Chapter 4

Consumer Behavior, Online Market Research, and Customer Relationship Management

Learning Objectives
1. Describe the factors that influence consumer behavior online. 2. Understand the decision-making process of consumer purchasing online. 3. Describe how companies are building oneto-one relationships with customers. 4. Explain how personalization is accomplished online. 5. Discuss the issues of e-loyalty and e-trust in EC.
2

Learning Objectives (cont.)

6. Describe consumer market research in EC. 7. Describe CRM, its methods, and its relationship with EC. 8. Explain the implementation of customer service online and describe its tools. 9. Describe Internet marketing in B2B, including organizational buyer behavior.

Ritchey Design Learns about Customers

The Problem
Ritchey Design, Inc. is a relatively small designer and manufacturer of mountain bike components Sells its products to distributors and/or retailers, who then sell them to individual consumers Its 1995 Web site was more a status symbol than a business tool
4

Ritchey Design Learns about Customers (cont.)

Visitors could get information on Team Ritchey or find out where Ritchey products were sold It did not give customers all the information they wanted It did not enable the company to gain insight into its customers wants and needs
5

Ritchey Design Learns about Customers (cont.)

The Solution
In late 1995, Ritchey reworked the Web site so that the company could hear from its customers directly
set up customer surveys on the site offered visitors who answer the surveys a chance to win free Ritchey products vsitors enter their names and addresses and then answer questions about the companys products
6

Ritchey Design Learns about Customers (cont.)

Web Trader software automatically organizes and saves the answers in a database and is used to help make marketing and advertising decisions Questions are changed to learn customers opinions about any new products Ritchey develops Saves $100,000 on product development per year
7

Ritchey Design Learns about Customers (cont.)

An online catalog educates retailers and consumers about the technological advantages of Ritcheys high-end components over competitors parts Visitors browse the product catalog that includes detailed descriptions and graphics of Ritcheys products

Ritchey Design Learns about Customers (cont.)

The Results
ritcheylogic.com sells only team items
such as t-shirts, bags, water bottles, and other gear directly to individuals online The company does not sell bike parts to individuals directly online because it wants to maintain its existing distribution system Dealers can place orders on the site
9

Ritchey Design Learns about Customers (cont.)

The site is basically used in B2C EC only for the basic activities in Internet marketing:
communicating with customers conducting market research delivering advertising

10

Ritchey Design Learns about Customers (cont.)

What we can learn
Illustrates the benefits a company can derive from changing its Web site from a passive one to one with interactivity Interactive Web site allows the company to:
learn more about its customers educate customers use the site for customer service
11

Learning about Consumer Behavior Online

Model of consumer behavior online
independent (or uncontrollable) variables intervening or moderating variables decision-making process dependent variables

12

Learning about Consumer Behavior Online (cont.)

13

Learning about Consumer Behavior Online (cont.)

Independent variables
Personal characteristics Environmental variables
Social variables Cultural/community variables Other environmental variables

14

Learning about Consumer Behavior Online (cont.)

Intervening (moderating) variables
variables are those that can be controlled by vendors

Dependent variables: the buying decisions

customer makes several decisions to buy or not to buy? what to buy? where, when, and how much to buy?

15

Consumer Decision Making Process

Roles people play in the decision making process
Initiator Influencer Decider Buyer User
16

Consumer Decision Making Process (cont.)

5 phases of the generic purchase decision model:
1. 2. 3. 4. 5. need identification information search evaluation of alternatives purchase and delivery after-purchase evaluation
17

Consumer Decision Making Process (cont.)

Product brokering: Deciding what product to

buy

Merchant brokering: Deciding from whom

(from what merchant) to buy a product
18

Consumer Decision Making Process (cont.)

19

Consumer Decision Making Process (cont.)

20

One-to-One Marketing and Personalization in EC

One-to-one marketing: Marketing that treats
each customer in a unique way Personalization: The matching of services, products, and advertising content to individual consumers User profile: The requirements, preferences, behaviors, and demographic traits of a particular customer

21

One-to-One Marketing and Personalization in EC (cont.)

22

One-to-One Marketing and Personalization in EC (cont.)

Major strategies used to compile user profiles
Solicit information directly from the user Observe what people are doing online Build from previous purchase patterns Perform marketing research

23

One-to-One Marketing and Personalization in EC (cont.)

Cookie: A data file that is placed on a
users hard drive by a Web server, frequently without disclosure or the users consent, that collects information about the users activities at a site

24

One-to-One Marketing and Personalization in EC (cont.)

Collaborative filtering: A
personalization method that uses customer data to predict, based on formulas derived from behavioral sciences, what other products or services a customer may enjoy; predictions can be extended to other customers with similar profiles
25

One-to-One Marketing and Personalization in EC (cont.)

Variations of collaborative filtering:
Rule-based filtering Content-based filtering Activity-based filtering

Legal and ethical issues in collaborative filtering

Invasion-of-privacy issues Permission-based personalization tools to request customer permission

26

One-to-One Marketing and Personalization in EC (cont.)

Customer loyalty
Customer loyalty: Degree to which a
customer will stay with a specific vendor or brand Increased customer loyalty produces cost savings through:
lower lower lower lower marketing costs transaction costs customer turnover expenses failure costs

E-loyalty: Customer loyalty to an e-tailer

27

One-to-One Marketing and Personalization in EC (cont.)

Trust in EC
Trust: The psychological status of
involved parties who are willing to pursue further interaction to achieve a planned goal Trust is influenced by many variables

28

One-to-One Marketing and Personalization in EC (cont.)

29

One-to-One Marketing and Personalization in EC (cont.)

How to increase EC trust
between buyers and sellers trust is determined by:
degree of initial success that each party experienced with EC and with each other well-defined roles and procedures for all parties involved realistic expectations as to outcomes from EC

30

One-to-One Marketing and Personalization in EC (cont.)

Issues in personalization
brand recognition security mechanisms help solidify trust disclose and update latest business status and practices to potential customers and to build transaction integrity into the system guarantee information and protection privacy through various communication channels
31

Market Research for EC

Goal of market research is to find information and knowledge that describes the relationships among:
consumers products marketing methods marketers
32

Market Research for EC (cont.)

Aim of marketing research is to:
discover marketing opportunities and issues establish marketing plans better understand the purchasing process evaluate marketing performance develop advertising strategy
33

Market Research for EC (cont.)

Market segmentation: The process of
dividing a consumer market into logical groups for conducting marketing research, advertising, and sales Market research tools
data modeling data warehousing
34

Market Research for EC (cont.)

Conducting market research online
faster and more efficient than off-line methods accesses a more geographically diverse audience large studies done much more cheaply not well developed at this time
35

Market Research for EC (cont.)

What are we looking for in EC online research?
personal profile that helps marketers explain and predict online buying behavior
36

Market Research for EC (cont.)

Procter & Gamble
Example: Internet market research expedites time-to-market for Procter & Gamble
In the past developing a major new product, from concept to market launch, took over 5 years In September 2000 introduced Whitestrips on the Internet, offering the product for sale on P&Gs Web site
37

Market Research for EC (cont.)

Procter & Gamble (cont.)
Online research was facilitated by data mining conducted on P&Gs huge historical data and the new Internet data Internet created a product awareness of 35 percent before shipments were made to stores Revolutionized process of studying the product concept, segmenting the market, and expediting product development
38

Market Research for EC (cont.)

Online market research methods
Web-based surveys Online focus groups Hearing directly from customers Customer scenarios Tracking customer movements

39

Market Research for EC (cont.)

Transaction log
A record of user activities at a companys Web site

Clickstream behavior
Customer movements on the Internet; and, what the customer is doing there

40

Market Research for EC (cont.)

Cookies, Web Bugs, and Spyware
Web bugs: Tiny graphics files embedded on
e-mail messages and in Web sites that transmit information about the user and their movements to a Web server Spyware: Software that gathers user information, through an Internet connection, without the users knowledge

Analysis of B2C clickstream data

41

Market Research for EC (cont.)

Limitations of online market research
too much data may be availableneed business intelligence to organize, edit, condense, and summarize it accuracy of responses loss of respondents because of equipment problems ethics and legality of Web tracking
42

Market Research for EC (cont.)

Online shoppers tend to be wealthy, employed, and well educated The lack of clear understanding of the online communication process and how online respondents think and interact in cyberspace

43

CRM and Its Relationship with EC

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

44

CRM and Its Relationship with EC (cont.)

Classification of CRM programs
Loyalty program Prospecting Save or win back Cross-sell/up-sell

eCRM: Customer relationship

management conducted electronically

45

CRM and Its Relationship with EC (cont.)

Scope of CRM
1. Foundation of service 2. Customer-centered services 3. Value-added services

46

CRM and Its Relationship with EC (cont.)

Extent of service
1. Customer acquisition (prepurchase support) 2. Customer support during purchase 3. Customer fulfillment (purchase dispatch) 4. Customer continuance support (postpurchase)
47

CRM and Its Relationship with EC (cont.)

Benefits of CRM
Provides:
choices of products and services fast problem resolution and response easy and quick access to information

Limitations of CRM
Requires integration with a companys other information systems which is costly Difficult to support mobile employees
48

CRM and Its Relationship with EC (cont.)

CRM implementation issues
Steps in building EC strategy focused on customer:
1. focus on the end customer 2. systems and business processes that are designed for ease of use and from the end customers point of view 3. efforts to foster customer loyalty

49

CRM and Its Relationship with EC (cont.)

Five factors required to implement a CRM program effectively:
1. 2. 3. 4. 5. Customer-centric strategy Commitments from people Improved or redesigned processes Software technology Infrastructure
50

CRM and Its Relationship with EC (cont.)

Justifying customer service and CRM programs Metrics: Standards of performance; may be quantitative or qualitative

51

CRM and Its Relationship with EC (cont.)

Web-related metrics a company uses to determine the appropriate level of customer support:
Response time Site availability Download time Timeliness Security and privacy On-time order fulfillment Return policy Navigability

52

CRM Applications and Tools:

Delivering Customer Service in Cyberspace
CRM applications improve upon traditional customer service by means of easier communications and speedier resolution of customer problems Customer service adds value to products and services It is an integral part of a successful business

53

CRM Applications and Tools (cont.)

Classifications of CRM applications
Customer-facing applications Customer-touching applications Customer-centric intelligence applications Online networking and other applications

54

CRM Applications and Tools (cont.)

Customer-facing applications
Customer interaction center (CIC): A
comprehensive service entity in which EC vendors address customer service issues communicated through various contact channels

Intelligent agents in customer service and call centers

55

CRM Applications and Tools (cont.)

56

CRM Applications and Tools

(cont.)

57

CRM Applications and Tools (cont.)

Autoresponders: Automated e-mail reply
systems (text files returned via e-mail), which provide answers to commonly asked questions Sales force automation (SFA): Software that automates the tasks performed by sales people in the field, such as data collection and its transmission
58

CRM Applications and Tools

(cont.)

Customer-touching applications
Personalized Web Pages E-Commerce Applications Campaign Management

59

CRM Applications and Tools

(cont.)
Web Self-Service
Activities conducted by users on the Web to provide answers to their questions (e.g., tracking) or for product configuration Self-tracking Self-configuration and customization

60

CRM Applications and Tools (cont.)

Customer-centric applications
Data reports Data warehouse
A single, server-based data repository that allows centralized analysis, security, and control over the data

61

CRM Applications and Tools

(cont.)

Data analysis and mining

Analytic applications automate the
processing and analysis of CRM data
can be used to analyze the performance, efficiency, and effectiveness of an operations CRM applications

Data mining involves sifting through an

immense amount of data to discover previously unknown patterns

62

CRM Applications and Tools

(cont.)

Online networking and other applications

Forums Chat rooms Usenet groups E-mail newsletters Discussion lists
63

CRM Applications and Tools (cont.)

Mobile CRM
the delivery of CRM applications to any user, whenever and wherever needed

Voice communication
people are more comfortable talking with a person, even a virtual one, than they are interacting with machines. The smile and the clear pronunciation of the agents voice increases shoppers confidence and trust
64

CRM Applications and Tools (cont.)

65

CRM Applications and Tools (cont.)

Role of knowledge management and intelligent agents in CRM
Automating inquiry routing and answering queries requires knowledge Generated from historical data and from human expertise and stored in knowledge bases for use whenever needed Intelligent agents support the mechanics of inquiry routing, autoresponders, and so on
66

Internet Marketing in B2B

Organizational buyer behavior
number of organizational buyers is much smaller than the number of individual buyers transaction volumes are far larger terms of negotiations and purchasing are more complex

67

Internet Marketing in B2B (cont.)

68

Internet Marketing in B2B (cont.)

Methods for B2B online marketing
Targeting customers
contact all of its targeted customers individually when they are part of a welldefined group affiliation service advertising

Electronic wholesalers
intermediary sells directly to businesses, but does so exclusively online
69

Internet Marketing in B2B (cont.)

Other B2B marketing services
Digital Cement
provides corporate marketing portals that help companies market their products to business customers tracks what is going on in an industry provides information and services to small businesses, including start-ups offers free tools that help increase traffic to a companys Web site
70

National Systems
BusinessTown Vantagenet

Internet Marketing in B2B (cont.)

Affiliate programs
Placing banners on another vendors Web site Content alliance program in which content is exchanged so that all can obtain some free content

Infomediaries Online data mining services

71

Managerial Issues
1. Do we understand our customers? 2. What do customers want from technology? 3. How is our response time? 4. How do we measure and improve customer service? 5. Is CRM for real?
72

Managerial Issues (cont.)

6. Do we have to use electronically supported CRM? 7. Should we use intelligent agents? 8. Who will conduct the market research? 9. Are customers satisfied with our Web site? 10. Can we use B2C marketing methods and research in B2B?

73

Summary
1. Essentials of consumer behavior. 2. The online consumer decisionmaking process. 3. Building one-to-one relationships with customers. 4. Online personalization. 5. Increasing loyalty and trust.
74

Summary (cont.)
6. EC customer market research. 7. CRM, its technologies, and EC connection. 8. Implementing customer service online. 9. B2B Internet marketing and organizational buyers.
75