It certainly seemed logical at the time: why not use the same whiz-bang technology that was revolutionizing retailing to set off a companion revolution in marketing? However, many online marketers are finding that employing such Web-enabled devices as e-coupons, banner ads, opt-in email, e-reminder services and permission-based marketing is no guarantee of success in the New Economy.

Sure, through trial and error or sheer luck, some online marketers have achieved impressive results with these powerful new tools. But between their rush to adopt these tools and their over reliance on data about internet purchasing, online business-to-consumer marketers have tended to ignore some fundamental truths about consumer behavior. And without a full understanding of these truths, the promise of e-marketing in the B2C sector will go largely unfulfilled.

Nobody ever said it would be easy, of course. E-marketing can require hefty investments, and it is notoriously difficult to measure the return on those investments.

For example, a recent survey by E-BuyersGuide.com showed that 63% of online customers had been guided to a retailer by email promotions, 38% by banner ads and 29% by traditional advertising. Unfortunately, the survey did not indicate how much these groups overlapped, so the information doesn't help a marketer decide whether to invest in one tool or all three.

Moreover, a tool that fails at one job may turn out to be quite effective at another. For example, banner ads have disappointed marketers who hoped for click-through. But even as rates for banner ads plunge, new studies show that if they're repeated often enough, they can be effective tools for developing brand awareness.

No wonder online marketers are confused. But the perplexities of consumer behavior are hardly a new phenomenon. Well before the development of the Internet and the emergence of online marketing, traditional marketers also had struggled with the same problem. Out of that struggle came a sophisticated understanding of the context in which a buying decision occurs - an understanding that is as valid online as off.



The Critical Context

Marketers who consider their e-marketing tactics in the context of how consumers become aware or products, gather information and, ultimately, buy can go a long way towards eliminating confusion about which e-marketing tool to use - and when.

It's really quite simple; customers buy different products for different reasons at different times. This seems obvious. But the prolific and indiscriminate use of online marketing tactics for all types of products, let alone all types of online consumers – regardless of their awareness level, interest and buying behavior - shows that many online marketers don’t quite get it.

Some do, of course.

Consider online discount retailer Bluefly, which bills itself as "the outlet store in your home." Bluefly's website demonstrates a sophisticated understanding of its target market's motivations and buying habits.

Some visitors to the site are there to browse, and these shoppers find a wide variety of merchandise in Bluefly's easy-to-cruise virtual aisles. But while the casual visitor looks for variety, another category of customer has an abiding interest in particular brands or products. So Bluefly offers these buyers an opportunity to sign up for email notification when their favorite, items become available.

Bluefly leverages the power of the Internet because it does not rely on demographic information and past buying behavior to determine which customers get which email notices. Customers tell Bluefly directly about their interests when they sign up for its email notification program.

Others have been less adept with the online medium. Countless companies have invested in "brochure-ware" sites that could have been powerful tools had they included appropriate links to other sites, the right information resources and promotions more attuned to buyer behavior. The sites of many packaged goods companies, for example, garner millions of hits but do not even offer visitors coupons to reward their interest and drive the actual sale of products.

The opposite problem is just as prevalent. Many sites, particularly automotive and travel sites, have too many options and links. Instead of identifying and supporting buyer behavior, they are as intimidating as a 20-page wine list. Research shows that online consumers already struggle with the absence of physical cues ("You'll find that product on the second floor, near hardware"); too many options just compound the problem. Yet understanding the buying process is essential to becoming part of it.



Cars To Cookies

Two factors are critical to understanding consumer behavior. The first is the degree of differentiation customers perceive in the product or service across brands.

Though we like to think that all brands are differentiated in consumers' minds, a study by advertising agency BBDO showed that between 52% and 76% of consumers perceive almost no difference among leading brands across 13 categories. When this lack of differentiation occurs – as it does with milk, batteries and life insurance, for example – customers make their decisions differently than when the perceived differentiation is high, as with cookies, recorded music and new homes.

But the degree of perceived differentiation is not the only determinant of buyer behavior. For example, household appliances and rice both rank low on the scale of differentiation, but customers do not usually buy rice the way they buy appliances.

A second fundamental determinant of consumers' behavior is their degree of involvement in the purchase. Customer involvement tends to be higher for expensive purchases than for inexpensive ones. The decision to purchase an undifferentiated but rather expensive clothes dryer may have more in common with the decision to purchase a highly differentiated but expensive automobile than it does with the decision to purchase an undifferentiated and inexpensive carton of milk.

The level of perceived differentiation and customer involvement shape four generic types of buying behaviors identified by Professor Henry Assael of New York University in his popular textbook, Consumer Behavior and Marketing Action (6th edition, South-Western College Publishing, 1998). The four basic types of buying behavior condition every stage of the buying process, from awareness through consideration, preference, purchase and loyalty. Evidence that these behaviors are also found online is provided by the result of an Accenture e-branding study that identified customer segments that map closely to these behaviors.

Complex buying : High differentiation, high involvement

Products in this category are often complicated, expensive, infrequently purchased and highly differentiated – cars, vacation packages and high-end stereo equipment. Consumers invest time and effort to gather information and form opinions before they make their purchasing decision. Meanwhile, marketers try to provide information that emphasizes quality, performance or other factors likely to influence shoppers.

Price is far from the most important factor in the purchasing decision, though it is usually a consideration for customers as they assess various offers. Recognizing this, many auto sites enable side-by-side comparison across a wealth of attributes, only one of which is price.

Dissonance reduction : Low differentiation, high involvement

Products in this category may also be complicated, expensive and infrequently purchased – carpeting and appliances, for example – but consumers perceive little difference among the available brand choices. Price may emerge as a very important factor in the purchasing decision.

Customers buying in this segment are susceptible to "limited time" discounts. Post-sales communications and support can help ensure that these customers remain satisfied with their choice, and may even help them form a habitual buying pattern for the supported brand.

This is a difficult behavior for individual sellers to support online. In the absence of' real differentiation, customers often rely on well-known or trusted brands and the opinions of friends and relatives. Sites like Epinions.com are designed to support this kind of behavior by allowing any online user to provide a detailed review of just about any product. Another source of information for this behavior is chatrooms, which is why many companies have moved to sponsor, and monitor, chats that pertain to their products.

Another approach is to use the online medium to create or extend a culture or mystique about a product. Although blue jeans are neither terribly complex nor expensive, getting the "right" pair can be critical to a teenager. Levi Strauss & Co.'s website helps visitors understand how the product fits their lifestyle through bold imagery and cultural cues, coupled with an easily understood icon bar for browsing. It also supports impulse purchasing by creating a direct link from the sales page of the product being viewed to a purchase page on a supported retailer's site, such as Macys.com.

Habitual buying : Low differentiation, low involvement

Products in this category are so low in cost and so frequently purchased that customers tend to spend very little time trying to evaluate different offerings. Most consumers in this category cannot articulate the reasons for their choices. They simply repeat – buy out of habit.

Since their decisions are often based on brand familiarity rather than brand loyalty, these customers are best addressed with simple messages repeated often. To increase loyalty, marketers long ago began attempting to increase the level of involvement in such purchases by raising the stakes and linking products to positive consequences on a very personal level; good things would happen to you, claimed the messages, if you used a particular brand of shampoo or mouthwash.

The lesson has not been lost online. For example, "Do you Yahoo!?" ads suggest that a Yahoo! search is some how more fun than a search on Lycos or Alta Vista. Recent research suggests that people decide between sites like Amazon.com and BarnesandNoble.com based on habit, preferring familiarity with a site to possible lower prices elsewhere.

Variety seeking : Low involvement, high differentiation

Products in this category may be unique, but they usually provide the same level of utility for the customer. Think of cookies, breakfast cereals and toys. The challenge for market leaders is to encourage more loyalty to their own brands in the face of competitors that use discounting, coupon offers and free samples to encourage customers to switch brands. Variety-seeking consumers are susceptible to such offers because they often make choices not because they are dissatisfied but simply for a change.

Online marketers have some way to go in addressing this behavior online. But customizing the look and feel of a website based on information given by the customer - My Yahoo!, for example is a step in the right direction, as are efforts to create purchasing accounts so that customers don't have to re-enter shipping and billing information.

Online loyalty programs are another powerful tool. MyPoints rewards members with points for shopping online, reading promotional emails, responding to surveys and taking advantage of trial offers. But this tool is not a silver bullet. Jupiter Communications reported that while 75% of online consumers participate in such programs, only 22% claim that the programs serve as a purchases incentive.

These distinct behaviors highlight the limitations of using data about a consumer's online purchases to predict what the consumer is likely to purchase in the future.

Amazon.com won much favorable press when it began to notify people about new books they might like, based on titles they or customers with similar buying patterns had purchased previously. But buying decisions occur in a context much broader than the history of past purchases, and this approach has obvious limitations. In at least one case, that much-vaunted recommendation engine erred by suggesting adult fiction books on circuses after the single purchase or a child's circus-related video.



The Net Effect

In the past the constraints of physical channel often made it impossible to address unique buying behaviors directly and discretely. Big-box category killers simply combined as many products as they could in one store, selling everything in the same way regardless of customer preference or buying process. The average office-supply store still ignores critical differences in behavior, selling $3,000 computers, $500 desks and 39cent pens using the same salespeople and the same checkout.

But the Internet makes it possible for companies to address customer needs more appropriately and less expensively at every stage of the buying process as well as at every level of product differentiation and customer involvement. Quick buys and extended discovery processes can be supported on sites designed to respond immediately to the perceptions and buying behavior of each customer.

CarsDirect.com and CareerPath.com, an online job-search site, offer straightforward entry spots and buttons that allow users to navigate according to their intention. After studying behavior on its site and listening to users, Procter & Gamble revamped its Reflect.com website to offer three intuitive, easy-to use options on its home page.

Using the Internet, companies can also establish better links through the stages of the buying process. National Semiconductor Corporation lets customers describe online what they need; the site then recommends parts that would help, thus building awareness of National Semiconductor products. But the site is not just about building awareness – after the initial query, it integrates the search and design support with account based purchasing in just a few clicks.

Another example of successful stage links is the entry field on the Lands' End website that allows visitors to enter item numbers from its catalog to find and purchase products.



Favourable Impression

So where does e-marketing come in? The Internet makes it possible to track the amount of time the customer spends shopping for an item, and the number and type of searches performed. This information certainly permits some reasonable inferences about the degree of customer involvement in the buying decision. A better understanding of the implications of the customer's buying behavior allows e-marketing tactics and tools to be used selectively – tactfully, one might even say to influence customers.

E-couponing and instant online discounts, should be targeted to variety seekers. Community-based reviews and search and comparison tools are effective for more complex buying behaviors. Continuous replenishment is a promising strategy to strengthen habitual buying behavior.

The important point, which is too often overlooked by today's online markers, is that each tactic and tool must be understood in terms of its usefulness at a particular point in the buying process and in the context of particular consumer behaviors. E-marketing not only provides an array of new tools and tactics, but it also allows marketers to combine and integrate these tactics to address the whole range of behaviors with sophisticated discrimination.

The Internet also makes it possible for companies to execute powerful strategies for changing customer buying behavior to the seller's benefit. The four types of buyer behavior are not immutable. Astute marketers understand the importance of moving their product from one type to another. Although habitual buying behavior is associated most often with low-cost products, one study found that 15% of appliance sales could be characterized as habitual, while another study found that 17% of car buyers in France chose their brands out of habit.

The online retailer iBeautycom has implemented a strategy to move Cosmetics buyers from variety-seeking to habitual behavior by offering a continuous replenishment option. iBeauty.com customers can choose to order regular delivery of their favorite brands and products at the intervals and in quantities they want. Buyers gain convenience and the company gains a degree of market protection – because buyers are not making a purchase decision each time they run out of cosmetics, they are less vulnerable to overtures by competitors.

California-based Intuit, a leader in electronic finance, helps loan shoppers reduce dissonance and move quickly on a complex decision by providing a 30-second online loan application and a guarantee of telephone response within one business day. eToys emails coupons that are valid for a limited time only, an approach proven effective offline for both habitual and variety-seeking customers.



Sterling Example

But what about companies with bricks-and-mortar stores? They can build effective links between online and offline media. Major automakers' websites provide information and location searches to link customers with dealers in their area. General Motors Corporation's website goes so far as to allow customers to schedule test drives and even reserve dealer inventory.

Reed & Barton, one of America’s oldest silversmiths, recognizing the customer desire to actually touch the silverware when considering a purchase decided to offer price samples on website. After sampling the wares, shoppers can return to the website to search for dealers by zip code; a toll-free customer service number is provided as well.

A word of caution: it should be clear that contrary to the latest thinking on the subject, the Internet does not change everything. It is worth noting, though, that it does change something very important.

Demographics have a significant influence on one's level of involvement in a purchase. Therefore, the higher-than-average income of Internet users may imply lower-than-average involvement - in online purchasing versus offline buying, especially for relatively low-priced goods. Meanwhile, their higher-than-average education level suggests greater buying sophistication.

As more of the Population comes on-line, the differences will likely disappear. But until that happens, marketers will need to be careful about assuming online behaviors to be the same as those seen in offline outlets. The infancy of the Internet has passed. As the online market matures and online behaviors become segmented, so should online marketing strategies. Perhaps it should come as no surprise that as attention - shifts from the novelty of the new medium to the practicalities of using it, old marketing truths look truer than ever.

Online marketing provides powerful new tools to address buyers, but using the right tool for the job at hand remains as important as ever.

E-commerce By Half : Understanding Consumer Behavior In The New Bricks-And-Clicks Channels

Many companies trying to cater to the diverse needs of customers have developed a so-called bricks-and-clicks strategy that allows customers to move easily between online and offline channels. But this approach can become a nightmare for retailers in both camps because most channels have embedded cross subsidies. For example, most retailers use sales profits to subsidize their trained sales staff. A customer would be shocked if a sales clerk demanded to be paid to answer a question, but this would be the norm if it were not for cross-subsidies.

Today new customer segments are cherry-picking channel value. They are using only the portion of each channel that is free or artificially low in price (for example, online shopping's many comparison-shopping services) while bypassing the remaining overpriced activities that pay for these free or underpriced goods (for example, the sales portion of those same sites). The result is a significant drain on channel profitability.

As the chart below shows, there are four simplified customer segments that are determined by whether customers shop online or off and buy online or off.

Two of the segments – which we call Shop Online and Buy In-store (SOBI) and Shop In-store and Buy Online (SIBO) - are the groups that retailers need to be wary of. In practice SOBI consumers are the Internet-informed car buyers who demand Internet prices at the dealer, refusing to pay for showroom sales help (and hot coffee). SIBO buyers are the mall shoppers who try on clothes in the store and then purchase them online at a discount. These segments are being fostered by the technology as well, with the emergence of sites like LossLeader.com, which informs customers about products being sold below cost and about free deals online.

Channel designers can respond in two ways: they must either remove the cross cross-subsidies often a difficult proposition - or design closed systems that keep the customer in their channel both online and off.

One solution is the so-called petting zoo - retail stores that don’t carry inventory beyond demonstrator models but instead place electronic orders for the customer, as Gateway Country does with its computer systems. This lowers the cost of serving customers who are just browsing and eliminates customer requests for discounts on inventory visibly depreciating on the shelf.

Another approach is to provide tightly linked online and offline operations. Borders Books and Music is one of many retailers using in-store kiosks, which Borders calls "Title Sleuths." They act as a quick reference tool, offering infinite shelf space and the shipping ease of an online catalog while the store provides the benefits of physical location and inventory.

Office-supply vendor Staples and outdoor-goods retailer REI are others that are using in-store kiosks to allow shoppers to see what's new, find detailed information on products, check prices and buy, via special order, goods that are not stocked in stores. The Internet enables overnight handling for orders that used to take weeks to fulfill.

A final approach is to charge for value delivered unless the customer stays in the channel - for example, a pro shop that charges $40 for a custom golf-club fit, an amount that can then be applied to the purchase of clubs bought from that seller.

Tomorrow's Internet channel will largely be a hybrid one, with customers seeking value at the lowest cost from each component channel. Companies and channel players that recognize this early and modify their channels appropriately are likely to benefit the most from the introduction of the Internet into retailing.