E-Commerce – customer focus

Computing Science, University of Aberdeen 1

E-Commerce – customer focus

Transactions, money, trust Attracting and keeping customers

» Key issue: trust, security Legal issues Personalization Adverts


Transactions … in the beginning

Barter – exchange one good for another Strictly a two way thing. Exchange happens simultaneously

(mostly). Little, or no, trust needed


Transactions – commodity money

- Exchange standard items with known (supposedly intrinsic) value.

- These standard items are more liquid, easier to exhange, move faster.

- Can store for later use. - e.g. Weights of metal, peppercorns,

sheepskin, pigs, cattle- Limited trust in retained intrinsic value


Transactions – representative money

Token money- Early on, might be linked to a commodity- probably not now- `just a way of keeping score’- Even more liquid, easier to store, exchange- Need to trust that money will keep being

tradeable in future, and of not much less value


Transactions – money

Fiat money – money that gets value, because the government and the law says it has (and because we believe it).

Paper money – only used widely in Europe for last 200-ish years, initial trust problems, bank runs.

http://en.wikipedia.org/wiki/John_Law_(economist)

http://en.wikipedia.org/wiki/John_Law_(economist)


Money – modern Cash Money held in physical capital Money in bank Money invested in bonds, equities Credit Credit and debit cards Electronic transfers of money


Money – modern Electronic transfer of money central to

e-commerce. Ability to accept credit (or debit) cards

central to success at scale of B2C and C2C.

Standards, e.g. https://www.pcisecuritystandards.org/

https://www.pcisecuritystandards.org/


Transactions Evolution of money and social mechanisms has

enabled us to develop two-part transactions: money and goods (or services) exchanged at different times.

Also credit Rely on

» interpersonal trust, » social reputation, » law.


Money: trust, reliability, security

Need to be sure that it will continue being acceptable Need to be sure that it won’t lose too much value Need to trust that our electronically stored `score’ is kept safely

by bank. Need to be sure that electronic transfers out (and in) work

properly and are secure. [Banks and systems connecting them] Need to be sure that credit and debit system work correctly and

are secure. Need to trust that traders will deliver upon payment. Traders need to be sure that they will be paid if they deliver.


PayPal http://www.paypal.com Users set up an account, linked to a bank account or credit

card. Enables small businesses and consumers to accept credit card

payments via paypal. » A lot less overhead than accepting and processing credit card details

directly. » Reduction in overheads enables many more participants, more trade.

Various competitors available, but economic network effects in play (natural monopolies and oligopolies emerge)

In the early days, eBay tried to set-up own alternative, but users insisted on Paypal. » eBay gave up and bought Paypal instead.

http://www.paypal.com/




Internet Escrow Escrow: money held by a third-party on behalf of transacting

parties (roughy). Used where transacting parties have limited trust in each other Internet escrow:

» Transaction between buyer and seller» Buyer places money in control of trusted, independent third party» If both verify delivery had taken place and is complete, then money is

released» If not, then some dispute resolution process kicks in.

E.g. http://www.escrow.com

http://www.escrow.com/


BitCoin Emerged in last couple of years. Open source, peer-to-peer network to track and verify

transactions. Cut-out middlemen (financial institutions) in electronic

transactions using clever cryptograpic prototcols. http://www.bitcoin.org/bitcoin.pdf Teething problems

» No fiat from any government (relies on designer/community?)» If protocols breached, value could disappear» Value of currency is not yet sticky (no irrational, but helpful, faith in it)» Economic problems related to design (limited monetary expansion)http://krugman.blogs.nytimes.com/2011/09/07/golden-cyberfetters/

http://www.bitcoin.org/bitcoin.pdf

http://krugman.blogs.nytimes.com/2011/09/07/golden-cyberfetters/


Customer Focus


Customers are not all the same!

Consumer types» Individual consumers» Organizational buyers




Goal of shopping» Pragmatic: buy something useful, cheaply» Hedonistic: have fun




Goal of shopping» Pragmatic: buy something useful, cheaply» Hedonistic: have fun

Personality» Impulsive buyers — purchase quickly» Patient buyers — make some comparisons first» Analytical buyers — do substantial research before buying


Consumer Behaviour

Prentice Hall, 2002


Consumer Satisfaction

Prentice Hall, 2002


Trust/Security Trust/Security

» Will the company actually deliver the correct product/service in reasonable shape, in a reasonable time, at correct price

» Will the customer pay up (is the credit card stolen, will it be repudiated)

Technical aspects Human aspects: Focus here on trust and, to some

extent, policies


Trust in physical shops Experience: shoppers trust shops

they’ve used before Appearance: shoppers trust store that

look reputable Complaints: easy to complain, shop

can’t hide Transactions are simple


On-line trust What makes you trust an e-commerce

shop?


On-line Trust Experience: I trust Amazon because I’ve used them

before» Reputation: because my friends use them

– Very important with e-shops» Specific technicalities; for example,

accounts/cards compromised or not? Appearance: Do I trust Amazon because they have a

nice website?» Less important than with physical shops» Marketing helps


On-line trust Complaints: Harder to complain since

don’t know where shop is Transactions are complex because of

delivery» Where many e-shops mess up

Third-party: do I trust Amazon more if another web site says good things about Amazon?


Does Amazon Trust Me? Amazon trusts me because

» Experience: I’ve always paid Amazon before» Reputation: I’ve used other companies and always

paid up» Marketing: vendors generally signal that nasty

things happen to customers who don’t pay up– credit record affected– legal consequences


Trust We know quite a bit about how trust is

established in physical shops. We are developing mechanisms for

establishing trust in e-shops» Partially technology, but human factors

(psychology, sociology, economics, law) probably matter as much

» Lack of trust mechanisms is barrier to new e-shops


Legal Issues: Tax In USA, one driving force behind early

e-store success was lower tax» Because of a tax loophole, sales tax (VAT)

was not charged on e-commerce sales» Automatically gave price advantage to e-

commerce sites!


Legal Issues: Intl E-Commerce

In theory, e-commerce means sites can sell globally

In practice, difficult because of different tax rules, regulations, customs, etc» More common to set up subsidiaries in

different countries, as Amazon has done Lack of global legal/regulatory

framework hinders ecommerce


Personalization E-Commerce sites can treat customers differently

» Offer recommendations, special deals» Personalise web site» Adjust prices

In theory, “personalised shop” one of the great benefits of e-commerce

Can also take advantage of more of long tail» Don’t need to keep stock in same way as traditional shop» Can do things like Print On Demand

One-to-One MarketingBuild a long term associationMeeting customers cognitive needs

Customer may have novice, intermediate or expert skillE-loyalty—customer’s loyalty to an e-tailer

costs Amazon $15 to acquire a new customer costs Amazon $2 to $4 to keep an existing customer

Trust in EC Deterrence-based —threat of punishment Knowledge-based —reputation Identification-based —empathy and common values Referrals – Viral Marketing

Personalisation…

Personalisation - Marketing Model“Treat different customers differently”

Prentice Hall, 2002

Personalisation

“Process of matching content, services, or products to individuals’ preferences”

Build profiles – N.B. Privacy Issues Solicit information from users Use cookies to observe online behavior Use data or Web mining


Recommendation Build profiles

» What has X bought?» What has X looked at?» Demographics: age, gender, etc

Recommendation» Rules: If X buys Harry Potter 6, recommend HP 7» Data Mining: Other people who bought Harry

Potter also bought Lord of the Rings» Collaborative: X’s overall buying profile is similar

to Y, so recommend whatever Y bought

Data Mining

Automated prediction of trends and behaviors Example: from data on past promotional mailings, find out

targets most likely to respond in futureAutomated discovery of previously unknown patterns Example: find seemingly unrelated products often purchased

together Example: Find anomalous data representing data entry errors

Mining tools: Neural computing Intelligent agents Association analysis - statistical rules

Web Mining - Mining meaningful patterns from Web resources Web content mining – searching Web documents Web usage mining – searching Web access logs

searching for valuable information in extremely large databases


Recommendations If done well, perceived very positively

» Real benefit, not just marketing spam» Credit-card companies have done this well

– Have the most purchasing data? Data privacy issues

» Can Visa sell data about you to Amazon?» Spyware to track all of your web browsing?


Personalise Web Sites Let customers create their own “shop

front” focusing on their interest Adjust appearance (eg, for visually

disabled, or strict, religious consumers) Do-able, not huge success


Personalised Pricing Companies would love to be able to

charge people different amounts for the same product» Airline seats, cars, etc» Full price for people who are keen, in a

rush, don’t care about money» Discount for choosy/finicky


Personalised Pricing Amazon, etc have tried this, but

customers hated it. So has gone “underground” for now. Technology permits this, but society’s

expectations does not allow it


Advertising E-Shops (and other sites) can make

money via advertising» Google makes billions from its “sponsored

links”» Amazon has adverts as well


Web Advertising Conventional advertising focuses on

visual appeal Less successful on web

» Flashy animated banner adverts are a nuisance and distraction


Targeted adverts Web allows relevant adverts to be

associated with a web page» Google sponsored links based on search» Amazon could display different adverts for

sci-fi and romance novel Very effective if done well

» So Web sites can charge more for targeted adverts


Web adverts Initially treated like TV adverts, put huge

effort into flashy multimedia banner ads Now focusing on simple targeted

adverts instead Advertising models cannot be blindly

moved from TV to web» need new models!


E-Commerce Summary Initially tried to make e-shops similar to

high street shops. But» Need different business model» Trust issues much more important» Need appropriate legal framework


Customer Focus Summary Sometimes technology really helps

» Recommender systems, targeted adverts Sometimes technology works, but

society doesn’t like it» Differential pricing

Trust – sine qua non


Assessment 1 Essay due 18th November. Without delay, go to

http://www.abdn.ac.uk/~csc245/teaching/CS5038/assessment/

for more detailed instructions. Please read the instructions very

carefully – and follow them!



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E-Commerce – customer focus