Chapter 7

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Chapter 7

E-commerce

business. technology. society.

Fourth Edition

Kenneth C. Laudon

Carol Guercio Traver

Copyright © 2007 Pearson Education, Inc. Slide 7-1

Chapter 7

E-commerce Marketing Communications

Copyright © 2007 Pearson Education, Inc. Slide 7-2


Video Ads Cure Banner Blindness:

String Master

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

Copyright © 2007 Pearson Education, Inc. Slide 7-3

Actiontuners.com

Copyright © 2007 Pearson Education, Inc. Slide 7-4


Marketing Communications

• Online marketing communications: Methods

used by online firms to communicate with

consumer and create strong brand

expectations

• Promotional sales communications: Suggest

consumer “buy now” and make offers to

encourage immediate purchase

• Branding communications: Focus on extolling

differentiable benefits of consuming product

or service

• Many forms of online marketing

communications: online advertising, email

marketing, public relations, and Web sites

Copyright © 2007 Pearson Education, Inc. Slide 7-5

Online Advertising

• 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:

• Adults (age 18-34) are using the Internet

• 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

Copyright © 2007 Pearson Education, Inc. Slide 7-6


Online Advertising from 2000-2011

Figure 7.1, Page 419

SOURCES: Based on data from eMarketer, 2007a, 2005a; IAB/PricewaterhouseCoopers,

2007, 2005; Universal McCann, 2007, 2005.

Copyright © 2007 Pearson Education, Inc. Slide 7-7

Forms of Online Advertisements

• Display and rich media/video ads

• Search engine advertising: Paid search

engine inclusion and placement

• Sponsorships

s ps

• Referrals (affiliate relationship marketing)

• E-mail marketing

• Online catalogs

• Online chat

• Blog advertising

Copyright © 2007 Pearson Education, Inc. Slide 7-8


Table 7.2: Online Advertising Spending

for Selected Formats

Format 2007 2011 % Change

Paid search $8,624 $16,590 92%

Rich media/video $1,755 $5,481 212%

Display ads $4,687 $8,190 75%

Classified $3,638 $6,930 90%

Referrals $1,733 $3,675 112%

Sponsorships $535 $504 -6%

E-mail $428 $630 47%

Total $21,400 $42,000 96%

Copyright © 2007 Pearson Education, Inc. Slide 7-9

Display Ads

• Banners

• Display promotional message in a rectangular box on a

computer screen

• Sometimes feature Flash video and animations or

animated GIFs

• Pop-ups and pop-unders

• Banners and buttons appearing on screen without user

calling for them

• Although the most annoying form of marketing

communication, twice as effective than normal banner ads

in terms of click-through rates, simply because users

unintentionally click on the ads while trying to close them.

Copyright © 2007 Pearson Education, Inc. Slide 7-10


Types of Display Ads Specified by

Interactive Advertising Bureau (IAB)

Copyright © 2007 Pearson Education, Inc. Slide 7-11

Rich Media/Video Ads

• Rich media/video ads: Employ Flash, DHTML,

Java, streaming audio and/or video

• The fastest growing form of online advertising:

about 212% from 2007 to 2011

• Advantage: Boost brand awareness (by 10%)

rather than driving sales

• Interstitial ads

• Placing full-page message between current and

destination pages of a user

• Move automatically ti to the requested page after ad

is read for some time

• Good interstitial ads have option to “skip through” or

“stop” for users who aren’t interested

t Copyright © 2007 Pearson Education, Inc. Slide 7-12


Rich Media/Video Ads

• Superstitial ads

• Offered by Viewpointi • Rich media ad that can be any size up to full

screen 900 x 500, and file size up to 600KB

• Differ from interstitials in that they are pre-loaded

into browser’s s cache and don’t play until fully

loaded

• After ad is fully downloaded, it waits until the user

clicks to another page before popping up in a

separate window

Copyright © 2007 Pearson Education, Inc. Slide 7-13

Table 7.3: Web Sites That US Online Video Viewers

Visit to Watch Videos Once a Week or More

Web Site

Percentage of Respondents

YouTube 42%

Television network, e.g., Abc.com 41%

News site, e.g., CNN.com 35%

Yahoo 25%

Google 24%

MySpace 19%

iTunes 7%

Other 19%

Total (have watched online video) 74%

Have never watched online 26%

Copyright © 2007 Pearson Education, Inc. Slide 7-14


Search Engine Advertising: Paid Search

Engine Inclusion and Placement

• One of fastest growing (from 1% of total online

advertising spending in 2000 to >40% in 2007) and most

effective forms of online marketing communications

• Huge audience:

• 70 million Americans (>40% of online population) use

a search engine daily, almost comparable to email

user population

p

• In total, generating around 8 billion searches per

month

• Can be very effective by responding with ads matching

the interests of users, creating click-through rate of 10-

12%

Copyright © 2007 Pearson Education, Inc. Slide 7-16

Search Engine Marketing Revenues

Copyright © 2007 Pearson Education, Inc. Slide 7-17


Search Engine Advertising: Paid Search

Engine Inclusion and Placement

• Types:

• Paid inclusion

i

• Paid placement

• Keyword advertising

• Merchants buy keywords through bidding for

ranking and visibility of their ads on search

result page

• Google AdWords, Yahoo PrecisionMatch,

Microsoft adCenter

• Network keyword advertising: Google AdSense

Copyright © 2007 Pearson Education, Inc. Slide 7-18

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

• Search engine click fraud

• When competitor hires third parties to fraudulently click

on competitor ads to drive up costs)

• When site publisher fraudulently clicks on ads posted on

their sites to increase ad revenue

• One variation is by using “click bots” that

automatically click on ads from hundreds of different

IP addresses

• Fraudsters call up a search results page where their

competitor’ ads appear, and do not click on competitor

ads, resulting in low ad popularity rank, which can result

in their being pushed down the rank order of ads

• Ad nonsense (Google AdSense ads that are inappropriate

for content)

Copyright © 2007 Pearson Education, Inc. Slide 7-19


Sponsorships and Affiliate Marketing

• Sponsorship: Paid effort to tie advertiser’s

name to particular information, event, venue

in way that t reinforces brand in positive, yet

not overtly commercial manner

• E.g., WebMd.com provides links to its

sponsor like Philips’ product such as

defibrillators

• Affiliate relationship: 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 site

Copyright © 2007 Pearson Education, Inc. Slide 7-20

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”

• Much cheaper compared to traditional

direct mail: $5-$10 per 1,000 VS $500-

$700 per 1,000

• Spam: Unsolicited commercial e-mail

• Spam is exploding out of control—70%–80% ofall

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)

Copyright © 2007 Pearson Education, Inc. Slide 7-21


Percentage of E-mail That Is Spam

Figure 7.6, Page 434

SOURCE: Based on data from MessageLabs.com, 2007.

Copyright © 2007 Pearson Education, Inc. Slide 7-22

Spam Categories

Figure 7.7, Page435

SOURCE: Symantec, 2007.

Copyright © 2007 Pearson Education, Inc. Slide 7-23


Other Forms of Online Marketing

Communications

• Online catalog

• Provides equivalent of paper-based catalog

• Was popular in early years, but quickly went out

because pages took so long to load

• Recently has gained back in popularity due to 54% of

online households now own broadband high-speed

connections in 2007

• 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

Copyright © 2007 Pearson Education, Inc. Slide 7-24

Targeted Marketing: Getting Personal

• Behavioral targeting efforts increasing; one of

fastest t growing online marketing techniques.

• Recent acquisitions by Google, Yahoo,

Microsoft of firms engaged in this type of

marketing have raised concerns

• Privacy groups, FTC are examining issues

raised by targeted methods

Copyright © 2007 Pearson Education, Inc. Slide 7-26


Mixing Offline and Online Marketing

Communications

• The original idea of moving all traditional

marketing based on mass media toward online

approach did not happen

• Traditional offline consumer-oriented oriented industries

have learned to use Web to extend brand images

and sales campaigns

• Online companies have learned how to use

traditional marketing communications (printed

media and TV) to drive sales to Web site

• Most successful marketing campaigns

incorporate both online and offline tactics

Copyright © 2007 Pearson Education, Inc. Slide 7-27

Online Marketing Metrics: Lexicon

• Metrics that focus on success of Web site in

achieving audience or market share

• Impressions – no. of times an ad is served

• Click-through rate (CTR) – % times an ad is clicked

• View-through rate (VTR) – % times an ad is not clicked

immediately but Web site is visited within 30 days

• Hits – no. of http requests

• Page views – no. of pages viewed

• Stickiness (duration) – average length of stay at a Web

site

• Unique visitors – no. of unique visitors in a period

• Loyalty – no. of pages viewed, frequency of single user

visits to the site, % customers who return to site in a year

• Reach – % site visitors who are potential buyers or % total

market buyers who buy at a site

• Recency – time elapsed since last action taken by a buyer,

e.g., site visit or purchase

Copyright © 2007 Pearson Education, Inc. Slide 7-29


Online Marketing Metrics: Lexicon (cont’d)

• Metrics that focus on conversion of visitor to

customer

• Acquisition rate – % visitors who register or visit product’s

pages

• Conversion rate – % visitors who make purchase

• Browse-to-buy-ratio – ratio of items purchased to item views

• View-to-cart ratio – ratio of “Add to Cart” clicks to product

views

• Cart conversion rate – ratio of actual orders to “Add to Cart”

clicks

• Checkout conversion rate – ratio of actual orders to

checkouts started

• Abandonment rate – % shoppers who add to cart but leave

the site

• Retention rate – % existing customers who continue to buy

regularly (similar to loyalty)

• Attrition rate – % customers who do not return during next

year after first purchase

Copyright © 2007 Pearson Education, Inc. Slide 7-30

Online Marketing Metrics: Lexicon (cont’d)

• E-mail metrics

• Open rate – % email recipients i who read the email

message

• Delivery rate – % email recipients who received the

email

• Click-through rate (e-mail) – % recipients who clicked

through to offers

• Bounce-back rate – % emails that couldn’t be delivered

• Unsubscribe rate – % recipients who click unsubscribe

• Conversion rate (e-mail) – % recipients who actually

buy

Copyright © 2007 Pearson Education, Inc. Slide 7-31


An Online Consumer Purchasing Model

Figure 7.9, Page 452

Copyright © 2007 Pearson Education, Inc. Slide 7-32

How Well Does Online Advertising Work

• What’s the most effective kind of online ads

• How does online ad compare to offline one

• These depend on goals of campaign, nature of

product, quality of Web site, and what you

measure.

• Click-through rates may be low, but this is just

one measure of effectiveness

• From the next figure, as consumers become

more accustomed to new online advertising

formats, click-through rates (for display ads and

email) tend to fall.

• However, this is not true of video and rich media

Copyright © 2007 Pearson Education, Inc. Slide 7-33


Click-through Rates by Format 2000–2005

Figure 7.10, Page 454

SOURCE: SOURCES: Doubleclick, 2007a, b; eMarketer, Inc., 2007c; author estimates.

Copyright © 2007 Pearson Education, Inc. Slide 7-34

How Effective is Online Advertising

Compared to Offline Advertising

• From the next figure, online channels

compare favorably with traditional channels

• Search engine has grown to be the most cost

effective form of marketing communications

• Cost effectiveness of targeted opt-in email

remains very strong

• Research indicates that most powerful

marketing campaigns include both online and

offline advertising

Copyright © 2007 Pearson Education, Inc. Slide 7-35


Comparative Returns on Investment

Copyright © 2007 Pearson Education, Inc. Slide 7-36

The Costs of Online Advertising

• Cost per thousand (CPM): Advertiser pays for

impressions in 1,000 unit lots

• Cost per click (CPC): Advertiser pays prenegotiated

fee for each click an ad receives

• Cost per action (CPA): Advertiser pays prenegotiated

amount only when user performs

a specific action, e.g., register or purchase

• Hybrid: Two or more of the above models

used together

Copyright © 2007 Pearson Education, Inc. Slide 7-37


Average Cost Per Customer Acquisition

for Select Media in the US, 2006

Internet search $8.50

Yellow pages $20.00

Online display ads $50.0000

E-Mail $60.00

Direct mail $70.00

Newspaper $25.00

Magazine $19.00

Television $17.00

Copyright © 2007 Pearson Education, Inc. Slide 7-38

Software for Measuring Online

Marketing Results

• WebTrends: Software program that

automatically calculates activities at site, such

as abandonment rate, conversion rate, etc.

• Visual Sciences: Web service that assists

marketing managers

Copyright © 2007 Pearson Education, Inc. Slide 7-39


Web Site Activity Analysis

Figure 7.12, Page 459

Copyright © 2007 Pearson Education, Inc. Slide 7-40

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

• Should be short, memorable, not easily confused

with others, difficult to misspell

• 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

• Place keywords in metatag and page title

• Link site to as many other sites as possible (creating ads,

Web sites, entering into affiliate relationships with other

sites)

• Get professional help

Copyright © 2007 Pearson Education, Inc. Slide 7-42


Web Site Functionality

• Factors affecting effectiveness of a software

interface:

• Utility (useful)

• Ease of use

• Factors in credibility of Web sites:

• Design look

• Information design/structure

• Information focus

• Responsiveness

Copyright © 2007 Pearson Education, Inc. Slide 7-43

Factors in the

Credibility of

Web Sites

Figure 7.13, Page 464

SOURCE: Based on data from Fogg, et al, 2002.

Copyright © 2007 Pearson Education, Inc. Slide 7-44

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