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Chapter 4 Consumer Behavior, Online Market Research, and Customer Relationship Management


Chapter 4 Consumer Behavior, Online Market Research, and Customer Relationship Management Jason C. H. Chen, Ph.D. Professor of MIS School of Business Administration – PowerPoint PPT presentation

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Title: Chapter 4 Consumer Behavior, Online Market Research, and Customer Relationship Management

Chapter 4Consumer Behavior, Online Market
Research, and Customer Relationship Management
Jason C. H. Chen, Ph.D. Professor of MIS School
of Business Administration Gonzaga
University Spokane, WA 99223 USA chen_at_jepson.gonz http//
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 one-to-one
    relationships with customers.
  4. Explain how personalization is accomplished
  5. Discuss the issues of e-loyalty and e-trust in EC.

Learning Objectives (cont.)
  1. Describe consumer market research in EC.
  2. Describe CRM, its methods, and its relationship
    with EC.
  3. Explain the implementation of customer service
    online and describe its tools.
  4. Describe Internet marketing in B2B, including
    organizational buyer behavior.

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

Ritchey Design Learns about Customers (cont.)
  • Visitors could get information on Team Ritchey or
    find out where Ritchey products were sold, but
    that was where the sites usefulness ended.
  • 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

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
  • set up customer surveys on the site
  • offered visitors who answer the surveys a chance
    to win free Ritchey products
  • visitors enter their names and addresses and then
    answer questions about the companys products

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 15 new products Ritchey
  • Saves 100,000 on product development per year
  • An online catalog educates retailers and
    consumers about the technological advantages of
    Ritcheys high-end components over competitors
  • Visitors browse the product catalog that includes
    detailed descriptions and graphics of Ritcheys

Ritchey Design Learns about Customers (cont.)
  • The Results
  • 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

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

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 (CRM)
  • educate customers
  • use the site for customer service
  • advertisement (chapter 5)
  • collaboration with business partners (chapters 6

End of the Case
4.1 Learning about Consumer Behavior Online
  • Model of consumer behavior online
  • independent (or uncontrollable) variables
  • Personal characteristics
  • Environmental characteristics
  • intervening or moderating variables
  • Market stimuli
  • EC systems
  • decision-making process
  • dependent variables (Buyers decisions)

Exhibit 4.1 EC Consumer Behavior Model
Personal Characteristics
Environmental Characteristics
Age Gender Ethnicity Education Lifestyle Psycholog
ical Knowledge Values Personality
Social Cultural/community Other legal,
institutional, governmental
Independent Variables
Market Stimuli
Buyers Decision
Price Brand Promotions Advertising Product
quality Design
Buy or not? What to buy? Where (vendor)? When? How
much to spend?
Decision Probes
Intervening (vendor- controlled) Variables
EC Systems
Dependent Variables (Results)
Logistics Support
Technical Support
Customer Service
Payments Delivery
Web design and content Intelligent
agents Security
Learning about Consumer Behavior Online (cont.)
  • Independent variables
  • Personal characteristics (demographic variables)
  • Age, gender
  • Ethnicity, education
  • Lifestyle, knowledge
  • Value, personality
  • Environmental variables
  • Social variables
  • Cultural/community variables
  • Institutional, governmental variables

What are most-cited reasons for not making
  • Shipping charges (51)
  • Difficulty in judging the quality of the product
  • Cant return items easily (32)
  • Credit and safety concerns (24)
  • Cant ask questions (23)
  • Take too long to download the screen (16)
  • Delivery time (15)
  • Enjoy shopping offline (10)

Learning about Consumer Behavior Online (cont.)
  • Intervening (moderating) variables
  • variables are those that can be controlled by
  • 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?

Decision-making Process
Is there a problem?
What are the alternatives?
Which should you choose?
Is the choice working?
Source Simon, H. The New Science of Management
Decisions, Prentice Hall, 1977
Decision by Objectives
Objectives/ Perspectives
Justifiable Recommendation Improved Communication
Well Established Process Best Overall Alternative
4.2 Consumer Decision Making Process
  • Roles people play in the decision making process
  • Initiator
  • Influencer
  • Decider
  • Buyer
  • User

Consumer Decision Making Process (cont.)
  • Five (5) phases of the generic purchase decision
  • need identification
  • information search
  • evaluation of alternatives
  • purchase and delivery
  • after-purchase evaluation

Consumer Decision Making Process (cont.)
What? Where?
  • Product brokering Deciding what product to buy
  • Merchant brokering Deciding from whom (from what
    merchant) to buy a product

Consumer Decision Making Process (p.135 cont.)
(Consumer DSS)
4.3 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
  • User profile The requirements, preferences,
    behaviors, and demographic traits of a particular

Exhibit 4.5 The New Marketing Model - One-to-One
Marketing and Personalization in EC
1 Customer Receives Marketing Exposure
2 Customer decides on marketing medium for
Marketing/Advertising Chose to Best Server/Reach
Customer Relationships
Four Ps (Product, Place, Price, and
Promotion) Updated Uniquely to Customer
3 Customer makes purchase decision
4 Detailed transaction/ Behavior Data Collected
Customer Profile Based on Behavior
Customer Segmentation Developed
Database Update
Source Linden, A. Management Update Data Mining
Trends Enterprises Should Know About, Gartner
Group, 2002
Personalization in EC (cont.)
  • Major strategies used to compile user profiles
  • Solicit information directly from the user
  • Observe what people are doing online
  • cookie
  • Build from previous purchase patterns
  • Perform marketing research

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

Collaborative Filtering 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
  • Why?
  • How?

Collaborative Filtering in EC (cont.)
  • Variations of collaborative filtering
  • Rule-based filtering
  • Content-based filtering
  • Activity-based filtering
  • Legal and ethical issues in collaborative
  • Invasion-of-privacy issues
  • Permission-based personalization tools to request
    customer permission

Customer Loyalty 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
  • lower marketing costs
  • lower transaction costs
  • lower customer turnover expenses
  • lower failure costs
  • E-loyalty Customer loyalty to an e-tailer

Initial Trust Model
Disposition to Trust Propensity to Trust
Cognitive Processes Demographic Dissimilarity
Trusting Intention
Trusting Beliefs
Institution-based Trust Procedural Justice
Trust 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
  • Culture
  • EC computing environment (security etc.)
  • EC infrastructure

Exhibit 4.6 The EC Trust Model
Trust certificates, seals Vendor evaluation
(BBB)Product evaluation Free samples Return
policy Privacy statement Co-branding,
alliances Education efforts by vendor
stressing the use of security, size and
financial resources Simplicity of
shopping Navigation, Web design
Trust in internet merchant
EC Trust
Trust in internet as shopping channel
Trust in business and regulatory environments
Business culture Consumer protection Effective law
Demographics, previous experience, personality,
cultural differences
Peers success stories Referrals
Source Lee, Matthew K.Q. and E. Turban, A Trust
Model for Consumer Internet Shopping, Vol. 6(1),
M.E. Sharpe, Inc., 2001
One-to-One Marketing and Personalization in EC
  • How to increase EC trust
  • between buyers and sellers trust is determined
  • degree of initial success that each party
    experienced with EC and with each other
  • well-defined roles and procedures for all parties
  • realistic expectations as to outcomes from EC

One-to-One Marketing and Personalization in EC
  • 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

4.4 Market Research for EC
  • Goal of market research is to find information
    and knowledge that describes the relationships
  • consumers
  • products
  • marketing methods
  • marketers

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
  • How?

Market Research for EC (cont.)
  • Market segmentation The process of dividing a
    consumer market into logical groups for
    conducting marketing research, advertising, and
  • Why? How?
  • Market research tools
  • data modeling
  • data warehousing (data mining)

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

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

Data Mining Examples
  • A telephone company used a data mining tool to
    analyze their customers data warehouse. The
    data mining tool found about 10,000 supposedly
    residential customers that were expending over
    1,000 monthly in phone bills.
  • After further study, the phone company discovered
    that they were really small business owners
    trying to avoid paying business rates

Other Data Mining Examples
  • 65 of customers who did not use the credit card
    in the last six months are 88 likely to cancel
    their accounts.
  • If age lt 30 and income lt 25,000 and credit
    rating lt 3 and credit amount gt 25,000 then the
    minimum loan term is 10 years.
  • 82 of customers who bought a new TV 27" or
    larger are 90 likely to buy an entertainment
    center within the next 4 weeks.

Market Research for EC (cont.)
  • Online market research methods
  • Web-based surveys
  • Online focus groups
  • Hearing directly from customers
  • Customer scenarios
  • Tracking customer movements
  • Transaction log
  • A record of user activities at a companys Web
  • Clickstream behavior
  • a pattern of customer movements on the Internet
    and, what the customer is doing there

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

Market Research for EC (cont.)
  • Limitations of online market research
  • too much data may be available need 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
  • 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

4.5 CRM and Its Relationship with EC
  • Customer relationship management (CRM) recognizes
    that customers are the core of a business and
    that a companys success depends on effectively
    managing its relationship with them.
  • Customer relationship management (CRM)
  • A customer service approach or process that
    focuses on building long-term and sustainable
    customer relationships that add value both for
    the customer and the company
  • A business strategy to select and manage
    customers to optimize long-term value

CRM and Its Relationship with EC (cont.)
  • Types of CRM Activities
  • Operational
  • Typical business functions involving customer
    services, order management, invoice/billing, or
    sales and marketing automation and management
  • Analytical
  • Activities such as capture, store, extract,
    process, interpret, and report customer data to a
    user then analyzes them as needed
  • Collaborative
  • Deal with all necessary communication,
    coordination, and collaboration between vendors
    and customers

CRM and Its Relationship with EC (cont.)
  • Classification of CRM programs
  • Loyalty program
  • Prospecting
  • Save or win back
  • Cross-sell/up-sell and ?
  • e-CRM Customer relationship management conducted
  • e-Service vs. e-CRM

CRM and Its Relationship with EC (cont.)
  • Scope of CRM
  • Foundation of service
  • Customer-centered services
  • Value-added services

CRM and Its Relationship with EC (cont.)
  • Extent of service
  • Customer acquisition (prepurchase support)
  • Customer support during purchase
  • Customer fulfillment (purchase dispatch)
  • Customer continuance support (postpurchase)

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

Case 4.2 Online Weekend in Florence A Customer
Service Success Story (p.150)
  • Questions
  • 1. List the sites critical success factors
  • 2. Relate the case to e-loyalty and trust
  • 3. How can this business grow and contend with
    competitors without any advertising budget?
  • 4. Enter and identity additional customer
    service features

CRM and Its Relationship with EC (cont.)
  • CRM implementation issues
  • Steps in building EC strategy focused on
  • the end customer
  • systems and business processes that are designed
    for ease of use and from the end customers point
    of view
  • efforts to foster customer loyalty (the key to
    profitability in EC)

CRM and Its Relationship with EC (cont.)
  • Five factors required to implement a CRM program
  • Customer-centric strategy
  • Commitments from people
  • Improved or redesigned processes
  • Software technology
  • Infrastructure

Focus on e-Business Applications
Knowledge Management/Business Intelligence
E-Customer Relationship
E-Channel Management
Procurement Network
Trading Network
Businesses Consumers (CRM)
Businesses (PRM)
E-Portal Management E-Business, E-Services
SCM/ERP/Legacy Appls
CRM and Its Relationship with EC (cont.)
  • Justifying customer service and CRM programs
  • Metrics Standards of performance may be
    quantitative or qualitative (see next slide)

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

4.6 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
  • It is an integral part of a successful business

CRM Applications and Tools (cont.)
  • Classifications of CRM applications
  • Customer-facing applications
  • Customer-touching applications
  • Customer-centric intelligence applications
  • Online networking and other applications

Source The Patricia Seybold Group (2002)
CRM Applications and Tools (cont.)
  • 1. 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
  • help desks, sales force automation, field service

Exhibit 4.9 CRM Applications
Customer systems
The Customer Experience
Customer- Touching Systems
Self-service Customer support
Campaign Management
Customer- Facing Systems
Contact Center
Sales Force Automation
Field Service Automation
Customer Intelligence
Back Office Systems
Supplier Systems
Exhibit 4.10 Intelligent Agents in Call Centers
Call Center Agent
Customer Service
E-Commerce Server
Web Guide Agent
EC Agent
Web Server
Product Database
Messenger Agent
Sales Rep Agent
Direct Sales and Marketing
Mail Server
CRM Applications and Tools (cont.)
  • 2. Customer-touching applications
  • Personalized Web Pages
  • E-Commerce Applications
  • Campaign Management
  • 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

CRM Applications and Tools (cont.)
  • 3. Customer-centric applications
  • Data reports
  • Data warehouse
  • A single, server-based data repository that
    allows centralized analysis, security, and
    control over the data

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

CRM Applications and Tools (cont.)
  • 4. Online networking and other applications
  • Forums
  • Chat rooms
  • Usenet groups
  • E-mail newsletters
  • Discussion lists

4. Online networking and other applications
  • 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

(No Transcript)
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

Case 4.3 American Airlines Offers Personalized
Web Sites (p. 157)
  • Questions
  • 1.What are the benefits of the personalized
    pages to American Airlines?
  • 2. What role do intelligent agents play in the
    personalization process?

4.7 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

Internet Marketing in B2B (cont.) redraw
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 well-defined
  • affiliation service (
  • advertising
  • Electronic wholesalers
  • intermediary sells directly to businesses, but
    does so exclusively online

Internet Marketing in B2B (cont.)
  • Other B2B marketing services
  • Digital Cement
  • provides corporate marketing portals that help
    companies market their products to business
  • National Systems
  • tracks what is going on in an industry
  • BusinessTown
  • provides information and services to small
    businesses, including start-ups
  • Vantagenet
  • offers free tools that help increase traffic to
    a companys Web site

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
  • Infomediaries
  • Online data mining services

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?
  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

  1. Essentials of consumer behavior.
  2. The online consumer decision-making process.
  3. Building one-to-one relationships with customers.
  4. Online personalization.
  5. Increasing loyalty and trust.
  6. EC customer market research.
  7. CRM, its technologies, and EC connection.
  8. Implementing customer service online.
  9. B2B Internet marketing and organizational buyers.

(No Transcript)
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