1. Slide 5-1 IT 361: E-Commerce Systems Chapter 4 E-commerce Marketing & Advertising Readings: Chapter 6

2. Slide 5-2 Video Ads: Shoot, Click, Buy Class Discussion The age of online video ads The surge in online videos was fueled because: Improvement in video production tools Higher bandwidth Better streaming quality Expansion in viewing platform The sift from web1.0 –> web2.0 in video production Audience are huge: 2013 187M US viewer + avrg 22.5 hours + learned to avoid banner ads High click-through rate : videos, SE, and focused emails campaign 100% of online spenders are video viewers (high desirable demographics with string buying power) Video viewers are 64% more likely to purchase, 40% consider the product unique & differentiated, 30% willing to pay more Highest number of video ads in … Ways of firms uses online videos for marketing: Produce own videos to promote the brands and sell the product User-generated video reviews ExpoTV.com: aggregates video reviews, 100K+ members, distribute the video ads other websites& social networks, trusted DB of video can be used for advertising, have quality standards, awards for quality videos 2013: 400K video were produced related to 200K product Rite Aid Video Values Program

3. Slide 5-3 Video Ads: Shoot, Click, Buy Class Discussion 2013: Top 100 brands have 1400 YouTube channels + 250K video, 9.6B views Orabrush used YouTube to build the business from ground up. (100 videos, 190 subscriber, 50M video views, sales 3M units, 80% of marketing effort) Changes in video technologies: Interactive videos Appear through website Optimize videos & real-time measurement iPad 6X desktop Challenges: How to package the message with the video How to piggyback advertising onto user-generated videos (YuMe.com) Play the video without destroying the viewing experience Not to create video blindness TruView ad format by YoutTube)

4. Slide 5-4 Video Ads: Shoot, Click, Buy Class Discussion What advantages do video ads have over traditional stationary banner ads? Where do sites like YouTube fit in to a marketing strategy featuring video ads? What are some of the challenges and risks of placing video ads on the Web? Do you think Internet users will ever develop ‘blindness’ towards video ads as well?

5. Slide 4-5 Consumers Online: The Internet Audience and Consumer Behavior Around 90 million American households (65% of households) had Internet access in 2007 Growth rate has slowed (90s 30%, now 2-3%) Intensity and scope of use both increasing (↑usage → ↑comfort & familiarity →↑service to explore) Some demographic groups have much higher percentages of online usage than other groups – Demographics to examine include gender, age, ethnicity, community type, income; education Differences between broadband audience and dial-up need to be taken into consideration when marketing

6. Slide 4-6 Consumers Online: The Internet Audience and Consumer Behavior Location vs. Neighborhood effects (online – offline social ties) Being located nearby other users of the online grocery increased the likelihood of purchasing at the site by 50% (Importance of social ties and communication)

7. Slide 4-7 Consumer Behavior Models Who is your customer & How (s)he behaves Attempt to predict/explain what consumers purchase and where, when, how much and why they buy. Rule: If the consumer decision-making process can be understood, firms will have a much better idea how to market ad sell their products Consumer behavior models based on background demographic factors and other intervening, more immediate variables

8. Slide 4-8 A General Model of Consumer Behavior

9. Slide 4-9 Background Demographic Factors Cultural – Culture and subculture Social – Reference groups Direct (family, profession, religion, neighborhood, school) Indirect (social class, lifestyle) Opinion leaders (viral influencers) Lifestyle groups (activities: hobbies, spots, events interests :food, fashion, family opinions: government, business, social) Theory: once you understand a consumer's lifestyle or the lifestyle of a group of people, then you can design products and marketing messages that appeal specifically to that lifestyle group Psychological – Psychological profiles – "People do not want your product or service." They do want answers to problems, solutions to needs, pathways to wants, or a secret door to their heart's desires.

10. Gillette knows that it doesn't sell blades. It sells clean shaves. Revlon knows it doesn't sell nail polish. It sells romance. Betty Crocker knows it doesn't sell cake mix. It sells, "Gee, mom, this cake is great!“

11. Why consumers choose the online channel?

12. The online Purchasing Decision Factors predicting buying behaviors are – Looking for product information online – Leading a “wired lifestyle” – Recently ordering from a catalog

13. Slide 4-13 The Purchasing Decision Five stages in the consumer decision process: – Awareness of need – Search for more information – Evaluation of alternatives – Actual purchase decision – Post-purchase contact with firm

14. Slide 4-14 The Consumer Decision Process and Supporting Communications

15. The consumer decision-making process and types of offline and online marketing communications that supports this process and seek to influence the consumer before, during and after the purchase decision. Both offline and online communication tools can be used to support the online consumer decision process in each of the 5 stages,

16. The Purchase Decision Process

17. Slide 4-17 A Model of Online Consumer Behavior Figure 6.4, Page 349

18. Clickstream behavior “deep” knowledge of the customer dynamically developed Clickstream behavior of people online very close to the moment of purchase, enable marketers to understand what the consumer was looking for at each moment, and how much they are willing to pay, thus allowing marketers to precisely target their communications.

19. Most clickstream factors Number of days since last visit Speed of clickstream behavior Number of products viewed during last visit Number of pages viewed Number of products viewed Supplying personal information Number of days since last purchase Number of past purchases

20. Slide 4-20 Shoppers: Browsers and Buyers Significance of online browsing for offline purchasing and vice versa should not be underestimated E-commerce and traditional commerce are coupled and should be viewed by merchants and researchers as part of a continuum of consuming behavior

21. Slide 4-21 Online Shoppers and Buyers

22. Ecommerce and traditional commerce are coupled and should be viewed by merchants as part of continuum of consuming behavior and not as radical alternatives once Consumes use a variety & multiple of media. Online merchants should: – build the information content of the site to attract browsers looking for information – Build content to rank high in SE – Put less attention on selling per se – Promote services and products in offline media

23. Slide 4-23 What Consumers Shop for and Buy Online Online sales divided roughly into small ticket and big ticket items – Purchases of big ticket items (>$1000) (travel, computer hardware, consumer electronics) expanding – Top small ticket categories (apparel, books, office supplies, software, etc.) have similar characteristics— sold by first movers, small purchase price, physically small, high margin items (CDs, software), broad selection of products available

24. Slide 4-24 What Consumers Buy Online

25. Source: “ Factors affecting E-commerce uses in Saudi Arabia”, Khalil H., University of Liverpool, 2010

26. Slide 4-26 Intentional Acts: How Shoppers Find Vendors Online 54% of shoppers use search engines 20% of consumers go directly to site 12% use comparison shopping or product rating sites Most online shoppers plan to purchase product within a week, either online or at a store Most online shoppers have a specific item in mind

27. Merchants can convert “goal-oriented” consumers into buyers by – Targeting their communications – Design their sites (easy access, product information, full selection, customer service) – At the very moment the consumer is searching

28. Slide 4-28 Why More People Don’t Shop Online Major online buying concerns: – Trust Security Privacy – Hassle Shipping costs Inability to see/touch product Return policy Source: “ Factors affecting E-commerce uses in Saudi Arabia”, Khalil H., University of Liverpool, 2010

29. Slide 4-29 Trust, Utility, and Opportunism in Online Markets Factors shaping the decision to purchase online: – Utility (Good deals, convenience, speed of delivery,..) – Trust (opportunities behaviors by sellers) (reputation of honesty, fairness, and delivery of quality product = basic elements of brands) Online sellers who develop trust are able to charge premium price Factors leading to trusting online relationship: Perception of web site credibility, ease of use, and perceived risk Traditional ads are far more trusted than online ads Personal friends & families are far more trusted than SN members

30. Slide 4-30 Basic Marketing Concepts Marketing: – Strategies and actions firms take to establish relationship with consumer and encourage purchases of products and services – It is an integrated process through which companies build strong customer relationships and create value for their customers and for themselves. Internet marketing – Using Web to develop positive, long-term relationship with customers, thereby creating competitive advantage for firm by allowing it to charge higher prices for products or services than competitors can charge (superior product or communicating the brands features) – is the marketing of products or services over the Internet.

31. Features of Internet Marketing – Can be more personalized – Participatory – Peer-to-peer Not all types of internal marketing have these features (video ad vs. TV commercial, targeted videos)

32. Digital Commerce Marketing & Advertising Strategies & Tools Elements of comprehensive multi-channel marketing plan: – Website – Traditional online marketing – Social networking – Mobile marketing – Offline marketing

33. Strategic Issues & Questions

34. Strategic Questions 1. priorities Where should you focus first? Build a website, develop a blog, or facebook page Where second? Develop SN presence or offline Do you have the resources to maintain a SM marketing campaign? 2. Integration of the different marketing platforms to deliver a single coherent branding message 3. Resource allocation

35. Websites as Marketing Platform – Establishing the Customer Relationship Website performs 4 functions: – Establish the brand identity & consumer expectations (identify quality, price, support, reliability – create expectations) – Inform and educate the consumer – Shape the customer experience – Anchors the brand The one place where one can find the complete story vs. ad

36. Slide 5-36 Online Marketing & Advertising Tools Paid message on Web site, online service or other interactive medium, such as interactive messaging 2007: $21.4 billion spent, expected to grow to $24.7 billion by 2010 Advantages: – Ability to target ads to narrow segments and track performance in almost real time – Provide greater opportunity for interactivity Disadvantages: – Concerns about cost versus benefit – Concerns about how to adequately measure results

37. Slide 5-37 Online Advertising from 2004-2017

38. Slide 5-38 Forms of Online Advertisements Display ads: banners, rich media &video ads Search engine advertising: Paid search engine inclusion and placement Sponsorships Referrals (affiliate relationship marketing) E-mail marketing Online catalogs Lead Generation

40. Slide 5-40 Display and Rich Media/Video Ads Display ads: provided by 5 Top companies (banners, Rich media ads, sponsorship, video ads) Banner Ads (oldest, least effective, lowest cost) advantages over traditional – click through – identify & track users – Animation Rich media: – boosts visits to websites by 300% (6X) – Interstitials – A good interstitials uses “animation”, “skip through” or “stop”

41. Video Ads – small spending compared to SE, fastest growing, most effective display ad – 12X rich media, 27X banner ads – 3 types: pre-roll, mid-roll, post-roll – Say Media, Advertising.com,

42. Slide 5-42 Online Advertising Placement Methods Banner swapping: Arrangements among firms allow each firm to have its banners displayed on other affiliate sites for no cost Advertising Networks Advertising exchanges: Act as brokers between advertisers and publishers, placing ads and tracking all activity related to ad (RTB & managing) (Google DoubleClick Ad Exchange)

44. Slide 5-44 Sponsorships and Affiliate Marketing Sponsorship: Paid effort to tie advertiser’s name to particular information, event, venue in way that reinforces brand in positive, yet not overtly commercial manner Affiliate Marketing: Permits firm to put logo or banner ad on another firm’s Web site from which users of that site can click through to affiliate’s sit – pay-per-click vs. pay-for-performance – 10% of retail sales – Affiliate brokers

45. Viral & Lead Generation Marketing Viral Marketing – Advantages Less expensive Less use of online support – Online venues for viral marketing: Email, Facebook, Google+, YouTube, social games Local Generation Marketing (inbound marketing) helps firms build websites, email campaign, manage leads: initiate further contacts, track interactions,.. (Hutspot.com)

46. Slide 5-46 Search Engine Advertising: Paid Search Engine Inclusion and Placement One of fastest growing and most effective forms of online marketing communications Types: – Organic serach – Paid inclusion – Paid placement – Keyword advertising: Google AdWords – Network keyword advertising: Google AdSense

47. Slide 5-47 Search Engine Advertising: Paid Search Engine Inclusion and Placement (cont’d) Google, Yahoo, MSN are leaders in this technology Issues: – Appropriate disclosure of paid inclusion and placement practices – Link Farm – Content Farm – Search engine click fraud (when competitor hires third parties to fraudulently click on competitor ads to drive up costs) – Ad nonsense (Google AdSense ads that are inappropriate for content)

48. Search engine optimization: – Register with as many search engines as possible – Ensure that keywords used in Web site description match keywords likely to be used as search terms by user – Link site to as many other sites as possible – Update the content frequently – Design the site to become easily read by SE Social Search attempts to use social contacts to provide search results (Google +1)

49. Slide 5-49 E-mail Marketing and the Spam Explosion Direct e-mail marketing: E-mail sent directly to interested consumers who “opt-in” or have not “opted-out” Spam: Unsolicited commercial e-mail – Spam is exploding out of control—70%–80% of all e-mail purportedly is spam – Efforts to control spam: Technology (Filtering software) (only partly effective) Government regulation (CAN-SPAM and state laws) (largely unsuccessful) Self-regulation by industry (ineffective) Volunteer efforts (not enough)

50. Slide 5-50 Other Forms of Online Marketing Communications Online catalog: Provides equivalent of paper- based catalog Blog advertising: Online ads related to content of blogs Social network advertising: Ads on MySpace, Facebook, YouTube, etc. Game advertising: downloadable ‘advergames’, placing brand-name products within games

51. How does social media influence consumer behavior?

52. Slide 5-52 Insight on Society: Marketing to Children of the Web in the Age of Social Networks Class Discussion Why is online marketing to children a controversial practice? What is the Children’s Online Privacy Protection Act (COPPA) and how does it protect the privacy of children? How do companies verify the age of online users? Should companies be allowed to target marketing efforts to children under the age of 13?

53. Slide 5-53 Multi-channel Marketing: Integrating Offline and Online Marketing Media consumption patters has changed: videos, twitters, facebook.. Marketers use multiple channel to “touch” consumer (email, SN, SE, display ads on mobile, affiliate programs) to increase total media exposure. Early vision; in the Internet economy, nearly all marketing communications would be online. The most effective online ads are those that consistent imagery with campaigns running in other media at the same time.

54. Slide 4-54 Other Marketing Strategy: Customer Retention Strategy Personalization marketing Internet enables personalization on mass market (Amazon) Behavioral targeting of ads (interest-based ads) (deliver tailored message + measure the results) 4 methods used to behaviorally target ads: SE queries Browsing history (clickstream) Data from SN sites Integration of online with offline Times, Yahoo, MSN, AOL)

55. Slide 4-55 Other Marketing Strategy: Customer Retention Strategy Customization Customer co-production “build-to-order” products create product differentiation (Niki, M&Ms..) Information goods (New York Times, Yahoo, MSN, AOL)

56. Other Marketing Strategy: Customer Retention Strategy Customer service (make or break a marketing effort): user ability to communicate with a company & obtain required information. Help reduce customer frustration, cut the number of abandoned shopping carts & increase sales “customer loyalty increases substantially when online buyers learn that customer service rep are available” “customers are willing to pay more for superior customer services” Customer Service Tools include: – Frequently asked questions (FAQs) – Real-time customer service chat systems :↓shopping cart abandonment rate ↑# of items purchased – Automated response systems

57. Slide 4-57 Net Pricing Strategies Early view: Web would lead to a new world of information symmetry & empowered customers => Law of One Price Pricing (putting a value on goods and services) an integral part of marketing strategy Traditionally, prices based on: – Fixed cost – Variable costs – Market’s demand curve Prices set to maximize profit: marginal cost = marginal revenue Early years of ecommerce, marginal cost < marginal revenue (attract eyeballs + piggyback)

58. Slide 4-58 Net Pricing Strategies Price discrimination: Selling products to different people and groups based on willingness to pay Only work if firms can: – Identify the price each individual is willing to pay – Segregate the customers

59. Demand Curve

60. Slide 4-60 Net Pricing Strategies (cont’d) Free products/services: Can be used to build market awareness. Difficult to convert the eyeballs into paying customers. Exceptions to free ( valuable, exclusive, expensive, not widely distributed, unique, immediate consumption value ) 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. Based on the idea: – The marginal cost = 0 – Many people would buy bundle for same or slightly higher price Dynamic pricing: The value of the product = what the market is willing to pay – Auctions: for unique or unusual products – Yield management: different pricing for different markets to sell excess capacity (perishable, variation in demand, clearly defined segment, competitive market, market condition change rapidly) – Flash management

61. Slide 4-61 Internet Marketing Technologies Web transaction logs Registration forms Shopping carts Cookies and Web bugs Databases, data warehouses, data mining and big data. Customer relationship management (CRM) systems

62. Slide 4-62 Web Transaction Logs Built into Web server software Records user activity at a Web site WebTrends a leading log analysis tool Can provide treasure trove of marketing information, particularly when combined with: – Registration forms – Shopping cart database

64. Slide 4-64 Cookies and Web Bugs Cookies: Small text file that Web sites place on a visitor’s client computer every time they visit, and during the visit, as specific pages are accessed – Provide Web marketers with a very quick means of identifying customer and understanding prior behavior – Location of cookie files on computer depends on browser version Web bugs: Tiny (1 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

65. Slide 4-65 Customer Relationship Management (CRM) Systems Repository of customer information that records all contacts that customer has with firm and 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

66. Slide 4-66 A Customer Relationship Management System

67. Slide 5-67 Online Marketing Metrics: Lexicon Metrics that focus on success of Web site in achieving audience or market share – Impressions – Click-through rate (CTR) – View-through rate (VTR) – Hits – Page views – Stickiness (duration) – Unique visitors – Loyalty – Reach – Recency

68. Slide 5-68 Online Marketing Metrics: Lexicon (cont’d) Metrics that focus on conversion of visitor 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

69. Slide 5-69 Online Marketing Metrics: Lexicon (cont’d) Social Network metrics – Group rating point – Applause ratio – Conversation ration – Amplification – Sentiment ratio – Duration of engagement E-mail metrics – Open rate – Delivery rate – Click-through rate (e-mail) – Bounce-back rate – Unsubscribe rate – Conversion rate (e-mail)

70. Slide 5-70 An Online Consumer Purchasing Model

71. Slide 5-71 How Well Does Online Advertising Work? What is the most effective kind of online ads? Vs. offline? Depends on; goal of campaign, nature o product, & quality of Web site. Click-through rates may be low, but this is just one measure of effectiveness (Table 7.5) ROI that counts Research indicates that most powerful marketing campaigns include both online and offline advertising

72. Slide 5-72 Click-through Rates by Format 2000–2005 * As consumers become more accustomed to new online ads format, click-through rate tend to fall SOURCE: SOURCES: Doubleclick, 2007a, b; eMarketer, Inc., 2007c; author estimates.

73. Comparative ROI How effective is online ads compared to offline?

74. Business to Consumer Marketing Best Practices

75. The most powerful marketing campaign used multiple forms of marketing including online, catalog, TV, radio, newspapers and retail stores. Traditional media (TV & print material) remain the primary means for consumers to find out about new products

76. Slide 5-76 The Costs of Online Advertising Cost per thousand (CPM): Advertiser pays for impressions in 1,000 unit lots Cost per click (CPC): Advertiser pays pre- negotiated fee for each click ad receives Cost per action (CPA): Advertiser pays pre- negotiated amount only when user performs a specific action Hybrid: Two or more of the above models used together

77. 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

78. Slide 5-78 Web Analytics and the Online Purchasing Process

79. Copyright © 2007 Pearson Education, Inc. Slide 5-79 Web Site Activity Analysis

80. Slide 5-80 The Web Site as a Marketing Communications Tool Web site can be viewed as extended online advertisement Domain name: First communication e- commerce site has with prospective customer

81. Slide 5-81 Web Site Functionality Factors affecting effectiveness of a software interface: – Utility – Ease of use Factors in credibility of Web sites: – Design look – Information design/structure – Information focus – Responsiveness

82. Web Design Guides Web site design: The web designer must make various issues into consideration: – Speed vs. aesthetics: Some of the fancier sites have serious problems functioning practically. Consumers may be impressed by a fancy site, or may lack confidence in a firm that offers a simple one. Yet, fancier sites with extensive graphics take time to download—particularly for users dialing in with a modem as opposed to being “hard” wired—and may result in site crashes. – Keeping users on the site: A large number of “baskets” are abandoned online as consumers fail to complete the “check-out” process for the products they have selected. One problem here is that many consumers are drawn away from a site and then are unlikely to come back. A large number of links may be desirable to consumers, but they tend to draw people away. Taking banner advertisers on your site from other sites may be profitable, but it may result in customers lost. – Information collection: An increasing number of consumers resist collection of information about them, and a number of consumers have set up their browsers to disallow “cookies,” files that contain information about their computers and shopping habits.

83. Web Design Guides (cont.) Site content. The content of a site should generally be based on the purposes of operating a site. For most sites, however, having a clear purpose be evident is essential. The site should generally provide some evidence for this position. For example, if the site claims a large selection, the vast choices offered should be evident. Sites that claim convenience should make this evident. A main purpose of the Internet is to make information readily available, and the site should be designed so that finding the needed information among all the content of the site is as easy as possible. Since it is easy for consumers to move to other sites, the site should be made interesting. To provide the information and options desired by customers, two-way interaction capabilities are essential.

84. Slide 5-84 Factors in the Credibility of Web Sites SOURCE: Based on data from Fogg, et al, 2002.