E-commerce

business. technology. society.

Sixth Edition

Kenneth C. Laudon
Carol Guercio Traver

Copyright © 2010 Pearson Education, Inc.

 Chapter 6
E-commerce Marketing Concepts

Copyright © 2009
2010 Pearson
Pearson Education,
Education, Inc.
Inc. Slide 6-2
Netflix Develops and Defends Its Brand
Class Discussion

„ What was Netflix’s first business model? Why did 
this model not work and what new model did it 
develop?
„ Why is Netflix attractive to customers? 
„ How does Netflix distribute its videos?
„ What is Netflix’s “recommender system”?
„ How does Netflix use data mining?
„ Is video on demand a threat to Netflix?
Copyright © 2010 Pearson Education, Inc. Slide 6-3
 Consumers Online: The Internet
Audience and Consumer Behavior
„ Around 72% (87 million) U.S. households had 
Internet access in 2009
„ Growth rate has slowed
„ Intensity and scope of use both increasing
„ Some demographic groups have much higher 
percentages of online usage than others 
™ Gender, age, ethnicity, community type, income, education

Copyright © 2010 Pearson Education, Inc. Slide 6-4

 The Internet Audience and
Consumer Behavior
„ Broadband audience vs. dial‐up audience
„ Purchasing behavior affected by 
neighborhood
„ Lifestyle and sociological impacts
™ Use of Internet by children, teens
™ Use of Internet as substitute for other social activities

„ Media choices
™ Traditional media competes with Internet for attention

Copyright © 2010 Pearson Education, Inc. Slide 6-5

 Consumer Behavior Models

„ Study of consumer behavior
™ Social science 

™ Attempts to explain what consumers purchase 
and where, when, how much, and why they buy 
„ Consumer behavior models
™ Predict wide range of consumer decisions

™ Based on background demographic factors and 
other intervening, more immediate variables 

Copyright © 2010 Pearson Education, Inc. Slide 6-6

A General Model of Consumer Behavior

Figure 6.1, Page 351 SOURCE: Adapted from Kotler and Armstrong, 2009.

Copyright © 2010 Pearson Education, Inc. Slide 6-7
 Background Demographic Factors
„ Culture: broadest impact
™ Subculture (ethnicity, age, lifestyle, geography)

„ Social
™ Reference groups
„ Direct reference groups
„ Indirect reference groups
„ Opinion leaders (viral influencers)
„ Lifestyle groups 

„ Psychological
™ Psychological profiles

Copyright © 2010 Pearson Education, Inc. Slide 6-8

 The Online Purchasing Decision
„ Psychographic research
™ Combines demographic and psychological data
™ Divides market into groups based on social class, lifestyle, 
and/or personality characteristics

„ Five stages in the consumer decision process:
1. Awareness of need
2. Search for more information
3. Evaluation of alternatives
4. Actual purchase decision
5. Post‐purchase contact with firm
Copyright © 2010 Pearson Education, Inc. Slide 6-9
 The Consumer Decision Process and
Supporting Communications

Figure 6.3, Page 355
Copyright © 2010 Pearson Education, Inc. Slide 6-10
A Model of Online Consumer Behavior

„ 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

„ Clickstream behavior: transaction log for 
consumer from search engine to purchase
Copyright © 2010 Pearson Education, Inc. Slide 6-11
A Model of Online Consumer Behavior

Figure 6.4, Page 356
Copyright © 2010 Pearson Education, Inc. Slide 6-12
A Model of Online Consumer Behavior

„ Clickstream factors include:
™ Number of days since last visit
™ Speed of clickstream behavior
™ Number of products viewed during last visit
™ Number of pages viewed
™ Supplying personal information
™ Number of days since last purchase
™ Number of past purchases

„ Clickstream marketing

Copyright © 2010 Pearson Education, Inc. Slide 6-13

 Shoppers: Browsers and Buyers
„ Shoppers: 86% of Internet users
™ 70% buyers
™ 16% browsers (purchase offline)

„ One‐third 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

Copyright © 2010 Pearson Education, Inc. Slide 6-14

 Online Shoppers and Buyers

Figure 6.5, Page 358 SOURCE: Based on data from eMarketer, Inc., 2009b.
Copyright © 2010 Pearson Education, Inc. Slide 6-15
 What Consumers Shop for and
Buy Online
„ Big ticket items ($500 or more)
™ Travel, computer hardware, consumer electronics
™ Expanding 
™ Consumers more confident in purchasing costlier items

„ Small ticket items ($100 or less)
™ Apparel, books, office supplies, software, etc.
™ Sold by first movers on Web
„ Physically small items
„ High margin items 
„ Broad selection of products available

Copyright © 2010 Pearson Education, Inc. Slide 6-16

 What Consumers Buy Online

Figure 6.6, Page 361

SOURCES: Internet Retailer, 2009a; eMarketer, Inc., 2009b; authors’ estimates.
Copyright © 2010 Pearson Education, Inc. Slide 6-17
 Intentional Acts: How Shoppers Find
Vendors Online
„ 37% use search engines 
„ 33% go directly to site
„ 17% use comparison shopping sites
„ 15% use product rating sites
„ Online shoppers are highly intentional, 
looking for specific products, companies, 
services
Copyright © 2010 Pearson Education, Inc. Slide 6-18
Table 6.6, Page 362 SOURCES: eMarketer, Inc., 2007b; Internet Retailer, 2006.
Copyright © 2010 Pearson Education, Inc. Slide 6-19
 Trust, Utility, and Opportunism in
Online Markets
„ Two most important factors shaping 
decision to purchase online:
1. Utility: 
„ Better prices, convenience, speed
2. Trust:
„ Asymmetry of information can lead to opportunistic 
behavior by sellers
„ Sellers can develop trust by building strong 
reputations for honesty, fairness, delivery 

Copyright © 2010 Pearson Education, Inc. Slide 6-20

 Basic Marketing Concepts
„ Marketing 
™ Strategies and actions to establish relationship 
with consumer and encourage purchases of 
products and services
™ Addresses competitive situation of industries and 
firms
™ Seeks to create unique, highly differentiated 
products or services that are produced or supplied 
by one trusted firm
„ Unmatchable feature set
„ Avoidance of becoming commodity

Copyright © 2010 Pearson Education, Inc. Slide 6-21

 Feature Sets

„ Three levels of product or service
1. Core product
„ Core benefit of product, e.g., cell phone
2. Actual product
„ Characteristics that deliver core benefits
„ E.g., cell phone and music player with wide screen that connects 
through wireless networks to Internet
3. Augmented product
„ Includes additional benefits beyond core benefits
„ E.g., product warranty, after‐sale support
„ Basis for building the product’s brand

Copyright © 2010 Pearson Education, Inc. Slide 6-22

 Feature Set

Figure 6.7, Page 364
Copyright © 2010 Pearson Education, Inc. Slide 6-23
 Products, Brands, and the Branding
Process
„ Brand: 
™ Expectations consumers have when consuming, or 
thinking about consuming, a specific product
™ Most important expectations: quality, reliability, 
consistency, trust, affection, loyalty, reputation
„ Branding: process of brand creation
„ Closed loop marketing
„ Brand strategy
„ Brand equity

Copyright © 2010 Pearson Education, Inc. Slide 6-24

 Marketing Activities: From Products
to Brands

Figure 6.8, Page 365
Copyright © 2010 Pearson Education, Inc. Slide 6-25
Segmenting, Targeting, and Positioning
„ Major ways used to segment, target customers
™ Behavioral
™ Demographic
™ Psychographic
™ Technical
™ Contextual
™ Search
„ Within segment, product is positioned and branded as 
a unique, high‐value product, especially suited to 
needs of segment customers

Copyright © 2010 Pearson Education, Inc. Slide 6-26

 Are Brands Rational?
„ For consumers, a qualified yes:
ƒ Brands introduce market efficiency by reducing search and 
decision‐making costs

„ For business firms, a definite yes:
ƒ Brands a major source of revenue
ƒ Lower customer acquisition cost
ƒ Increased customer retention
ƒ Successful brand constitutes a long‐lasting (though not 
necessarily permanent) unfair competitive advantage

Copyright © 2010 Pearson Education, Inc. Slide 6-27

 Can Brands Survive the Internet?
Brands and Price Dispersion
„ Early postulation: “Law of One Price”; end of brands
„ Instead:
™ Consumers still pay premium prices for differentiated 
products
™ E‐commerce firms rely heavily on brands to attract 
customers and charge premium prices
™ Substantial price dispersion

™ Large differences in price sensitivity for same product

™ “Library effect”
Copyright © 2010 Pearson Education, Inc. Slide 6-28
 The Revolution in Internet
Marketing Technologies
„ Three broad impacts:
1. Scope of marketing communications broadened 
2. Richness of marketing communications increased
3. Information intensity of marketplace expanded
„ Internet marketing technologies:
„ Web transaction logs
„ Cookies and Web bugs
„ Databases, data warehouses, data mining
„ Advertising networks
„ Customer relationship management systems

Copyright © 2010 Pearson Education, Inc. Slide 6-29

 Web Transaction Logs
„ Built into Web server software
„ Record user activity at Web site
„ WebTrends: leading log analysis tool
„ 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?

Copyright © 2010 Pearson Education, Inc. Slide 6-30

 Cookies and Web Bugs

„ Cookies: 
™ Small text file Web sites place on visitor’s PC every time 
they visit, as specific pages are accessed
™ Provide Web marketers with very quick means of 
identifying customer and understanding prior behavior
„ Web bugs: 
™ Tiny (one pixel) graphic files embedded in e‐mail messages 
and on Web sites
™ Used to automatically transmit information about user and 
page being viewed to monitoring server

Copyright © 2010 Pearson Education, Inc. Slide 6-31

 Insight on Society
Marketing with Web Bugs
Class Discussion

„ Are Web bugs innocuous? Or are they an invasion of 
personal privacy? 
„ Do you think your Web browsing should be known to 
marketers?  
„ What are the different types of Web bugs?
„ What are the Privacy Foundation guidelines for Web 
bugs?
„ What protections are available?

Copyright © 2010 Pearson Education, Inc. Slide 6-32

 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

Copyright © 2010 Pearson Education, Inc. Slide 6-33

 A Relational Database View of
E-commerce Customers

Figure 6.12, Page 381
Copyright © 2010 Pearson Education, Inc. Slide 6-34
 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
„ Collaborative filtering
Copyright © 2010 Pearson Education, Inc. Slide 6-35
Data Mining
and
Personalization

Figure 6.13, Page 382 SOURCE: Adomavicius and Tuzhilin, 2001b ©2001 IEEE.

Copyright © 2010 Pearson Education, Inc. Slide 6-36
 Insight on Technology
The Long Tail: Big Hits and Big Misses
Class Discussion

„ 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?

Copyright © 2010 Pearson Education, Inc. Slide 6-37

 Customer Relationship Management
(CRM) Systems
„ Record all contacts that customer has with firm 
„ Generates customer profile available to everyone in firm with 
need to “know the customer”
„ Customer profiles can contain:
™ Map of the customer’s relationship with the firm
™ Product and usage summary data
™ Demographic and psychographic data
™ Profitability measures
™ Contact history 
™ Marketing and sales information

Copyright © 2010 Pearson Education, Inc. Slide 6-38

 A Customer Relationship Management System

Figure 6.14, Page 387 SOURCE: Compaq, 1998.
Copyright © 2010 Pearson Education, Inc. Slide 6-39
 Market Entry Strategies

Figure 6.15, Page 389
Copyright © 2010 Pearson Education, Inc. Slide 6-40
Establishing the Customer Relationship

„ Advertising networks

™Banner advertisements

™Ad server selects appropriate banner ad 
based on cookies, Web bugs, backend user 
profile databases
„ Permission marketing

„ Affiliate marketing

Copyright © 2010 Pearson Education, Inc. Slide 6-41

 How an Advertising Network such as
DoubleClick Works

Figure 6.16, Page 392
Copyright © 2010 Pearson Education, Inc. Slide 6-42
 Establishing the Customer
Relationship
„ Viral marketing
™ Getting customers to pass along company’s marketing 
message to friends, family, and colleagues
„ Blog marketing
™ Using blogs to market goods through commentary and 
advertising
„ Social network marketing 
™ Social shopping

Copyright © 2010 Pearson Education, Inc. Slide 6-43

 Insight on Business
Social Network Marketing: New Influencers
Among the Chattering Masses
Class Discussion

„ Why do social networks represent such a promising 
opportunity for marketers?
„ What are some of the new types of marketing that 
social networks have spawned?
„ What are some of the risks of social network 
marketing? What makes it dangerous?
„ What are some of the tools companies use to keep 
track of social network activity?

Copyright © 2010 Pearson Education, Inc. Slide 6-44

 Establishing the Customer
Relationship

„ Wisdom of Crowds (Surowiecki, 2004)
™ Large aggregates produce better estimates and 
judgments
„ Examples: 
™ Prediction markets
™ Folksonomies
™ Social tagging

Copyright © 2010 Pearson Education, Inc. Slide 6-45

 Customer Retention: Strengthening
the Customer Relationship
„ Mass marketing
„ Direct marketing
„ Micromarketing 
„ Personalized, one‐to‐one marketing  
™ Segmenting market on precise and timely understanding of 
individual’s needs
™ Targeting specific marketing messages to these individuals
™ Positioning product vis‐à‐vis competitors to be truly unique
„ Personalization
™ Can increase consumers sense of control, freedom
™ Can also result in unwanted offers or reduced anonymity
Copyright © 2010 Pearson Education, Inc. Slide 6-46
The Mass Market-Personalization Continuum

Figure 6.17, Page 402
Copyright © 2010 Pearson Education, Inc. Slide 6-47
 Other Customer Retention Marketing
Techniques
„ Customization
„ Customer co‐production
„ Transactive content: 
™ Combine traditional content with dynamic information 
tailored to each user’s profile
„ Customer service
™ FAQs
™ Real‐time customer service chat systems
™ Automated response systems

Copyright © 2010 Pearson Education, Inc. Slide 6-48

 Net Pricing Strategies
„ Pricing
™ Integral part of marketing strategy

„ Traditionally, prices based on: 
™ Fixed cost 
™ Variable costs 
™ Market’s demand curve

„ Price discrimination
™ Selling products to different people and groups 
based on willingness to pay
Copyright © 2010 Pearson Education, Inc. Slide 6-49
 Net Pricing Strategies
„ 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

Copyright © 2010 Pearson Education, Inc. Slide 6-50

 Channel Management Strategies
„ Channels 
™ Different methods by which goods can be distributed and 
sold
„ Channel conflict 
™ When new venue for selling products or services threatens 
or destroys existing sales venues
™ E.g., online airline/travel services and  traditional offline 
travel agencies
„ Some manufacturers are using partnership 
model to avoid channel conflict 
Copyright © 2010 Pearson Education, Inc. Slide 6-51
 All rights reserved. No part of this publication may be reproduced, stored in a
retrieval system, or transmitted, in any form or by any means, electronic,
mechanical, photocopying, recording, or otherwise, without the prior written
permission of the publisher. Printed in the United States of America.

Copyright © 2010 Pearson Education, Inc.

Publishing as Prentice Hall

Copyright © 2010 Pearson Education, Inc. Slide 6-52