Lecture 3

CIT 744: E-commerceCIT 744: E-commerce
M.L. MugyabusoM.L. Mugyabuso
Semester 2 - 2013/2014 Academic Year
Copyright © 2014 Pearson Education, Inc. Publishing as Prentice Hall

Lecture 3Lecture 3
E-commerce Marketing and AdvertisingE-commerce Marketing and Advertising
ConceptsConcepts
Copyright © 2014 Pearson Education, Inc. Publishing as Prentice Hall

Class Discussion
Video Ads: Shoot, Click, Buy
 What advantages do video ads have over
traditional banner ads?
 Where do sites such as YouTube fit in to a
marketing strategy featuring video ads?
 What are some of the challenges and risks of
placing video ads online?
 Do you think Internet users will ever develop
“blindness” toward video ads as well?
Copyright © 2014 Pearson Education, Inc. Publishing as Prentice Hall Slide 6-3

Consumers Online: The Internet
Audience and Consumer Behavior
 Around 70% (85 million) U.S. households have
broadband Internet access in 2013
 Growth rate has slowed
 Intensity and scope of use both increasing
 Some demographic groups have much higher
percentages of online usage than others
 Income, education, age, ethnic dimensions

Consumers Online (cont.)
 Broadband vs. dial-up audiences
 50% of Hispanic and African-American homes have
broadband
 40% of households with less than $20k in annual
income have broadband
 Neighborhood effects
 Role of social emulation in consumption decisions
 “Connectedness”
 Top 10–15% are more independent
 Middle 50% share more purchase patterns of friends
 Recommender systems

Consumer Behavior
 Study of consumer behavior
 Attempts to explain what consumers purchase and
where, when, how much, and why they buy
 Consumer behavior models
 Attempt to predict or explain wide range of consumer
decisions
 Based on background demographic factors and other
intervening, more immediate variables
 Profiles of Online Consumers
 Consumers shop online primarily for convenience

A General Model of Consumer Behavior
Figure 6.1, Page 333 SOURCE: Adapted from Kotler and Armstrong, 2009.

The Online Purchasing Decision
Five stages in consumer decision
process
Awareness of need
Search for more information
Evaluation of alternatives
Actual purchase decision
Post-purchase contact with firm

The Consumer Decision Process and
Supporting Communications
Figure 6.2, Page 334

The Online Purchasing Decision (cont.)
 Decision process similar for online and offline
behavior
 General online behavior model
 Consumer skills
 Product characteristics
 Attitudes toward online purchasing
 Perceptions about control over Web environment
 Web site features: latency, usability, security
 Clickstream behavior

A Model of Online Consumer Behavior

Shoppers: Browsers and Buyers
 Shoppers: 89% of Internet users
 73% buyers
 16% browsers (purchase offline)
 One-third of offline retail purchases influenced by
online activities
 Online traffic also influenced by offline brands
and shopping
 E-commerce and traditional commerce are
coupled: Part of a continuum of consuming
behavior

What Consumers Shop for and
Buy Online
 Big ticket items ($1000 or more)
Travel, computer hardware, electronics
Consumers now more confident in purchasing
costlier items
 Small ticket items ($100 or less)
Apparel, books, office supplies, software, and so
on
 Types of purchases depend on level of
experience with the Web

How Consumers Shop
 How shoppers find online vendors
Search engines
Marketplaces (Amazon, eBay)
Specific retail site
 27% of Internet users don’t shop online
Trust factor
Hassle factors (shipping costs, returns, etc.)

Trust, Utility, and Opportunism
in Online Markets
 Two most important factors shaping
decision to purchase online:
Utility:
 Better prices, convenience, speed
Trust:
 Most important factors: Perception of credibility,
ease of use, perceived risk
 Sellers can develop trust by building strong
reputations for honesty, fairness, delivery

Digital Commerce Marketing and
Advertising: Strategies and Tools
 Internet marketing (vs. traditional)
More personalized
More participatory
More peer-to-peer
More communal
 The most effective Internet marketing
has all four features

Multi-Channel Marketing Plan
1. Web site
2. Traditional online marketing
 Search engine, display, e-mail, affiliate
1. Social marketing
 Social networks, blogs, video, game
1. Mobile marketing
 Mobile/tablet sites, apps
1. Offline marketing
 Television, radio, newspapers

Strategic Issues and Questions
 Which part of the marketing plan should
you focus on first?
 How do you integrate the different
platforms for a coherent message?
 How do you allocate resources?
How do you measure and compare metrics from
different platforms?
How do you link each to sales revenues?

Establishing the Customer
Relationship
 Web site functions to:
Establish brand identity and customer
expectations
 Differentiating product
Inform and educate customer
Shape customer experience
Anchor the brand online
 Central point for all marketing messages

Online Advertising
 Online advertising
Display, search, mobile messaging,
sponsorships, classifieds, lead generation,
e-mail
Fastest growing form of advertising
Advantages:
 18–34 audience is online
 Ad targeting
 Price discrimination
 Personalization

Traditional Online Marketing and
Advertising Tools
 Search engine marketing and advertising
 Display ad marketing
 E-mail marketing
 Affiliate marketing
 Viral marketing
 Lead generation marketing
 Social, mobile, and local marketing and
advertising

Search Engine Marketing and Advertising
 Search engine marketing (SEM)
Use of search engines for branding
 Search engine advertising
Use of search engines to support direct sales
 Types of search engine advertising
Sponsored links (keyword paid inclusion)
Keyword advertising
Network keyword advertising (context
advertising)

Search Engine Marketing (cont.)
 Search engine optimization (SEO)
 Social search
 Utilizes social graph (friend’s recommendations, past
Web visits, Facebook Likes, Google +1’s) to provide
fewer and more relevant results
 Search engine issues
 Paid inclusion and placement practices
 Link farms
 Content farms
 Click fraud

Display Ad Marketing
 Banner ads
 Rich media ads
 Video ads
 Sponsorships
 Advertising networks
 Advertising exchanges and real-time
bidding

How an Advertising Network
Such as DoubleClick Works

E-mail Marketing
 Direct e-mail marketing
 Messages sent directly to interested users
 Benefits include
 Inexpensive
 Average more than 7% click-throughs for in-house lists
 Measuring and tracking responses
 Personalization of messages and offers
 Three main challenges
 Spam
 Anti-spam software
 Poorly targeted purchased e-mail lists

Spam
 Unsolicited commercial e-mail
 65–70% of all e-mail
 Most originates from bot networks
 Efforts to control spam have largely failed:
Government regulation (CAN-SPAM)
State laws
Voluntary self-regulation by industries (DMA )

Other Types of Traditional Online
Marketing
 Affiliate marketing
 Commission fee paid to other Web sites for sending
customers to their Web site
 Viral marketing
 Marketing designed to inspire customers to pass
message to others
 Lead generation marketing
 Services and tools for collecting, managing, and
converting leads

Social Marketing and Advertising
 Fastest growing type of online
marketing
 Targets the enormous audiences of
social networks
 Four features driving growth
 Social sign-on
 Collaborative shopping
 Network notification
 Social search (recommendation)

Social Marketing and Advertising (cont.)
 Blog marketing
Educated, higher-income audience
Ideal platform to start viral campaign
 Game marketing
Large audiences for social games (FarmVille,
Words with Friends)
Used for branding and driving customers to
purchase moments at restaurants and retail
stores

Mobile Marketing and Advertising
 7% of online marketing, growing rapidly
 Major formats:
 Display, rich media, video
 Games
 E-mail
 Text messaging (SMS)
 In-store messaging
 Quick Response (QR) codes
 Couponing
 App marketing

Local Marketing
 Geared to user’s geographic location
Local search and purchasing
 Local searches:
25% of all searches
50% of mobile searches
 Most common local marketing tools
Geotargeting with Google Maps
Display ads in hyperlocal publications

Multi-Channel Marketing
 Average American spends more than
40% of media time on digital media
channels
 Consumers also multitask, using several
media
 Internet campaigns strengthened by
using other channels
Most effective are campaigns using consistent
imagery throughout channels

Insight on Business: Class Discussion
Are the Very Rich Different from You and Me?
 What distinguishes luxury marketing from
ordinary retail marketing?
 What challenges do luxury retailers have in
translating their brands and the look and feel
of luxury shops into Web sites?
 How has social media affected luxury
marketing?
 Visit the Armani Web site. What do you find
there?

Other Online Marketing Strategies
 In addition to traditional online
advertising and marketing strategies
(search engine, display, etc.), several
other strategies are more focused than
“traditional” online strategies
Customer retention
Pricing
The “long tail”

Other Online Marketing Strategies
Customer retention strategies
Personalization and one-to-one
marketing
Retargeting
Behavioral targeting
Based on data from search engine queries,
clickstream history, social network data, and
integration of offline personal data and records
Effectiveness still inconclusive
Privacy issues

Other Online Marketing Strategies (cont.)
 Customization: Changing the product
Information goods ideal for differentiation
 Customer co-production: Customers
help create product
 Customer service
FAQs
Real-time customer chat systems
Automated response systems

Pricing Strategies
 Pricing
Integral part of marketing strategy
Traditionally based on:
 Fixed cost
 Variable costs
 Demand curve
 Price discrimination
Selling products to different people and groups
based on willingness to pay

Pricing Strategies (cont.)
 Free and freemium
 Can be used to build market awareness
 Versioning
 Creating multiple versions of product and selling essentially same
product to different market segments at different prices
 Bundling
 Offers consumers two or more goods for one price
 Dynamic pricing:
 Auctions
 Yield management
 Flash marketing

Long-Tail Marketing
 Internet allows for sales of obscure
products with little demand
 Substantial revenue because
Near zero inventory costs
Little marketing costs
Search and recommendation engines

Insight on Technology: Class Discussion
The Long Tail: Big Hits and Big Misses
 What are “recommender systems”?
Give an example you have used.
 What is the “Long Tail” and how do
recommender systems support sales of
items in the Long Tail?
 How can human editors, including
consumers, make recommender
systems more helpful?

Internet Marketing Technologies
 Internet’s main impacts on marketing:
Scope of marketing communications broadened
Richness of marketing communications
increased
Information intensity of marketplace expanded
Always-on mobile environment expands
marketing opportunities

Web Transaction Logs
 Built into Web server software
 Record user activity at Web site
 Provides much marketing data, especially
combined with:
 Registration forms
 Shopping cart database
 Answers questions such as:
 What are major patterns of interest and purchase?
 After home page, where do users go first? Second?

Tracking Files
 Users browsing tracked as they move
from site to site
 Four types of tracking files
Cookies
 Small text file placed by Web site
 Allows Web marketers to gather data
Flash cookies
Beacons (“bugs”)
Apps

Insight on Society: Class Discussion
Every Move You Make, Every Click You
Make, We’ll Be Tracking You
 Are beacons innocuous? Or are they an
invasion of personal privacy?
 Do you think your Web browsing should be
known to marketers?
 What are the Privacy Foundation guidelines
for Web beacons?
 Should online shopping be allowed to be a
private activity?

Databases
 Database: Stores records and attributes
 Database management system (DBMS):
 Software used to create, maintain, and access databases
 SQL (Structured Query Language):
 Industry-standard database query and manipulation language
used in a relational database
 Relational database:
 Represents data as two-dimensional tables with records organized
in rows and attributes in columns; data within different tables can
be flexibly related as long as the tables share a common data
element

Data Warehouses and Data Mining
 Data warehouse:
 Collects firm’s transactional and customer data in single
location for offline analysis by marketers and site
managers
 Data mining:
 Analytical techniques to find patterns in data, model
behavior of customers, develop customer profiles
 Query-driven data mining
 Model-driven data mining
 Rule-based data mining

Hadoop and the Challenge of Big Data
 “Big data”
Web traffic, e-mail, social media content
 Traditional DBMS unable to process the
volumes—petabytes and exabytes
 Hadoop
Open-source software solution
Processes any type of data, including
unstructured and semi-structured
Distributed processing

Customer Relationship
Management (CRM) Systems
 Create customer profiles:
 Product and usage summary data
 Demographic and psychographic data
 Profitability measures
 Contact history
 Marketing and sales information
 Customer data used to:
 Develop and sell additional products
 Identify profitable customers
 Optimize service delivery, and so on

A CRM System

Online Marketing Metrics: Lexicon
 Audience size or
market share
 Impressions
 Click-through rate (CTR)
 View-through rate (VTR)
 Hits
 Page views
 Stickiness (duration)
 Unique visitors
 Loyalty
 Reach
 Recency
 Conversion to
customer
 Acquisition rate
 Conversion rate
 Browse-to-buy ratio
 View-to-cart ratio
 Cart conversion rate
 Checkout conversion
rate
 Abandonment rate
 Retention rate
 Attrition rate

Online Marketing Metrics (cont.)
 Social marketing
 Conversation ratio
 Applause ratio
 Amplification
 Sentiment ratio
 E-mail metrics
 Open rate
 Delivery rate
 Click-through rate
(e-mail)
 Bounce-back rate

An Online Consumer Purchasing Model

How Well Does Online
Advertising Work?
 Use ROI to measure ad campaign
 Highest click-through rates: Search engine
ads, permission e-mail campaigns
 Rich media, video interaction rates high
 Online channels compare favorably with
traditional
 Most powerful marketing campaigns use
multiple channels, including online, catalog,
TV, radio, newspapers, stores

The Costs of Online Advertising
 Pricing models
 Barter
 Cost per thousand (CPM)
 Cost per click (CPC)
 Cost per action (CPA)
 Online revenues only
 Sales can be directly correlated
 Both online/offline revenues
 Offline purchases cannot always be directly related to online
campaign
 In general, online marketing is more expensive on
CPM basis, but more effective

Web Analytics
 Software that analyzes and presents data on each
stage of the customer conversion process
 Awareness
 Engagement
 Interaction
 Purchase
 Loyalty and post-purchase
 Helps managers
 Optimize ROI on Web site and marketing efforts
 Build detailed customer profiles
 Measure impact of marketing campaigns
 Google Analytics, IBM Coremetrics, Adobe Analytics

Web Analytics and the Online
Purchasing Process

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