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5 Questions with Donna Hoffman: How Technology is Changing the Consumer Experience

We interview Professor Donna Hoffman of the George Washington University School of Business to gain her insights into the revolutionary impact of technology on consumer behavior, and potential issues related to data collection and privacy practices.

Most recently, Professor Hoffman has researched how the Internet of Things, machine learning, and artificial intelligence influence consumer behavior.

You’ve been studying online consumer behavior for nearly thirty years. Can you explain how the online consumer purchase decision-making process differs from that in traditional brick-and-mortar stores?

The consumer decision-making process has been described as a purchase funnel, a concept that originated from the study of consumers’ brick-and-mortar experiences. In its simplest terms, the purchase funnel is a series of increasingly narrow stages through which consumers pass when they are looking to buy products or services. At the wide end of the funnel, consumers identify a need for a product and then seek to fill that need. In the middle, they gather information about potential products and evaluate. Finally, at the end of the process, they make a choice and buy a particular product. Inside a store, consumers might have some idea of what brands they are interested in, examine the alternatives on the shelf, consider their options, and then choose one. This, of course, is a highly simplified view of what can be a relatively complex process. Regardless, according to the purchase funnel concept, the process is considered to be relatively inflexible and very linear.

In recent years, we have come to recognize that the traditional purchase funnel way of thinking has evolved dramatically, as consumers have incorporated the digital into the physical experience of shopping. We now recognize that the consumer decision-making process is much more complex than a linear funnel; indeed, it is now most often described as a cyclical “decision journey.” With online purchasing, consumers can get on and off at different points in the journey, expand or contract their choice set based on other consumers’ reviews, compare prices across different vendors, and eventually make a purchase decision. They can even skip some steps entirely. The internet and personal digital devices have made the online consumer experience more convenient, accessible, and seamless. And, more than ever before, this experience is much more in the control of consumers than marketers.

At the same time, consumers continue to value the social and experiential elements of shopping in a physical store. Online shopping does not completely replace its in-person counterpart; they can coexist and enhance each other.

What are some of the key takeaways from academic research into the online consumer purchase decision-making process?

Today’s digital consumer is engaged, empowered, and mobile. With the explosion of smartphone and tablet use, critical interactions can occur anywhere, anytime. The majority of consumer interactions now happen over multiple visits, across a number of channels.

One of the most critical recognitions that has emerged is that marketers have less control over the purchasing decision-making process and consumers have more. Social media, in particular, has played a significant role in that shift. In my research, I have examined how social media influences consumers’ attitudes toward brands, advertising, and related market-response measures.

In the past, marketing messages were largely driven by marketers to consumers. Literally, marketers broadcast their uniform messages to the consumer mass market and consumers were passive receptacles for marketing content. In the world of social media, both consumers and marketers generate these messages and consumers can be very highly segmented or even micro-targeted. Consumers now rely heavily on other consumers, through online reviews, electronic word-of-month, and online searches. Before making a purchase, they may adjust their decisions based on the attitudes and situational factors of others. This puts the consumer in the driver’s seat and takes much of the power away from the marketers.

Do consumers react differently to traditional marketing versus marketing online and through social media? If so, how?

Yes, consumers do have different reactions to traditional versus digital marketing. First, it is important to understand what these terms mean. Traditional marketing refers to broadcast platforms such as print media, TV commercials, and radio. Digital marketing includes electronic media delivered over the internet (mobile, desktop, tablets) and through specific platforms like social media, apps, and email.

When presented with traditional marketing such as television commercials or magazine ads, consumers interested in the marketed products respond with increased awareness of and potential demand for these products. The consumers may gain familiarity with the marketed products, but are still many steps away from purchasing. Traditional marketing is best at stimulating awareness and interest in a product; we refer to this consumer reaction as demand generation.

When consumers are exposed to online and social media marketing, the advertising message can be targeted specifically to them, based on information they provide when using computers and mobile or smart devices. Because of this targeting, consumers are exposed to products that they may already be familiar with or have a need for, and they may react by making a purchase. Consequently, digital marketing tools can more directly convert needs and wants into sales. This consumer response is referred to as demand fulfillment.

How do you define the Internet of Things (IoT) and artificial intelligence (AI)? How do you think consumers’ interactions with these technologies will affect their buying habits and experiences?

This question reminds me of one I used to get when the internet was beginning to take off. People would ask me: “What is the internet? How different is it to market on the internet than any other channel?” The assumption was that it was just another channel—one more way to communicate with and market products to customers. It turns out that the internet is not just another channel but instead a revolutionary medium. It permanently changed how we communicate and live our lives.

The same can be said about AI and the IoT. Together, AI and the IoT bring intelligence to physical products. Because of the IoT, physical objects can be connected to the internet, and by extension, to other physical objects. Most of the time, these objects have varying degrees of AI embedded within them, which enables them to “learn” in a way that seeks to augment human decision making.

For example, common household objects, such as exercise bikes or vacuum cleaners, can become active partners, interacting with us to enhance our lives. Over time, consumers are likely to develop deep relationships with these physical objects, which have some level of autonomy, authority, and agency to act on their users’ behalf. In turn, these relationships will transform how we consume, whom we trust, how we trust, what kind of data are collected about us, and the purposes for which those data are used.

What is the biggest issue you foresee related to AI and IoT technology?

Smart devices are inherently more involved in our lives and, as a result, will have access to a wider variety of information about who we are and how we live our lives. In my view, one of the biggest issues that researchers still need to understand is the value consumers may attach to the privacy of their information, how this varies across consumers, and the extent to which context matters. Consumers will need to weigh the benefits of sharing their data via smart devices (including personalization and convenience) with any privacy concerns. So, while we have already seen substantial litigation related to data privacy, I think we can expect future litigation to more closely examine the potential benefits and costs consumers face when they use these emerging technologies.

Copyright ©2020 Cornerstone ResearchNational Law Review, Volume X, Number 196


About this Author

Vildan Altuglu Antitrust & Competition Cornerstone Research New York, NY
Vice President

Vildan Altuglu applies economic analysis and marketing research techniques to matters involving product liability, product misrepresentation, false advertising, antitrust, intellectual property, and general business litigation. She is a leader of the firm’s consumer fraud and product liability practice. Dr. Altuglu has expertise addressing class certification and liability issues using economic, marketing, and consumer behavior data. She has experience in cases involving data breaches and allegations of unauthorized access to personally identifying data. Dr. Altuglu’s industry experience...

Ceren Canal Aruoba Economic and Financial Analysis Cornerstone Research

Ceren Canal Aruoba provides economic and financial analyses for complex business litigation matters involving pharmaceuticals, healthcare, intellectual property, marketing, and antitrust issues. She supports clients and experts through all phases of litigation, including deposition and trial. Ms. Canal Aruoba has worked on the design and implementation of consumer and professional surveys.

Pharmaceuticals and healthcare

Ms. Canal Aruoba has expertise in average wholesale price (AWP) litigation for both branded and generic manufacturers. In these matters, she has analyzed manufacturers’ price reporting practices, payors’ reimbursement policies, and their impact on pharmacies. Her research on pricing issues examines generic drugs and recent price spike allegations.

She has addressed damages and commercial success issues in Hatch-Waxman Paragraph IV cases. Ms. Canal Aruoba also has extensive experience working with large claims datasets, including matters involving healthcare insurers, health plans, and hospitals.

Antitrust and competition

Ms. Canal Aruoba consults on antitrust and competition cases with a focus on “failing firm” defense and efficiencies analyses. Her recent experience includes the DOJ’s successful challenge in United States v. EnergySolutions Inc. et al., in which she supported our expert’s rebuttal of the opposing parties’ failing firm defense. She has addressed similar issues in the healthcare, food, and online gaming industries.

She also has supported a testifying expert in a matter involving allegations of attempted monopolization, collusion, and price fixing. In this case, she supervised analyses on common impact issues with respect to class certification, developing econometric models to estimate damages and incorporating discovery into data analyses.

Valuation and damages

Ms. Canal Aruoba has conducted valuations and calculated damages in a variety of contexts involving merger and acquisition (M&A) litigation, lost profits, and the analysis of specific assets such as pharmaceuticals, uranium contracts, turbines, and flood insurance. She has experience using econometric techniques as well as discounted cash flow (DCF) and comparables valuation methodologies.

Ian Hoffman Cornerstone Research

Ian Hoffman is an Associate with Cornerstone Research.

Donna Hoffman Cornerstone Research

Donna Hoffman is  renowned  in the area of online consumer experiences, including online consumer behavior, internet marketing, digital commerce, and online search. Her research also evaluates the impact of new technologies, including artificial intelligence (AI) and the Internet of Things, on the online retail market environment.

An experienced expert witness, Professor Hoffman has testified in multiple matters, including in two federal trials. Her testimony in these matters included evaluating and opining on issues relating to online consumer...