Consumer Behavior Online

Oct.
24, 2002 Consumer Behavior Online 1

Consumer Behavior Online
October 24, 2002
Haejin Yun
Oct. 24, 2002 Consumer Behavior Online 2
Centaur
Centaur
Traditional
Consumer
Cyber
Consumer
Centaur
A Hybrid Consumer: A combination of
Traditional and Cyber, Rational
and Emotional, and Wired and
Physical.
Convergence
The combination of old and new, traditional approaches
and new approaches based on new technologies. Rather
than an either/or approach, the focus of convergence is on
"both." This goes beyond the more narrow definition of
"convergence" as a combination of technologies.

Convergence within the consumer: The new possibilities
created by the technology and the enduring behaviors of
human beings.

More than the bricks-and-clicks business model
Basic Propositions
1. The new technologies do not replace the
old.
2. People are complex, retaining the same
enduring human needs even as they adapt
to new technologies and behaviors.
5 Cs
Marketing challenges brought by the
Centaur
1. Customerization
2. Virtual Communities
3. Channel Options
4. Competitive Value Equation
5. Choice Tools
Sally Anderson
Looks at a tiny city on the southern coast of Norway
through a video cam.
Receives and forwards a joke by email
Picks up and read the days newspaper
Grocery shopping at a local supermarket (careful
selection of fruits, smell of coffee, promotion coupon,
purchase of discount shampoo for her husband
Buys Sallys own shampoo and other personal
products at Reflect.com.
Chats with her friends who she happens to meet at
the counter
Returns a pair of Nine West shoes that she bought
online at Nordstrom
Sally Anderson
Tries on some dresses and perfumes while waiting for
the time when her daughters soccer practice finishes
Buys a book that her friend strongly recommended at
Amazon.com.
Enjoys an afternoon sipping cappuccino at Barnes &
Noble
Sends a care package of her sons favorite foods to his
dorm every two weeks through Peapod
Book a flight for her son at Hotwire.com
Checks different pricing for a same digital picture
frame and purchase the cheapest
Visits iVillage.com before her visit to her doctor
Watches TV commercials with her husband
Who is the Centaur?
Online Population
Early Internet users: geeky white guys
The online population is more like the offline,
general population Diverse segments
Not based on demographic factors, but rather
on online experiences, wired lifestyle, time
pressure, purchases from catalogs
Heterogeneous
Generation Y
Who is the Centaur?
McKinsey Report
1. Connectors: New users; more offline purchase
2. Samplers: Light users
3. Simplifiers: Efficiency seekers
4. Routiners: Go online for information but not
primarily interested in shopping
5. Surfers: Heavy users; spend lots of time online;
Searching multiple domains
6. Bargainers: Online price comparison; Shop for the
best buy
7. Funsters: Looking for information in entertainment-
oriented domains
Myths of the Traditional
Consumer
1. Only the elite want customerization
2. Price is the bait set by the seller
3. The consumer is on the couch
4. Location, location, location
5. Consumers are islands
6. Customers will accept what you tell them
Myths of the Cyberconsumer
1. People dont want to be troubled with shopping
2. Efficiency is all that matters
3. Consumers want to get the best price
4. Consumers are either online or offline
5. Ease of visiting stores will lead to more
purchasing
6. The Internet is inherently fascinating and
attractive
Human Motivations
1. Self-affirmation
2. Symbolic meaning
3. Scripts for shopping
4. Experience
5. Social influences

Transaction efficiency or Information efficiency
Describe Online Consumers
How ?
A. Demographics: Age, Education, Income,
Gender
B. Pychographics: Religious values, Social vaules,
Personality traits
C. Scarborough Research (1999): Combined
demographic data with lifestyle data.
Why Shop Online?
A. Time saving, Convenience, Best price, One-stop
Shopping
Money
The form of money affects its meaning to consumers;
The difference in tangibility
Desired transactions Prefer the actual act of the
transaction (Giving up money is not painful)
Undesired transaction Prefer the digital and less
salient form of payment
The Internet environment separates the meaning of
money from its physical being, may facilitate
transaction for unexpected, undesired or aversive
transactions, but may discourage transaction that
provides the consumer with pleasure.
Information
Two types of online information
1. Information as an end
Information is a product itself
eg. Read online news
2. Information as a means to an end
eg. Information search to buy a car or
calculating the level of body fat
Information
Information in the decision-making process
Information Search Information Evaluation
Choice
Information Search
1. The Internet facilitates Information Search or
makes it difficult ?
A. Facilitates through the wide array of
information available on the Internet & the
variety of search engines
B. Taxes consumers processing ability
Economics of information & Information
overload
Information
Economics of Information
1. People will continue searching for information as
long as the benefits of each new piece are not
exceeded by the costs of it.
2. As the costs decrease, the number of alternatives (the
size of a consideration set) increases.

Information Overload
1. Given limits to peoples processing capabilities,
larger amounts of information to consider may result
in poorer quality decision.
Information
Information evaluation
How consumers structure the information in
decision making (create a representation of the
information): past experience or environmental
factors
Effort/Accuracy approach
The more effort people invest, the more accurate
the final decision may result
Decision Heuristic

Goods
Types of goods
1. Search: The benefits of consumption can be
understood just with attribute descriptions.
2. Experience: Can be evaluated only after being
consumed.
3. Credence: Can't be easily evaluated even after being
consumed.

Forms of good
1. Physical
2. Digital
Goods
How the Internet affects
1. Search goods: Can facilitate consumers' ability to
obtain attribute information. But may have a
damaging effect on decision quality.
2. Experience goods: Difficult to provide enough
experience for consumers to assess the benefits of the
product Offline trial & Online purchase
3. Credence: How to help consumers form a set of
beliefs about the quality of the product? Access to
other people's beliefs about the quality of the product
such as product testimonials
Services
Differences between goods and services
Goods
Tangibility
Specificity (Particularism)
Services
Inseparability: Service cannot be separated from its
consumption
Heterogeneity: The variation that may exist because a
service is performed by different people in a different
places at different times.
Perishability: Cannot be stored in warehouses

Status
Status: The rank or evaluation of one person,
relative to a comparison group of peers
Scarcity: the motivating factor for Status
How the Internet affects
The Internet may help obtain scarce resource
Demonstrating high levels of Internet-related skills may
confer a higher status
The impersonality of the Internet may decrease
hierarchical communications patterns.
Love
The effects of the Internet on emotional
well-being
Very positive: Online social support groups
But may decrease the amount of interpersonal
interaction
Fewer social cues only for informational
communication ?
An Involvement Continuum for
E-Commerce
Phase I: Familiarity with the Internet and use of
the Internet by employees
Phase II: The Internet used to communicate
features and benefits of its products or services
Phase III: Conduct transactions-related activities
online
Phase IV: Front-end applications augmented by
back-end applications
Front-end applications: customer service applications
Back-end applications: sales lead database, order-
processing software
Company Revenue, Structure,
and Process
Netcentricity: The percentage of revenues due to
online activity as a portion of the total revenues
earned by a company
Platform approach: Operating in a team across
different organizational functions
Internet time Expectation about the amount of
time shortened
Information acceleration Product cycles
shortened
Challenges of the Internet: 5 Cs
Company
Employee growth rate: higher in the infrastructure
segment, lower in the intermediary segment
Decreased employee productivity due to Web surfing
Channel
The Internet as a distribution channel
Infomediaries: Manage the transmission of distribution-
related information
Consumer
Lower search costs Empowered consumers
Challenges of the Internet: 5 Cs
(Market) Condition
Marketing activities more directly affected by the
environmental factors such as technology and public
policy.
Competition
Internet Time Shorter product cycles & Decreased
product differentiation
Strategic alliances rather than zero-sum approaches (eg.
AOL & Time Warner merger)
Same product & different means of consumption (eg.
E*TRADE vs. Merrill Lynch)

Consumer Behavior Online

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