Part 1: Your Customers Live in an Internet World (chapters 1 and 2) Consumer Behavior, Business Behavior: Marketing, Finance, and Productivity in an Online World

In this chapter, we will outline the many ways that consumers use the Internet. They go online to find information, to interact with people, and to conduct personal business. As a small business owner, you should understand how the behavior of your customers is evolving, so you are better prepared to adapt your business to these new norms. 

How Do Consumers Find Things Online?

The Internet is all about getting the information you want and getting it when you want it. Gone are the days of hunting through the local Yellow Pages to find a plumber when the shower won’t work, or stopping by the automobile club to get maps before heading on a road trip. Now consumers turn on their computers to do a quick search for a local plumber, or type an address into their smartphones to get turn-by-turn directions to their destination. When planning their vacation, they search travel websites like Expedia or Kayak for the best deals. When staying at a hotel, they don’t look for a concierge to give them a list of nearby restaurants. Instead they use websites like Yelp or Trip Advisor to find restaurants—as well as reviews and recommendations about them—on their smartphones. This immediate access to information and answers comes from three main sources: Directories, Search Engines, and Review Sites.

Directories: Directories have been the conventional means for consumers to find whatever businesses they are looking for. Traditional printed directories, which are compiled by local organizations such as the Chamber of Commerce, the local visitors center, or even a neighborhood magazine, are valuable only when they are current. The reality is that as soon as a directory is printed, it is likely to be out-of-date. New businesses open or existing ones close, phone numbers and hours of operation change, new services are added and old services are discontinued. With traditional directories, consumers risk looking up information that is no longer accurate.

In contrast to their printed counterparts, online directories can be updated at any time, making them a more reliable source of information. The Internet lets nearly anyone publish content, so directories can be as general or as specific as their creators prefer. Numerous special interest groups are now creating directories and lists that have value to people with similar interests or backgrounds. Angie’s List is an online directory that provides listings and ratings of service providers in a given area. YellowPages.com is the online version of the traditional yellow pages. Manta provides a large directory of small businesses that can each “claim” and enhance their profiles.

Search Engines: Everything that is published on the Internet is searchable, so rather than browsing a directory, many people prefer to search the Internet for their specific requirements. They do so by typing what they are looking for into a search engine. The more popular search engines being used today are Google, Yahoo and Bing.

Search engines exist to give consumers answers. So how do they find those answers? A search engine like Google maintains an index of the information available on the Internet, just like a library catalogs all the books in its system. This process of building an index is called web crawling. A search engine’s computers continually “crawl” the Internet, visiting websites, following the links within those websites to other websites, and cataloging all this information. The search engine later sorts through this data and indexes it. When you type what you are looking for into a search engine, the engine looks through its indexes and nearly instantly finds and displays websites that it considers useful to you.

Today, a major search engine will index hundreds of millions of pages and respond to tens of millions of queries every day. This new concept of searching the Internet has not only changed the way we look for answers, it has transformed our vocabulary. What do you do when you need to know the answer to something? Chances are you Google it!

Review Sites: If online directories and search engines let you discover businesses online, review sites on the Internet let you know what you can expect from these businesses. Traditional media sources such as newspapers, magazines, and radio or television news programs have in-house experts to report on subjects like new books, movies, plays, music, hotels, and restaurants. Online review sites have fundamentally altered this landscape. Now anyone can review anything and publish an opinion online. The Internet has enabled people to give voice to their inner critic. Want to tell people about a restaurant you just tried? You can post your comments on Yelp. Enthusiastic about the country inn you visited last week with your spouse? You can tell other would-be romantics about it on Trip Advisor.

Online review sites let us read the opinions and experiences of hundreds of other consumers just like us. The collective wisdom provided by this “crowd sourcing” has proven to be very persuasive. A restaurant critic for the local newspaper might praise the new burger joint across town without convincing us to visit it. But when hundreds of people online agree that they have never tasted better French fries or a richer milkshake than at that same burger joint, we might decide to give it a try. Similarly if one traditional reviewer says he was unimpressed with a new hotel, readers might think he was being overly critical. But if the majority of online reviewers complain of surly staff members, drafty windows and uncomfortable beds, we will probably look for lodgings elsewhere.

Online reviews have become so effective that many merchants now choose to incorporate customer reviews on their websites. The best-known examples of this are provided by the online superstore Amazon and the auction site EBay. When you are shopping for something on Amazon, you can look for popular items, read the reviews from other consumers, and see what people looking for similar things have purchased. On EBay you can read reviews and see ratings of the sellers. This allows you to make informed decisions on the reliability of vendors and their claims before you decide to buy from them.

How Do People Interact With Each Other Online?

Computers, tablets and smartphones are doing such a good job connecting people online that communication is becoming an increasingly virtual experience. Consumers no longer have to see or hear whomever they are talking to. People still chat with their neighbors, they still phone their friends, but increasing they send someone an email, post a status update, send a text, or tweet about the latest news. Online communication is booming in a world of email, instant messaging, and social networks.

Email: Twenty years ago, only academic institutions and a few technology businesses communicated by email. Now everyone—from young children to great-grandparents—has discovered the benefits of sending mail electronically. Several characteristics of email contribute to its popularity. Unlike regular mail, it is delivered instantly, but unlike a telephone call, you can respond at your convenience. Email costs nothing to send, it can be accessed from any computer or mobile device, and it can be sent to more than one person at the same time. Email addresses are now on everything from business cards and resumes to the roster of your child’s sports team and the staff directory at your neighborhood school. Email has become a preferred method for personal communication. Its use is growing in everyday commerce as well.

Instant Messaging/Texting: Some people don’t want to wait for their friends to check for new emails. They want their friends to see their messages immediately. Instant messages and text messages deliver content directly to the screens of the recipients. Teenagers especially have embraced the immediate nature of texting and instant messaging. At any given time, they are likely to be conducting multiple parallel conversations using their phones.

The increasing use of mobile devices is blurring the lines between instant messaging on a computer and texting on a phone. A good example is iMessage from Apple, which allows consumers to send and receive messages to other users of Apple devices, whether they are on a laptop, a desktop computer, an iPad, or an iPhone. Another example is WhatsApp, which enables consumers to send and receive messages from different types of mobile devices.

Social Networks: You may not have thought of it in these terms, but we are all part of many different social networks. A social network is any group of people having distinct and common interests. You might belong to a gym, be part of a book club, or be active in a church group. Maybe you have joined your local wildlife association or a museum society, or you are a member of your town’s Chamber of Commerce. These are all social networks. And like their real-world counterparts, social networks that exist online have their own identities and norms of behavior.

Social networks can be powerful tools to benefit your business. But in order to take advantage of these opportunities, you need to understand a little bit about the general characteristics of the networks. Some networks, like Facebook, are informal, social gathering places. Others networks, like LinkedIn, help people in the business world find and connect with people of similar professional interests. Still others are defined more by their content than their constituents. Twitter, for example, limits all users to messages of only 140 characters or less.

You can see the influence of online social networks all around you. Twitter is fast replacing traditional sources for breaking news; you may hear about an accident, a sports score, or an election result from a post on Twitter before you hear about it through traditional news media. Facebook has been used to organize mass protests and even—in some countries—revolutions.  And in the business world, social networks give you access to a scale of audience that was previously impossible to reach.

These social networks provide different capabilities for businesses to interact with consumers. For example, Facebook lets people create home pages for their companies. These home pages are called “fan pages,” and they enable you to promote your business on Facebook, alert people who are interested in your business about upcoming events, and build your social network. In addition, when you advertise through social networks like Facebook, you can target your audience based on a range of characteristics such as age, location, interests and recent search history.

How Do People Interact With Businesses Online?

In addition to changing the norms of personal communication, the Internet has impacted how consumers interact with businesses. Your customers don’t have to speak to a live person to find out what they want to know. Gone are the days of waiting for an office or store to open so a customer can call or drop in to get information. When consumers want to buy something, they expect to be able to go online, find their product, read a few reviews about it, send an email if they have a question, and make their purchase. We live in the age of instantaneous access, and the Internet is always open for business. More often than not, if what you offer is not easily accessible online, consumers will take their business elsewhere.

Customers today expect—and often demand—an online presence from businesses with whom they interact. Companies that meet or exceed their customers’ online expectations are more likely to be successful. The ones that do not do so will find themselves fighting to stay competitive in an increasingly online world.

Chapter 2. Business Behavior: Marketing in an Online World

In this chapter, we will first discuss the basics of marketing.  Within this framework, we will talk about how the Internet offers many capabilities that can be used to market your business, and we will discuss search engines and online advertising in greater detail.

Marketing Basics

What is marketing? Your business has something to offer. It might be a service or it might be a physical product. Your business will exist only if there are customers willing to pay for what you offer. Marketing is the process by which you identify potential customers, communicate the value of your product or service to them, and turn them into paying clients. The “Four P’s” of marketing—Product, Place, Price, and Promotion—help you with this process.

Product: This is the product or service that you are selling. It is the solution you are offering to meet a customer’s need. Having the right product is the first step to building a successful business.

Product questions you need to address:

1. What value do you offer to the customer, and what customer need does it meet?
   
2. What is unique about what you offer, and who would be most likely to need it?
   
3. Is it a necessity or a luxury?
   
4. Whom are you trying to sell to? And who is offering products similar to yours?
   

Promotion: When you first think of marketing, you most likely think about how to promote your product. By understanding the behavior of your target customers, you will be able to advertise and sell to them more effectively and efficiently. Traditional promotional tools include product literature, billboards, commercials, print ads, and directory listings. Promoting your product provides potential customers with information about your product and increases their awareness about the availability and value of your product.

Promotion questions you need to address:

1. How do you communicate to people about your company and your product?
   
2. Where will potential customers go to find information about your product, and how can you increase your visibility in these places?
   
3. What is the most cost-effective way to educate people about your product?
   

Price: “How much does it cost?” is one of the first questions most consumers ask. You need to set a price that positions your product or service competitively in the market and provides you with a reasonable profit.  Sometimes price can convey an impression about the quality of your product; a low price may give an impression of lower quality, but a high price might place your product out of reach for a segment of your target market. Setting a price for your product is a critical decision that needs to balance multiple, oftentimes conflicting, criteria.

Price questions you need to address:

1. What do people expect to pay for similar products?
   
2.  Is there sufficient differentiation to price your product higher than competing products?
   
3. Will a lower price significantly increase the volume of sales?
   

Place: This refers to your distribution channel, or how you get your products to your customer. In retail, some companies (such as Gap, Levi’s, and Apple) sell their products in their own stores, while others use large department stores such as Target or Walmart as retail distributors. Place determines how a customer is able to gain access to your product.

Place questions you need to address:

1. Where do your target customers go to look for a product like yours?
   
2. Do you sell your product or service directly to consumers, or do you use a distribution/retail channel?
   

The Four P’s are not steps taken in sequence to determine a marketing strategy. Instead they are related components that, working together, will help you grow your business. They provide a framework for building your overall marketing strategy. The Four P’s should not be looked at one time and then set aside. The market changes, and so does your marketing strategy. By continually evaluating the Four P’s of marketing, you will give your business the best chance of creating and maintaining its competitive edge.

While the Internet has impacted all four of these components of marketing, the areas of place and promotion have undergone the most change. Now we will cover these two aspects in more detail.

Online Advertising: Targeting Your Customer

Traditional advertising sought to divert your attention from whatever you may have been doing at that time. Commercials interrupted the program you were watching on television, print advertisements sought to attract your attention away from the article you were reading, billboards and flyers tried to grab your eye as you were walking down the street or driving down the road.  Interruption was not always pleasant for the consumer, and companies could not be sure if their target audience was paying attention to their ads and being influenced by them. Sure, an athletic shoe company could pay for ad time during a football game and a cosmetics company could buy a spot in a beauty magazine, but those companies would never know if the people seeing their ads were interested in new running shoes or the season’s hottest shade of lipstick. In contrast, the impact of advertising on the Internet can be measured, so you can refine and increase the effectiveness of your marketing strategy.

The growth in the use of the Internet has modified consumer behavior and consequently impacted how we think about place and promotion of our products. Because customers now make buying decisions based on information they gather through online searches, it is no longer sufficient to get the attention of consumers with a message we hope is appropriate, timely, and compelling. Instead, knowing that consumers will seek out information they are interested in, you can reach them while they are researching a related topic. And once you get their attention, you can inform them about your business, your products and your services, and then ultimately convince them to make a purchase.   

A common form of advertising on the Internet is through the use of web banners or banner ads. A banner ad is an advertisement embedded in a webpage. Banner ads appear on webpages alongside the main content of the page, in much the same way magazine advertisements are placed next to the editorial content of a page. These ads either appear across the top of the screen or are placed at strategic places on a webpage. If your ad catches their interest, customers can click on it and go directly to a page on your business’s website.

With online advertising, you are able to get immediate feedback about the effectiveness of your advertising campaign. You can set up banners ads to be displayed on webpages that relate to your product. As people view or click through your ads online, measurement and tracking tools gather data and provide you detailed information about the audience. You get access to demographic data as well as more specific profile data about individual people and their interests, shopping habits, and browsing history.

In addition to placing your ad on a specific website and hoping that appropriate people notice it, you can also target specific consumers and have your ads appear on webpages they are currently browsing. In the first case, a running shoe company might place a banner ad on a website providing advice to potential marathon runners. In the second situation, a business that runs adventure tours in Maui can have its ads placed on pages being viewed by anyone who is searching for Hawaiian vacations.

Companies that support advertising on the Internet or digital advertising can help you create and place your ads in the most effective way. You can run different ads on the same webpage and determine which ones generate the most activity. These companies offer you the ability to track and measure the effectiveness of your advertising campaign in real time.

Search Engine Optimization: Fighting For Position

With advertising, you are trying to get the attention of a customer who is engaged in doing something else. This approach can have mixed results. In some situations it may be more effective to have customers discover your business on their own when they are searching for the products and services they need.

In a fraction of a second, a search engine like Google or Yahoo can provide a customer with thousands of possible websites to visit. Having your website appear at the top of the search list could significantly increase the number of customers who visit your website and purchase your product.

But how can you improve your business’s website position on that list? The process of improving the ranking of a webpage in the results of a search request is known as Search Engine Optimization (SEO), and it is a key element that can impact the success of your online marketing efforts.

Search engines look primarily for content, and they order their results based on the relevancy of the content. Consumers can increase the likelihood of getting useful results by being more specific in their search requests. Searching for “gardeners” generates more than eight million results. But searching for “gardeners Los Angeles” brings the results down to a little under two million.

Still, two million? This is not a helpful list for anyone. To provide more useful results from the search, search engines rank websites. First they try to match for content. If a user is looking for restaurants and the content on a specific webpage indicates it is a restaurant, search engines will consider it a good match. Search engines also give higher rankings to websites that are trusted. This means that sites administered by a governmental department or some other agency with authority, websites that have multiple links to and from many other websites, and websites with fresh, frequently updated content will rank higher.

Some data associated with a website is not visible on the web page but can still be seen by a search engine. If this invisible data, or meta-data, matches a search request, search engines will think they have found a good match. Given the increase in number of searches from mobile devices, when a search request comes from a mobile device, some search engines prioritize websites that are mobile optimized. By being aware of these criteria, savvy business owners can modify their website’s structure and content to improve its ranking in search engine results.

While the technology of the search engines is complex, the reality for you as a small business owner is simple: if your business does not appear on the first page of the results of a requested search, potential customers will probably not find you. Early search engine optimization was all about trying to “game” the system, as people tried different tricks to improve their search ranking. Search engines are continually working to identify these tricks and avoid being gamed. As a small business owner, you should put your energy into enhancing your website’s structure and content to improve its ranking in search results.

Search Engine Advertising: Paid and Organic Search

Users give search engines the keywords used to conduct searches.  Basic or unassisted search is known as “organic search,” and it provides results based on natural information such as relevancy and popularity. In addition, search engines such as Google have a concept known as “paid search.” When displaying search results on their web pages, search engines place paid search results above organic search results. Much like you would pay for a banner ad to appear on a webpage, you can pay for your website information to appear at the top of a list of search results. Instead of buying an advertising spot, you bid on specific keywords.  When the keywords you pay for are entered in a search request and your bid is high enough, your company’s website will appear higher in the search results page.

Next time you conduct a web search using Google, take a moment to look at the webpage displaying your search results. See if you can distinguish the break between paid search results, which will appear at the top of the page, and organic search results, which will be lower down on the page. If you weren’t looking for it, would you notice the difference? Or would you just scan down the list of results and try to determine which one looked like the best fit for your needs?  

If your company serves a specific niche and your customers are likely to enter keywords that will bring them straight to you, you probably don’t need to explore the benefits of paid search. But if you are one of many players in a crowded industry, paid search could help you get the attention of potential customers.

Edward restores antique Mercedes-Benz cars in Durham, North Carolina. “I am fortunate because I am the only guy in town who specializes in antique Benz’s,” he says. Edwards’s potential customers are likely to type something like “antique Mercedes-Benz restoration Durham” in a search. “I have a pretty good website, and people seem to find me when they search for someone to help them with their cars,” he says. “I try to update the information on my website frequently, but I don’t think I need to pay for special keywords. However, I would like to get some other car businesses or Mercedes dealerships to link to my website.”