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Chapter 4

Consumer Behavior, Customer Service, and

Advertising

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Learning Objectives

Describe the factors that influence consumer behavior onlineUnderstand the decision-making process of consumer purchasing onlineDescribe how companies are building one-to-one relationships with customersDiscuss the issues of e-loyalty and e-trust in EC

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Explain how personalization is accomplished onlineDescribe consumer market research in ECExplain the implementation of customer service online and describe its toolsDescribe the objectives of Web advertising and its characteristics

Learning Objectives (cont.)

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Learning Objectives (cont.)

Describe the major advertising methods used on the WebDescribe various online promotionsDescribe the issues involved in measuring the success of Web advertisements as it relates to different pricing methods.Understand the role of intelligent agents in consumer issues and advertising applications

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Ritchey Design LearnsAbout Customers

The ProblemSmall business designing and manufacturing mountain bike components1995 Web site was a status symbol rather than a business toolThe site did not:

Offer enough customer informationEnable the company to gain insight into their customers’ needs and wants

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Ritchey Design LearnsAbout Customers (cont.)

The SolutionCustomer surveys introduced the site

Web Trader automatically saves and organizes answers in the database—this information is used to make marketing decisions

Created an electronic product catalogVisitors can browse through the product catalog with detailed descriptions and graphics of products

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Ritchey Design LearnsAbout Customers (cont.)

The ResultsRitchey does not yet sell directly to individuals online, because the company wants to maintain its existing distribution system

Dealers can:Place orders on the siteLearn about new products quicklysite is basically used for market research and advertising

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Exhibit 4.1EC Consumer Behavior Model

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Consumer Behavior Online (cont.)

Consumer types—individual consumers who commands most of the media’s attentionOrganizational buyers

Governments and public organizationsPrivate corporationsResellers

Consumer behavior viewed in terms of:Why is the consumer shopping?How does the consumer benefit from shopping online?

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Variables in the Purchasing Environment

Social variables—people are influenced by:

Family members, friends, co-workers, “what’s in fashion this year”

Cultural/community variables—where the consumer livesOther environmental variables:

Available information, government regulations, legal constraints, situational factors

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Personal CharacteristicsPersonal Differences

Age and genderMarital statusEducational levelEthnicity

OccupationHousehold incomePersonality Lifestyle characteristics

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Exhibit 4.3Amount of Money Spent on the Web

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Consumer Purchasing Decision Making

Roles people play in decision-makingInitiator—suggests/thinks of buying a particular product or service

Influencer—advice/views carry weight in making a final buying decision

Decider—makes a buying decision or any part of it

Buyer—makes the actual purchase

User—consumes or uses a product or service

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General Purchasing Decision-Making Model

5 major phases of a general model1. Need identification2. Information search3. Evaluation of alternatives 4. Purchase and deliver5. After-purchase evaluation

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How One-to-One Relationships Are Practiced

Relationships as a two-way street:Customer information is collected and placed in a databaseCustomer’s profile is developed

Generate “four P’s” of marketing:Product PlacePrice Promotion

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How One-to-One Relationships Are Practiced (cont.)

Doing business over the Internet enables companies to:

Communicate better with customersUnderstand customers’ needs and buying habits better Improve and customize their future marketing efforts

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Exhibit 4.5The New Marketing Model

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Personalization

Personalization—the matching of services, products, and advertising content to individual consumer

User profile—the requirements, preferences, behaviors, and demographic traits of a particular customer

Cookie—a data file that is placed on a user’s hard drive by a Web server, frequently without disclosure or the user’s consent, that collects information about the user’s activities at a site

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Personalization (cont.)

Major strategies used to compile user profiles include:

Solicit information directly from the user.Use cookies or other methods to observe what people are doing onlinePerform marketing researchBuild from previous purchase patterns

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Collaborative Filtering

Collaborative filtering—a personalization method that uses customer data to predict, based on formulas derived from behavioral studies, what other products or services a customer may enjoy; predictions can be extended to other customers with similar profilesVariations of collaborative filtering

Rule-based filtering, content-based filtering, activity-based filtering

Legal and ethical issuesPrivacy issuesPermission-based personalization tools

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Customer Loyalty & E-Loyalty

Customer loyalty—degree to which customer stays with vendor or brand

Important element in consumer purchasing behavior

One of the most significant contributors to profitability

E-loyalty—customer’s loyalty to an e-tailer

Learn about customers’ needs

Interact with customers

Provide customer service

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Trust in EC

Trust—psychological status of involved parties who are willing to pursue further interactions to achieve a planned goal

EC vendors must establish high levels of trust with current and potential customersParticularly important in global EC transactions

Level of trust determined by:Degree of initial success experienced with EC Well-defined roles and procedures for all parties involvedRealistic expectations as to outcomes from EC

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How to Increase EC Trust

Trust can be decreased by:Any user uncertainty regarding the technology Lack of initial face-to-face interactionsLack of enthusiasm among the parties

Brand recognition is very important in EC trustEC security mechanisms can also help solidify trust

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Market Research for EC

Goal–find information and knowledge that describes relationships among

ConsumersProductsMarketing methodsMarketers

Aim—find relationship between

Discover marketing opportunities and issuesEstablish marketing plansBetter understand the purchasing processEvaluate marketing performance

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Market Research for EC (cont.)

EconomyIndustry Firms ProductsPricing

DistributionCompetitionPromotionConsumer purchasing behavior

Market research includes gathering information about:

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Market Research for EC (cont.)

Various tools are used to conduct consumer market research:

Questionnaires Surveyors Telephone surveysFocus groups

Important first to understand how groups of consumers are classified

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Market Segmentation

Market segmentation—process of dividing a consumer market into logical groups for conducting marketing research, advertising, and sales

Geography Demographics Psychographics Benefits sought

Segmentation is done with the aid of tools:

Data modeling Data warehousing

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Conducting Market Research Online

Powerful tool for research regarding:Consumer behaviorDiscover of new marketsConsumer interest in new products

Internet-based market researchInteractive—allowing personal contactGives better understanding of customer, market, and competition

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What Are We Looking For in EC Market Research?

Major factors used for prediction are:

Product information requestedNumber of related e-mailsNumber of orders madeWhat products/services are orderedGender

Online market research attempts to find:

Purchase patterns for individuals and groupsFactors that encourage online purchasingHow to identify real buyers and browsers How an individual navigatesOptimal Web page design

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EC Market Research (cont.)

Interactive Internet-based market research

Allows personal contact with customersProvides marketing organizations with greater ability to understand customer, market, and competition

Identify early shifts in product and customer trends

Enables marketers to identify products and marketing opportunities Develop products that customers really want to buy

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Online Market Research Methods

Web-based surveys Free software to create survey forms and analyze results is available at

supersurvey.comwebsurveyor.com

Online focus groups—help overcome some problems that limit the effectiveness of Web-based surveys (sample size, partial responses)

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Online Market Research Methods (cont.)

Tracking customer movements—learn about customers by observing their behavior rather than by asking them questions

TransactionClickstream behaviorCookiesWeb bugs

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Limitations of Online Market Research Methods

Accuracy of responsesLoss of respondents because of equipment problemsEthics and legality of Web trackingFocus group responses can lose something in the translation from an in-person group to an online group

Eye contact and body language are lostAnonymity is necessary to elicit an unguarded response

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Data Mining

Data mining—the process of searching a large database to discover previously unknown patterns; automates the process of finding predictive information

New business opportunities generated by conducting:

Automated prediction of trends and behaviorsAutomated discovery of previously unknown patterns and relationships

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Data Mining (cont.)

Data mining tools and techniques:Neural computingIntelligent agentsAssociation analysis

Sample data mining applicationsRetailing and sales distributionBanking BroadcastingAirlines Marketing

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Web Mining

Web mining—application of data mining techniques to discover meaningful patterns, profiles, and trends from both the content and usage of Web sites

Web content miningWeb usage mining

Web mining is critical for EC due to the large number of visitors to EC sites

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Limitations of Online Market Research

Lack of representativeness in samples of online users

Online shoppers tend to be wealthy, employed, and well educated; results may not be extendable to other markets

The right kind of sampling is achieved through verification of target audience or demographic

Anonymity causes a loss of information about demographics and characteristics of the respondents

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Delivering Customer Servicein Cyberspace

Customer service—a series of activities designed to enhance customer satisfaction (the feeling that a product or service has met the customer’s expectations)

Traditional: do the work for the customerEC delivered: gives tools to the customer to do the work for him/herself

E-service—customer services supplied over the Internet

Foundation of serviceCustomer-centered servicesValue-added services

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Delivering Customer Servicein Cyberspace (cont.)

Value chain for Internet serviceCustomer acquisition (pre-purchase support)Customer support during purchase—provides a shopping environment that is efficient, informative, productive

Customer fulfillment (purchase dispatch)—timely deliveryCustomer continuance support (post- purchase)—maintain the customer relationship between purchases

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Customer Relationship Management

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 companyBuilding a customer-centered EC strategy

Focus on the end customerSystems and business processes designed for ease of use Foster customer loyalty

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Customer Relationship Management (cont.)

Actions for successful EC strategyDeliver personalized servicesTarget the right customersHelp the customers do their jobsLet customers help themselvesStreamline business processes that impact the customers“Own” the customer ’s total experience by providing every possible customer contact Provide a 360-degree view of the customer relationship

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Customer Service Tools

Personalized Web pagesUsed to record purchases and preferenceDirect customized information to customers efficiently

E-mail and automated responseDisseminate general informationSend specific product informationConduct correspondence regarding any topic (mostly inquiries from customers)

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American Airlines Offers Personalized Web Sites

American Airlines (aa.com) unveiled a the most advanced personalized, one-to-one interactions and transactions on its Web site in 1998

Intelligent agents enable the generation of personalized Web pages for each of its 1 million registered, travel-planning customers

Broadvision’s application dynamically matches customer profiles to a database

Output of the matching process triggers the creation of a real-time customized Web page

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American Airlines (cont.)

The use of intelligent-agent technology built a considerable edge over AA’s competitorsPersonalizing Web pages is becoming more important in:

Increasing customer loyaltyCementing relationships with customers Fostering the community of AA frequent flyers

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Customer Service Tools (cont.)

Call center—a comprehensive service entity in which EC vendors address customer service issues communicated through various contact channels

Telewebs—call centers that combine Web channels with portal-like self-service; combine

Justifying CRM programs—two problemsMost of the benefits are intangibleSubstantial benefits reaped only from loyal customers, after several years

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Metrics

Response timesSite availabilityDownload timesTimeliness

Security and privacyOn-time order fulfillmentReturn policyNavigability

Metrics—measures of performance; may be quantitative or qualitative

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Web Advertising

Advertising is an attempt to disseminate information in order to affect a buyer-seller transactionInteractive marketing—marketing that allows a consumer to interact with an online seller

Two-way communication and e-mail capabilitiesVendors also can target specific groups and individualsEnables truly one-to-one advertising

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Internet Advertising Terminology

Ad views—number of times users call up a page that has a banner on it during a specific time period; known as impressions or page views.Button—a small banner that is linked to a Web sitePage—HTML documentClick—a count made each time a visitor clicks on an advertising banner to access the advertiser ‘s Web site (ad clicks and click throughs)

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Internet Advertising Terminology (cont.)

CPM (cost per thousand impressions)—fee an advertiser pays for each 1,000 times a page with a banner ad is viewed

Hit—request for data from a Web page or fileVisit—a series of requests during one navigation of a Web a site; a pause of request for a certain length of time ends a visit

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Why Internet Advertisement?

3/4 of PC users gave up some television timeWell educated, high-income Internet users are a desired target for advertisersInternet is by far the fastest growing communication medium Advertisers are interested in a medium with such potential reach, both locally and globally

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CostOnline ads are cheaper than those in other mediaAds can be updated at any time with minimal cost

Richness of formatUse of text, audio, graphics, and animationGames, entertainment, and promotions are easily combined in online ads

PersonalizationCan be interactiveCan target specific interest groups and/or individuals

Why Internet Advertisement? (cont.)

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Exhibit 4.11Adoption Curves for Various Media

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Advertising Networks

Advertising networks (ad server networks)—specialized firms that offer customized Web advertising, such as brokering ads and helping target ads to selected groups of consumersOne-to-one targeted ads and marketing can be:

ExpensiveVery rewardingVery effective

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Targeted Advertisements:The DoubleClick Approach

One-to-one targeted advertisements can take many forms

3M Corp. wants to advertise its multimedia projectors3M approaches DoubleClick, Inc. and asks the firm to identify such potential customers

How does DoubleClick find them? Using cookies, DoubleClick (doubleclick.com/us) monitors people browsing the Web sitesFinds those people working for advertising agencies

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DoubleClick (cont.)

DoubleClick then prepares an ad about 3M projectors that greets targeted people whenever they browse participating sitesHow is this financed?

DoubleClick charges 3M for the adFee is then split with the participating Web sites that carry the 3M adsBased on how many times the ad is matched with visitors

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DoubleClick (cont.)

DoubleClick expanded the service—Dynamic Advertising Reporting and Targeting (DART):

Advertising controlAd frequency determinationProviding verifiable measures of success

DoubleClick brings:The right advertisement toThe right person atThe right time

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Advertisement Methods

Banner--on a Web page, a graphic advertising display linked to the advertiser’s Web page

Keyword bannersRandom banners

Benefits of banner adsCustomized to the target audience or one-to-one adsUtilize “force advertising” marketing strategyDirect link to advertiserMulti media capabilities

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Advertisement Methods (cont.)

Limitations of banner adsHigh costClick ratio—the ratio between the number of clicks on a banner ad and the number of times it is seen by viewers; measures the success of a banner in attracting visitors to click on the adDeclining click ratio—viewers have become immune to banners

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Advertisement Methods (cont.)

Banner swapping—an agreement between two companies to each display the other’s banner ad on its Web site

Direct link between one site to the other siteAd space bartering

Banner exchanges—markets in which companies can trade or exchange placement of banner ads on each other’s Web sites (bcentral.com)

Credit ratio of approximately 2:1Still the largest Internet advertising medium

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Advertisement Methods (cont.)

Pop-under ad—an ad that appears underneath the current browser window, so when the user closes the active window, they see the adInterstitials– an initial Web page or a portion of it that is used to capture the user’s attention for a short time while other content is loadingE-mail

Several million users may be reached directlyProblems: junk mail, spamming

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Advertisement Methods (cont.)

Standardized ads—on February 26, 2001, the Internet Advertising Bureau, an industry trade group, adopted five standard ad sizes for the Internet:

Larger and more noticeable than banner ads

Look like the ads in a newspaper or magazine

Users read these ads four times more frequently than banners

Appear on Web sites in columns or boxes

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Advertisement Methods (cont.)

Skyscraper ad—full column-deep

Sometimes as many as four on one Web pageInteractive—click on a link inside the ad for more information about a product or service

Classified ad—a newspaper-like ad

Special sites like classifieds2000.comOnline newspapers, exchanges, portals , Regular-size classified ads is free Larger size or with some noticeable features is done for a fee

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URL (Universal Resource Locators)Advantages:

Minimal cost is associated with itSubmit your URL to a search engine and be listedKeyword search is used

Disadvantages:Search engines index their listings differentlyMeta tags can be complicated

Advertisement Methods (cont.)

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Advertisement Methods (cont.)

Optimizing Web content improves discovery by a search engine

Keywordcount.comSearchenginewatch.com

Paid search-engine inclusionSeveral search engines charge fees for including URLs near the top of the search resultsA debatable issue is the ethics of this strategy

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Advertising in chat roomsVirtual meeting groundFree addition to a business siteAllows advertisers to cycle through messages and target the chatter again and againAdvertising can become more thematicMore effective than bannersUsed for one-to-one connections

Advertorial—an advertisement “disguised” to look like an editorial or general information

Advertisement Methods (cont.)

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Advertising Strategies and Promotions

Associated ad display (text links)—an advertising strategy that displays a banner ad related to a term entered in a search engineAds as a commodity—direct payment made by the advertisers for ads viewedViral marketing (advocacy marketing)—word-of-mouth marketing by which customers promote a product or service by telling others about itCustomizing ads—one-to-one advertisement (Webcasting)

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Advertising Strategies and Promotions (cont.)

Online events, promotions, and attractions

Promotions designed to attract visitors are regular events on thousands of Web sites

Contests CouponsQuizzes Giveaways

Bargains on the InternetLotteryFree samples,give-aways, and sweepstakes

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Advertising Strategies and Promotions (cont.)

Major considerations when implementing an online ad campaign:

Clearly understood online surfers as target audience Powerful enough server prepared to handle the expected volume of trafficAssuming the promotion is successful, what will the result be?

Evaluate the budget Promotion strategy

Consider co-branding—bring together two or more powerful partners

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Special Advertising Topics

Pricing of advertisingJustifying the cost of Internet advertisement is difficult for two reasons: 1. The difficulty in measuring the

effectiveness of online advertising and

2. Disagreements on pricing methods

Pricing based on ad viewsPricing based on click-through

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Special Advertising Topics (cont.)

Payment based on interactivityThe interactivity model bases ad pricing on how the visitor interacts with the target ad

Payment based on actual purchasePay for ads only if an actual purchase has been made (affiliate programs)

Permission advertising (permission marketing)—advertising (marketing) strategy in which customers agree to accept advertising and marketing materials

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Special Advertising Topics (cont.)

Measuring, auditing, and analyzing web traffic

Site audit validates the number of ad views and hits claimed by the siteRating—looks at multiple criteria including content, attractiveness, ease of navigation, and privacy protectionSites with higher ratings command higher prices for advertising placed on their sitesCompanies use software to assess if placing ads really increases traffic to their sites

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Special Advertising Topics (cont.)

Localization—the process of converting media products developed in one country to a form culturally and linguistically acceptable in countries outside the original target marketUsing internet radio for localization

Internet radio—a Web site that provides music, talk, and other entertainment, both live and stored, from a variety of radio stations

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Software Agents in Customer-Related Advertising Applications

EC agents supportNeed identificationProduct brokeringMerchant brokering and comparisonBuyer-seller negotiationAgents that support purchase and deliveryAgents that support after-sale service and evaluation

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Fujitsu Uses Agents for Targeted Advertising in Japan

Fujitsu (fujitsu.com) is a Japanese-based global provider of Internet-focused information technology solutions

Has been using an agent-based technology called Interactive Marketing Interface (iMi) since 1996Advertisers interact directly with consumers while ensuring that consumers remain anonymous

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Fujitsu (cont.)

Consumers submit a personal profile to iMi Customers receive by e-mail :

Product announcementsAdvertisementsMarketing surveys

Answer marketing surveys or acknowledging receipt of adsThey earn iMi points redeemable for:

Gift certificatesPhone cards

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Software Agents in Customer-Related Advertising Applications (cont.)

Character-Based Interactive AgentsAvatars—animated computer characters that exhibit human-like movements and behaviorsSocial computing—an approach aimed at making the human– computer interface more natural

Chatterbots—animation characters that can talk (chat)

Mr. Clean at mrclean.com"Katie“ at dove.com

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Software Agents in Customer-Related Advertising Applications (cont.)

Agents that support auctionsAgents often act as auction aggregators, some provide real-time access to auctions

Agents support consumer behavior, customer service, and advertising activitiesEC agents found at:

Botspot.comAgentland.comAgents.umbc.edu

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Managerial Issues

Do we understand our customers?What do customers want from technology?How is our response time?How do we improve and measure customer service?Should we use intelligent agents?Is our market research leading to customer acquisition?Are customers satisfied with our Web site?Should we advertise anywhere but our own site?

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Managerial Issues (cont.)

What is our commitment to Web advertising, and how will we coordinate Web and traditional advertising?Should we integrate our Internet and non-Internet marketing campaigns?What ethical issues should we consider?Have we integrated advertising with ordering and other business processes?How important is branding?

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Summary

Essentials of consumer behaviorThe online consumer decision-making processBuilding one-to-one relationships with customersIncreasing loyalty and trustOnline personalizationEC customer market researchImplementing customer service

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Summary (cont.)

Objectives and characteristics of Web advertisingMajor online advertising methodsVarious advertising strategiesTypes of promotions on the WebMeasuring the advertising success and pricing adsIntelligent agents