy marketing)—word-of-mouth marketing by which customers promote a product or service by telling others about it
  • Customizing ads—one-to-one advertisement (Webcasting)

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advertising strategies and promotions cont
Advertising Strategies and Promotions (cont.)
  • Online events, promotions, and attractions
    • Promotions designed to attract visitors are regular events on thousands of Web sites
      • Contests Coupons
      • Quizzes Giveaways
    • Bargains on the Internet
    • Lottery
    • Free samples,give-aways, and sweepstakes

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advertising strategies and promotions cont68
Advertising Strategies and Promotions (cont.)
  • Major considerations when implementing an online ad campaign:
    • Clearly understood online surfers as target audience
    • Powerful enough server prepared to handle the expected volume of traffic
    • Assuming the promotion is successful, what will the result be?
      • Evaluate the budget
      • Promotion strategy
    • Consider co-branding—bring together two or more powerful partners

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special advertising topics
Special Advertising Topics
  • Pricing of advertising
    • Justifying the cost of Internet advertisement is difficult for two reasons:
      • The difficulty in measuring the effectiveness of online advertising and
      • Disagreements on pricing methods
  • Pricing based on ad views
  • Pricing based on click-through

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special advertising topics cont
Special Advertising Topics (cont.)
  • Payment based on interactivity

The interactivity model bases ad pricing on how the visitor interacts with the target ad

  • Payment based on actual purchase

Pay for ads only if an actual purchase has been made (affiliate programs)

  • Permission advertising (permission marketing)—advertising (marketing) strategy in which customers agree to accept advertising and marketing materials

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special advertising topics cont71
Special Advertising Topics (cont.)
  • Measuring, auditing, and analyzing web traffic
    • Site audit validates the number of ad views and hits claimed by the site
    • Rating—looks at multiple criteria including content, attractiveness, ease of navigation, and privacy protection
    • Sites with higher ratings command higher prices for advertising placed on their sites
    • Companies use software to assess if placing ads really increases traffic to their sites

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special advertising topics cont72
Special Advertising Topics (cont.)
  • Localization—the process of converting media products developed in one country to a form culturally and linguistically acceptable in countries outside the original target market
  • Using internet radio for localization

Internet radio—a Web site that provides music, talk, and other entertainment, both live and stored, from a variety of radio stations

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software agents in customer related advertising applications
Software Agents in Customer-Related Advertising Applications
  • EC agents support
    • Need identification
    • Product brokering
    • Merchant brokering and comparison
    • Buyer-seller negotiation
    • Agents that support purchase and delivery
    • Agents that support after-sale service and evaluation

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fujitsu uses agents for targeted advertising in japan
Fujitsu Uses Agents for Targeted Advertising in Japan
  • Fujitsu (fujitsu.com) is a Japanese-based global provider of Internet-focused information technology solutions
    • Has been using an agent-based technology called Interactive Marketing Interface (iMi) since 1996
    • Advertisers interact directly with consumers while ensuring that consumers remain anonymous

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fujitsu cont
Fujitsu (cont.)
  • Consumers submit a personal profile to iMi
    • Customers receive by e-mail :
      • Product announcements
      • Advertisements
      • Marketing surveys
    • Answer marketing surveys or acknowledging receipt of ads
    • They earn iMi points redeemable for:
      • Gift certificates
      • Phone cards

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software agents in customer related advertising applications cont
Software Agents in Customer-Related Advertising Applications (cont.)
  • Character-Based Interactive Agents
    • Avatars—animated computer characters that exhibit human-like movements and behaviors
    • Social computing—an approach aimed at making the human– computer interface more natural
  • Chatterbots—animation characters that can talk (chat)
    • Mr. Clean at mrclean.com
    • "Katie“ at dove.com

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software agents in customer related advertising applications cont77
Software Agents in Customer-Related Advertising Applications (cont.)
  • Agents that support auctions

Agents often act as auction aggregators, some provide real-time access to auctions

  • Agents support consumer behavior, customer service, and advertising activities
  • EC agents found at:
    • Botspot.com
    • Agentland.com
    • Agents.umbc.edu

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managerial issues
Managerial Issues
  • Do we understand our customers?
  • What do customers want from technology?
  • How is our response time?
  • How do we improve and measure customer service?
  • Should we use intelligent agents?
  • Is our market research leading to customer acquisition?
  • Are customers satisfied with our Web site?
  • Should we advertise anywhere but our own site?

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managerial issues cont
Managerial Issues (cont.)
  • What is our commitment to Web advertising, and how will we coordinate Web and traditional advertising?
  • Should we integrate our Internet and non-Internet marketing campaigns?
  • What ethical issues should we consider?
  • Have we integrated advertising with ordering and other business processes?
  • How important is branding?

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summary
Summary
  • Essentials of consumer behavior
  • The online consumer decision-making process
  • Building one-to-one relationships with customers
  • Increasing loyalty and trust
  • Online personalization
  • EC customer market research
  • Implementing customer service

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summary cont
Summary (cont.)
  • Objectives and characteristics of Web advertising
  • Major online advertising methods
  • Various advertising strategies
  • Types of promotions on the Web
  • Measuring the advertising success and pricing ads
  • Intelligent agents

Prentice Hall, 2003