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Buyer Behavior of Online Consumers - Attracting and Retaining Online Buyers: Comparing B2B and B2C Customers, Introduction, Who Buys Online?

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Introduction


The emergence of e-commerce as a way of doing business has created an environment in which the needs and expectations of business customers and consumers are rapidly changing and evolving. This situation presents marketing managers with the challenge of ascertaining which elements of marketspace are new and how much continuity can be retained from the past. Some marketers apparently believe that it is enough to offer a Web site, maintaining a superficial appearance that the firm is progressive, or they ignore the Web altogether, possibly making use of digital technology to support existing business plans. Others take the opposite tack, saying that everything is changing and that nothing can remain the same (e.g., Feather, 2000; Murphy, 2000). A more balanced view proposes that people are basically the same but that new technologies are changing many of the ways customers shop and buy – thus, many businesses must overhaul their operating models to create digital strategies that meet changing needs and preserve competitiveness (Downes & Mui, 1998; Wind, Mahajan & Gunther, 2002). Our position is consistent with this balanced view. We believe that while much is changing, many fundamentals remain. Thus, we suggest ways that managers can use well-grounded concepts from consumer behavior and marketing theory, adapting them to new technologies.


We begin by considering characteristics of the most innovative online buyers and how marketers might best attract these individuals to Web sites. Quite a lot has been learned in the past few years about online customer behavior. This knowledge should benefit e-marketers in their efforts to develop successful online marketing strategies. These topics are important because now that manyPage 3  |  Top of Article investors have been burned by dot-com business failures, they are unwilling to provide funding to start-ups that do not have clear business strategies in place and excellent indicators of potential success. In addition, competition is fierce, so competitive advantage is even more important on the Web than it is for an industrial sales representative calling on a customer or for a retail store in a neighborhood shopping mall. We propose that the more managers know about customers and their expectations of, as well as reactions to, e-commerce activities, the better these online vendors will be able to attract and to retain consumers. Thus, the objectives of this chapter are to discuss aspects of buyer behavior that offer strategic insights to e-commerce managers who wish to attract new buyers, satisfy, and retain them.


Who Buys Online?


"The ultimate objective of any given marketing strategy should be to attract, satisfy, and retain customers" (Best, 2004, p. 15). Thus, a discussion of online customer behavior from the management perspective should address this objective. Attracting new customers holds dual relevance. First, for any innovative good or service, the first buyers provide revenue needed to pay for research, development, and launch costs involved in bringing a new product to the market. Marketers must generate positive revenue streams quickly to grow their businesses. Moreover, it is not possible to retain all buyers as customers, so it is necessary to acquire new customers continuously to replace those who leave. Second, new customers are important because, in addition to an initial purchase, they bring the potential for lifetime value, which is the stream of profits that accrues during a customer’s relationship with the firm. By itself, attracting new buyers is not enough; firms need to retain at least a portion of first-time purchasers to remain viable. Loyal satisfied customers have value for the firm because they may increase their spending over time, and they tend to spread positive word-of-mouth (via e-mail, etc.) about the company, attracting other buyers (Reichheld & Schefter, 2000). Finally, the earliest buyers may also provide valuable feedback regarding their experience with the Web site, facilitating site improvements.


How are companies using an online presence to reach potential and current customers? Liu et al. define online business as "the buying and selling of goods and services where part, if not all, of the commercial transaction occurs over an electronic medium" (1997, p. 336). At the time of their article examining the Fortune 500, although 322 of the firms maintained home pages on the Web, only 131 of these provided for online business. Of course, these numbers are much higher now, but the motivations for making use of an electronic marketplace still hold. They suggest that by providing improvements in communication and information processing the Web greatly reduces the costs of market coordination and improves efficiency. Because potential buyers can compare offerings more easily, electronic markets should promote price competition as well as product differentiation. However, in the case of B2C e-commerce, research suggests that price dispersion is persistent due to differences in service offerings among e-tailers, market characteristics such as number of competitors, and possibly such factors as brand name and online trust (Pan, Ratchford & Shankar, 2002).


The results of Liu et al. (1997) indicate that presence of a home page and revenues are significantly related – this makes sense because the large majority of the home pages they observed were designed to introduce new products and provide overview information about the companies. While smaller sized firms are apparently more interested in direct selling and generation of revenue, larger firms Web sites focus on communication activities. This suggests that while larger firms are more likely to try to build awareness upon entering an electronic marketplace, smaller firms may try to move directly into selling. The latter strategy may neglect the need to communicate and assist potential customers in developing familiarity with a firm and its products – this may be part of the reason so many smaller firms failed in the dot-com bust of 2000.


Our essential topics for the chapter follow from the need for an e-marketer to attract new customers to a Web site, satisfy, and retain them. Although many of the critical issues are the same in the B2B and B2C marketplaces, customer needs and behaviors differ for each of these types of markets. Thus, we address each separately in this chapter, drawing on both theoretical and applied research that has become available in the past few years. Our observations are summarized in Figure 1 for convenient reference.

Characteristics of B2B Online Buyers

In their analysis of the buying process for tangible, customized products, Gattiker, Perlusz, and Bohmann (2000) suggest that potential B2B online customers gather information needed for decision making and process it, taking into account situational factors and available product attributes. Further, individual buyers’ demographic characteristics, cultural backgrounds, attitudes toward technology, and economic factors influence the decision-making process. For instance, they note that women are less likely than men to spend time on the Web and more likely to value interpersonal communication. Younger respondents are more likely than are older respondents to spend time on the Web and to have made at least one purchase online. More educated respondents are more likely to spend time on the Web than are less educated respondents. Outcomes, specifically Web beliefs and behaviors, depend on Web usage patterns, ability to test and purchase products online, type of information available, and usage situation.

While all customers might be expected to evaluate certain product attributes, particularly as their needs depend on the planned usage of the product, B2B purchasing agents differ from individual (B2C) shoppers (Gattiker et al., 2000). In particular, corporate buyers are more concerned than are B2C consumers with obtaining specific information, such as delivery conditions and pricing options. In addition, corporate agents may require documented quality and postsale support because of company policy. Other features that may be important include presale support, availability of postsale on-site service, and terms of replacement (e.g., lead times). Gattiker et al. (2000) further suggest that some differences between online and off-line shopping may occur for both B2B and B2C customers. For instance, extrinsic product attributes, including price and brand name, recommendations from others, and warranty, may be more important online than in a brick-and-mortar retail store where other product features may be more readily evaluated.

As Web sites began to provide more of the information necessary for B2B transactions to occur, this marketplace grew at a phenomenal rate, far surpassing B2C online revenues. According to E-Stats (2002, 2003), an online publication of the U.S. Department of Commerce, B2B e-commerce in the U.S. totaled $913 billion in 1999, $997 billion in 2000, and estimates suggested it would be $995 billion in 2001. The lower figure for 2001 may be due in part to a leveling-out of B2B online trade but may also be reflective of the general economic downturn that began in 2001. The publication also notes that "e-commerce outperformed total economic activity in three of four major economic sectors measured between 2000 and 2001" (2003, p. 1). Thus, e-commerce is very healthy in sectors that sell primarily to other businesses.

Some industries are more inclined to utilize e-commerce than others. E-Stats (2003) notes that 68% of all manufacturing e-shipments occur in only five industries, including transportation equipment, beverage and tobacco, electrical equipment, appliances, and components. Merchant wholesaler e-sales were concentrated in only three industry groups with drugs and druggist sundries, motor vehicles parts and supplies, and professional and commercial equipment and supplies explaining 64% of the total. There may be greater opportunities for increasing B2B e-commerce in industries that are not yet heavily represented.

Characteristics of B2C Online Buyers

In the early days of the Internet, the demographics of online consumers were skewed toward young well-educated male technophiles (Modahl, 2000). Today, the population of Internet users looks more like a representative national sample. In Table 1, adapted from Lenhart et al. (2003), we see a snapshot of current Internet users.These data are consistent with information regarding B2B online shoppers in that men, more educated, and younger people are more likely to shop online. Such demographic differences are also declining in both cases.

E-Stats (2002) notes that e-commerce represents a relatively small share of the B2C marketplace as compared to economic activity in the B2B sectors. Total B2C online commerce was $40 billion in 1999, $65 billion in 2000, and $71 billion in 2001 (E-Stats, 2002, 2003), including services and retail trade. Thus, although it is growing as a share of total e-commerce activity in the U.S., B2C represents only 4.2% of e-commerce in 1999, 6.1% in 2000, and 6.7% in 2001. Four industry groups account for half of e-revenues in B2C services, including travel arrangement and reservation, publishing (including software), securities and commodities contracts intermediation and brokerage, and computer systems design and services (E-Stats, 2003). The information industry is an area of services having particularly strong growth, but it is not yet well represented online. Thus, this may indicate an opportunity for e-commerce activity.Retail e-sales are concentrated in only two groups that account for over 90% of this marketplace; these are nonstore retailers (including brick and click, catalog, and pure play businesses) and motor vehicle and parts dealers. Retail e-sales grew 22% between 2000 and 2001 as compared to total retail sales growth of only 3% (E-Stats, 2003). Merchandise categories having the highest percentage of online sales include books and magazines and electronics and appliances. This is consistent with previous research, which suggests that books and CDs are common items for initial online purchases (Florsheim & Bridges, 1999). Other product categories are more likely to be purchased by more experienced online shoppers and thus may have greater potential for etailer entry and growth.

How do consumers begin to buy online? This question can be placed in a larger context of online consumer behavior, defined as "any Internet-related activity associated with the consumption of goods, services, and information." Further, "Internet consumption includes (1) gathering information passively via exposure to advertising, (2) shopping, which includes both browsing and deliberate information search, and (3) the selection and buying of specific goods, services, and information" (Goldsmith & Bridges, 2000, p. 245). We can expand this definition by suggesting that online consumer behavior also includes reacting to postsale activities offered by Web merchants. Consumer loyalty may be associated with these postsale interactions. We note that for any new good, service, or idea, some B2C buyers purchase earlier than do others following the launch of an innovation. Thus, it may be appropriate to study the purchase behavior of online buyers using a model for diffusion of innovation, particularly to improve understanding of how they might be attracted to an e-commerce vendor.

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