Consumer Behavior Online

October 24, 2002

Haejin Yun

Oct. 24, 2002 Consumer Behavior Online 1

 Centaur

Oct. 24, 2002 Consumer Behavior Online 2

 Centaur

Traditional Cyber
Consumer Centaur Consumer

A Hybrid Consumer: A combination of

Traditional and Cyber,
Rational and Emotional, and
Wired and Physical.
Oct. 24, 2002 Consumer Behavior Online 3
 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

Oct. 24, 2002 Consumer Behavior Online 4
 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.

Oct. 24, 2002 Consumer Behavior Online 5

 5 Cs
• Marketing challenges brought by the
Centaur
1. Customerization
2. Virtual Communities
3. Channel Options
4. Competitive Value Equation
5. Choice Tools
Oct. 24, 2002 Consumer Behavior Online 6
•
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 day’s newspaper
• Grocery shopping at a local supermarket (careful selection of
fruits, smell of coffee, promotion coupon, purchase of discount
shampoo for her husband
• Buys “Sally’s 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

Oct. 24, 2002 Consumer Behavior Online 7

•
Sally Anderson
Tries on some dresses and perfumes while waiting for the time
when her daughter’s 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 son’s 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

Oct. 24, 2002 Consumer Behavior Online 8

 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
Oct. 24, 2002 Consumer Behavior Online 9
•
Who
McKinsey Report
is the Centaur?
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

Oct. 24, 2002 Consumer Behavior Online 10

 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

Oct. 24, 2002 Consumer Behavior Online 11

 Myths of the Cyberconsumer
1. People don’t 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
Oct. 24, 2002 Consumer Behavior Online 12
 Human Motivations
1. Self-affirmation
2. Symbolic meaning
3. Scripts for shopping
4. Experience
5. Social influences

• Transaction efficiency or Information efficiency

Oct. 24, 2002 Consumer Behavior Online 13

 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

Oct. 24, 2002 Consumer Behavior Online 14

 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.

Oct. 24, 2002 Consumer Behavior Online 15

 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

Oct. 24, 2002 Consumer Behavior Online 16

 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

Oct. 24, 2002 Consumer Behavior Online 17

 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 people’s processing capabilities, larger
amounts of information to consider may result in poorer
quality decision.

Oct. 24, 2002 Consumer Behavior Online 18

 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

Oct. 24, 2002 Consumer Behavior Online 19

 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

Oct. 24, 2002 Consumer Behavior Online 20

 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

Oct. 24, 2002 Consumer Behavior Online 21

 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

Oct. 24, 2002 Consumer Behavior Online 22

 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.
Oct. 24, 2002 Consumer Behavior Online 23
 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 ?

Oct. 24, 2002 Consumer Behavior Online 24

 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

Oct. 24, 2002 Consumer Behavior Online 25

 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
Oct. 24, 2002 Consumer Behavior Online 26
 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
Oct. 24, 2002 Consumer Behavior Online 27
 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)
Oct. 24, 2002 Consumer Behavior Online 28