Chapter 5
Electronic Commerce
Strategies for the New Economy
Chapter Map
Introduction
n
The new economy introduced
by the www has been interesting.
n
Fortunes have been made
and lost.
n
Dot-com millionaires have
been created.
n
Others have seen their
company turn into a dot-bomb.
n
The revolution of
ebusiness promised by the internet has just began.
n
We are still learning what
works and what does not work.
n
There is still a lot of
uncharted territory ahead.
That is why it is so important that you
learn ways to help your organization develop a winning strategy for the new
economy.
The growth of eCommerce
The Growth of E-Commerce
Figure 5.1
Four Categories of E-Commerce
page 178
The Growth of E-Commerce
E-commerce
Is commerce, but it is commerce accelerated
and enhanced by IT, in particular the Internet.
The Growth of E-Commerce
n E-commerce
t
Enables customers,
consumers and companies to form powerful new relationships that would not be
possible without the enabling technologies
n
The internet facilitates
commerce by its ability to move digital information at low cost.
The Growth of E-Commerce
n There are 4 main
perspective for E-commerce
t B2B – business to business
t B2C – business to
consumer:
" ecommerce sites that sell
products and/or services directly to the consumer via the internet.
t C2B – consumer to
business:
" Where many consumers who
want to buy the same or similar products to band together in order to obtain
volume discounts from businesses
t C2C – consumer to
consumer:
" The sector where consumer
deal with each other
" www.ebay.com
The Growth of E-Commerce
t C2B – consumer to business:
" Where many consumers who
want to buy the same or similar products to band together in order to obtain
volume discounts from businesses
This process
is known as Demand aggregation.
It combines purchase requests from multiple buyers into a single
large order, which justifies a discount from the business.
The Growth of E-Commerce
Global
E-commerce Growth Projections
The Growth of E-Commerce
The
Digital Divide
n
The number of internet users varies from
region to region in the world.
n
Less developed countries have fewer users.
n
This phenomenon = the digital divide
The Growth of E-Commerce
The
Digital Divide
Digital divide
Expresses the fact that different peoples,
cultures, and areas of the world or within a nation do not have the same access
to information and telecommunications technologies.
The Growth of E-Commerce
The
Digital Divide
Global digital divide
Specifically describes the differences in IT
access and capabilities between different countries or regions of the world.
The advantages
of B2C ecommerce
The Advantages of Business To Consumer E-Commerce
n Retailers increasingly
view the internet as simply another channel by which to reach their customers
n The internet is a channel
that pocesses some unique and powerful advantages over traditional channels
when used effectively
n Know
t
When to use it
t
How to use it effectively
and
t
When to use it in
combination with other channels
Is key.
The Advantages of Business To Consumer E-Commerce
n The internet has several
current and potential advantages over the traditional ‘brick-and-mortar’
stores:
t
Shopping can be faster and
more convenient
t
Offerings and prices can
change instantaneously
t
Call centers can be
integrated with the web site
t
Broadband
telecommunications will enhance the buying experience
The Advantages of Business To Consumer E-Commerce
Shopping
Can Be Faster and More Convenient
n Most “brick-and-mortar”
stores are not open 24hrs a day, 7 days a week.
n Shopping in
“brick-and-mortar” stores most times is frustrating and inconvenient because
t You have to physically
move from one store to another
t Depend on the experience
of the sales person for good information about products and services
t You have to go during
opening hours and
t When you need support you
will have a telephony system that is rather time consuming and frustrating
The Advantages of Business To Consumer E-Commerce
Shopping
Can Be Faster and More Convenient
n Shopping on the internet is
t Faster than “brick-and-mortar” and
t More convenient
n Retail stores on the internet are called
e-tailers.
The Advantages of Business To Consumer E-Commerce
Shopping
Can Be Faster and More Convenient
n
E-tailer - an Internet retail site.
There are some variations to the e-tailer:
t
Pure plays - Internet
retailers such as Amazon.com that have no physical stores.
t
Clicks–and-mortar retailers,
(also called “bricks–and-clicks”), are like Nordstrom, which has both an
Internet presence and one or more physical stores.
t
M-commerce - describes
e-commerce conducted over a wireless device such as a cell phone or personal
digital assistant (PDA).
The Advantages of Business To Consumer E-Commerce
Shopping Can Be Faster and More
Convenient
Figure 5.3
Alternative Channels for Selling to
Customers
page 182
The Advantages of Business To Consumer E-Commerce
Offerings
and Prices Can Change Instantaneously
n
E-tailers can change product offerings and
prices instantaneously in response to changes in customer demand.
The Advantages of Business To Consumer E-Commerce
Offerings
and Prices Can Change Instantaneously
n
Some of the most difficult
aspects in managing a retail operation:
t
To know how much to order
at the beginning of the season
t
The need to have enough
information to reorder early if sales are better than expected
t
To reduce prices early if
sales are not up to your expectations
The Advantages of Business To Consumer E-Commerce
Offerings
and Prices Can Change Instantaneously
n
The advantages of e-tailers in solving
these problems are:
t Can
obtain real-time information on how sales are going against expectations
t Can
adjust prices immediately if sales are not going as well as expected
The Advantages of Business To Consumer E-Commerce
Call
Centers Can Be Integrated With the Web Site
n The web technology has created innovative
adaptations in e-tailing such as:
t Interactive
chat
t Internet
telephony
The Advantages of Business To Consumer E-Commerce
Call
Centers Can Be Integrated With the Web Site
Interactive chat
Lets you engage in real-time typed exchange
of information between you and one or more other individuals over the Internet.
The Advantages of Business To Consumer E-Commerce
Call
Centers Can Be Integrated With the Web Site
Internet telephony
A combination of hardware and software that
uses the Internet as the medium for transmission of telephone calls in place of
traditional telephone networks.
The Advantages of Business To Consumer E-Commerce
Broadband
Telecommunications Will Enhance The Buying Experience
n Today, high-speed Internet is not widely
available to everybody.
n
When
broadband telecommunications become widely available the buying experience will
also be greatly enhanced.
The Advantages of Business To Consumer E-Commerce
Broadband
Telecommunications Will Enhance The Buying Experience
n What will happen?
t
You will be able to
purchase full-length feature film and download it in minutes
t
You will be able to chose
any film that has ever been made and it will always be available
t
Virtual test drives of
automobiles
t
virtual reality
Keys To Success
In Business To Consumer E-Commerce
Keys To Success In Business To Consumer E-Commerce
It is important to reflect on what have we learned
so far so that new B2C entrepreneurs can increase their chances of being
successful
Keys To Success In Business To Consumer E-Commerce
n
Important lessons include:
t
Commodity like items work best.
t Digital
products are the best of all.
t Attracting
and retaining customers.
t
Remember the importance of merchandising.
t
You must execute well.
t Watch
the competition.
Keys To Success In Business To Consumer E-Commerce
Commodity
like Items Work Best
n
People tend to be more
comfortable buying items on the Internet that are commodity like, that is,
t
Uniform
t
Books
t
Computers
t
Automobiles
t
Groceries
Keys To Success In Business To Consumer E-Commerce
Commodity
like Items Work Best
n
People tend to be less comfortable buying
“high touch” items on the Internet such as
t Furniture
t Food
/ groceries
Keys To Success In Business To Consumer E-Commerce
Digital
Products Are the Best of All
n
The reasons digital
products are best suited for B2C e-commerce are the following:
t
They are commodity-like
products.
t
They can be mass-customized
and personalized.
t
They can be delivered at
the time of purchase.
t
They foster
disintermediation.
t
They have global reach.
Keys To Success In Business To Consumer E-Commerce
Digital
Products Are the Best of All
n
Examples
t
Computers
t
CDs
t
DVDs
t
Downloaded software
t
Videos
t
Books
t
Newspapers / articles
Keys To Success In Business To Consumer E-Commerce
Digital
Products Are the Best of All
n It is forecasted that in
the future you will be asked to pay for information obtained on the internet and
that you get now for free.
n
Micro-payments - techniques
to facilitate the exchange of small amounts of money for an Internet
transaction.
Keys To Success In Business To Consumer E-Commerce
Attracting
and Retaining Customers
n
Designing an attractive
web site that is easy to use is one of the key factors in the success of a B2C
venture.
n
Once a potential customer
has found your site it is important
t
to keep them there until
they purchase something and
t
once they purchased
something you need to give them incentive to return.
Keys To Success In Business To Consumer E-Commerce
Attracting
and Retaining Customers
n When marketing is considered professionals
talk about the marketing mix.
n
Marketing
mix - the set of marketing tools that the firm uses to
pursue its marketing objectives in the target market.
Keys To Success In Business To Consumer E-Commerce
Attracting
and Retaining Customers
n
Additional techniques for attracting
Internet customers include:
t
Registering with search engines
t
Online ads
t
E-Mail and viral marketing
t
Affiliate programs
t
Selling to existing customers
Keys To Success In Business To Consumer E-Commerce
Attracting
and Retaining Customers
n
Registering with Search Engines
t Meta tags -
part of a Web site text not displayed to users but accessible to browsers and
search engines for finding and categorizing Web sites.
Keys To Success In Business To Consumer E-Commerce
Attracting
and Retaining Customers
n
Online Ads
t Many
Web sites use small banner ads, a small ad on one Web site that advertises the
products and services of another business, usually another dot-com business
Keys To Success In Business To Consumer E-Commerce
Attracting
and Retaining Customers
t
E-Mail and Viral Marketing
t Spam - unsolicited e-mail.
t Viral marketing – encourages users of a product or service supplied by a B2C
company to ask friends to join in as well.
Keys To Success In Business To Consumer E-Commerce
Attracting
and Retaining Customers
n
Affiliate Programs
t Affiliate programs - arrangements made between
e-commerce sites that direct users from one site to the other.
t Click-throughs - a count of the number of
people who visit one site, click on an ad, and are taken to the site of the
advertiser.
Keys To Success In Business To Consumer E-Commerce
Attracting
and Retaining Customers
5. Selling to Existing
Customers
t One
of the keys to success in the B2C space is to encourage customers to continue
to buy from you.
t Conversion rate - the percentage of customers
who visit the site who actually buy something.
Keys To Success In Business To Consumer E-Commerce
Remember
the Importance of Merchandising
n
A B2C business must do an
effective job of merchandising.
n
Merchandising?
t
Understand customer base
well enough
"
To be able to select
products that will appeal to them and
"
That are attractively
displayed
Keys To Success In Business To Consumer E-Commerce
Remember
the Importance of Merchandising
Figure 5.3
Dos and Don’ts of Web Site Design
page 188
Keys To Success In Business To Consumer E-Commerce
You must
execute well
n
Simply means that when a customer places an
order on your web site, you have to follow through and execute the necessary
business processes to get the right item to the customer in a timely fashion
Keys To Success In Business To Consumer E-Commerce
You must
execute well
n
When a customer places an order:
t Send
an email acknowledging that you received the order
t Include
all the order details and how to change in case of a mistake and
t Estimated
shipping date.
Keys To Success In Business To Consumer E-Commerce
Watch the
competition
n
Watching the competition
for B2C businesses is especially important.
n
Why?
t
Because retaining your
customer is one of the keys to e-commerce success and
t
Because it is easy to lose
a customer to a competitor who comes up with a better idea.
Business to Business E-Commerce
Business to Business E-Commerce
n B2B e-commerce is e-commerce
that takes place between organization.
n Companies do business with
other companies all over the world.
n Example: an airline needs
to buy
t
Aircraft fuel
t
Spare parts
t
Food
t
Other
From other companies
Business to Business E-Commerce
n In B2B, relationship is
most important.
n
Businesses tend to form longer-term relationships with their
trusted partners.
Business to Business E-Commerce
n Relationships in B2B take
different forms in the e-commerce environment:
t Value networks
t Corporate purchasing segments
t Next-generation solutions
t B2B marketplaces
t Intranets and extranets
Business to Business E-Commerce
Value
Networks
n More and more in
e-commerce involves a complex network of relationships to operate between
t the enterprise,
t its customers,
t intermediaries,
t complemetors and
t
suppliers
Business to Business E-Commerce
Value
Networks
n
Value network - all of
the resources behind the click on a Web page that the customer doesn’t see, but
that together create the customer relationship – service, order fulfillment, shipping,
financing, information brokering, and access to other products and offers.
Business to Business E-Commerce
Value
Networks
n
Intermediaries -
specialist companies that provide services better than their client companies
can themselves.
n
Complementors - provide
products and services that complement the offerings of the enterprise and
thereby extend its value-adding capabilities to its customers.
Business to Business E-Commerce
Value Networks
Figure 5.6
The Value Network
page 194
Business to Business E-Commerce
Corporate
Purchasing Segments
n
In B2B, most attention has been given to
the ways that e-commerce could streamline the purchasing of materials
Business to Business E-Commerce
Corporate
Purchasing Segments
n
Purchasing applications are usually divided
into three segments:
1. Purchasing of direct materials
2. Purchasing
of indirect materials (MRO)
3. Purchasing
of services
Business to Business E-Commerce
Corporate
Purchasing Segments
n One of the most important
contributions to a company’s effectiveness is in the purchase of direct
materials. That is:
t
Search for reliable
sources of supply
t
Negotiating price
t
Evaluating quality
t
Delivery performance
expectations and
t
Monitoring suppliers
performance.
Business to Business E-Commerce
Corporate
Purchasing Segments
n
Direct
materials - materials
that are used in production in a manufacturing company or are placed on the
shelf for sale in a retail environment.
Business to Business E-Commerce
Corporate
Purchasing Segments
n
The
most important form of B2B e-commerce today is electronic data interchange or
EDI
Business to Business E-Commerce
Corporate
Purchasing Segments
n
Electronic
data interchange (EDI) - the direct computer-to-computer transfer
of transaction information contained in standard business documents such as
invoices and purchase orders, in a standard format.
Business to Business E-Commerce
Corporate
Purchasing Segments
Figure 5.7
An EDI Hub-and-Spoke Arrangement
page 196
Business to Business E-Commerce
Corporate
Purchasing Segments
n Value added networks
(VANs) make it easier for trading partners to establish telecommunications
links with each other.
n Rather than sending EDI
transactions directly from a hub company, companies usually send a stream of orders
to many trading partners directly to a VAN.
n
The VAN places them in an
electronic mailbox for each trading partner.
n
Then once or twice a day
they computer connects with the VAN and downloads all EDI transactions from all
of its trading partners at one time
Business to Business E-Commerce
Corporate
Purchasing Segments
Figure 5.8
How Value-Added Networks (VANs)
Facilitate EDI
page 197
Business to Business E-Commerce
Corporate
Purchasing Segments
n
Virtual
private network - uses software to establish a secure channel
on the Internet for transmitting data.
Business to Business E-Commerce
Corporate
Purchasing Segments
n
Indirect
materials -
materials that are necessary for running a modern corporation, but do not
relate to the company’s primary business activities.
Business to Business E-Commerce
Next
Generation Solutions
n Efforts are underway to create a new
generation of EDI for the B2B transactions that would be
t Easier
to setup and use
t More
attractive to small businesses
Business to Business E-Commerce
Next
Generation Solutions
n Most of the next
generation EDI efforts involve the Internet as a substitute to the private networks because the internet is
cheaper
n
Most of them are built around an emerging technology for
creating web documents called XML
Business to Business E-Commerce
Next
Generation Solutions
n
XML
(eXtensible Markup Language) - a coding language for the Web that lets computers interpret
the meaning of information in Web documents.
Business to Business E-Commerce
Next
Generation Solutions
Figure 5.9
A Person’s Name Coded in HTML and in
XML
page 199
Business to Business E-Commerce
Next Generation Solutions
n
ebXML - a set of technical
specifications for business documents built around XML designed to permit enterprises
of any size and in any geographical location to conduct business over the
Internet.
n
Web Services - software
applications that talk to other software applications over the Internet using
XML as a key enabling technology.
Business to Business E-Commerce
B2B
Marketplaces
n
B2B marketplaces -
Internet-based services that bring together buyers and sellers.
t
They give the potential to
bring together large numbers of buyers and sellers
"
giving buyers more choices
and
"
aggregating demand for the
sellers
t
Transaction costs can be
reduced
Business to Business E-Commerce
B2B
Marketplaces
n
A B2B company has a software that matches buyers to sellers.
A common technique is to conduct a reverse auction.
n
Reverse auction - the process
in which a buyer posts its interest in buying a certain quantity of items, and
sellers compete for the business by submitting successively lower bids until
there is only one seller left.
Business to Business E-Commerce
Intranets
and Extranets
n
Intranet
- an internal organizational Internet that is guarded against outside access by
a special security feature called a firewall (which can be software, hardware,
or a combination of the two).
Business to Business E-Commerce
Intranets
and Extranets
Figure 5.10
Intranet Structure page 201
Business to Business E-Commerce
Intranets
and Extranets
n
Extranet
- an intranet that is restricted to an organization and certain outsiders, such
as customers and suppliers.
Business to Business E-Commerce
Intranets
and Extranets
Figure 5.11
Extranet Structure page 202
Business to Business E-Commerce
Intranets
and Extranets
n
Customer
relationship management (CRM) systems - use information about
customers to gain insights into their needs, wants, and behaviors in order to
serve them better.
The Role of E-Government
The Role OF E-Government
n
E-Government
- describes the application of e-commerce technologies in governmental
agencies.
n
In many countries the government is the
largest hub to use EDI for ecommerce activities.
The Role OF E-Government
n Some applications where
the government is leading the private sector in the use of ecommerce
technologies:
t
Biometrics
t
Use of face recognition
software for detecting persons who might present security threats at airports.
E-Commerce
Payment Systems
E-Commerce Payment Systems
n Just as there are traditional EDI
transactions for purchase orders and other standard business documents, there
are EDI transactions for payments.
n
Financial
EDI (FEDI) - the use of EDI for payments.
E-Commerce Payment Systems
n E-payments would solve traditional timing
problems such that:
t Epayments
would clear faster and
t The
payer would lose the use of that money for those extra few day it would have
taken for the check to clear.
E-Commerce Payment Systems
Credit
Cards and Smart Cards
n
Smart
cards - plastic
cards the size of a credit card that contain an embedded chip on which digital
information can be stored.
E-Commerce Payment Systems
Financial
Cybermediaries
Figure 5.12
The PayPal Web Site
page 204
E-Commerce Payment Systems
Financial
Cybermediaries
n
Financial
cybermediaries - Internet-based companies that make it
easy for one person to pay another person over the Internet.
E-Commerce Payment Systems
Electronic
Bill Presentment and Payment
n
Electronic
Bill Presentment and Payment (EBPP) - systems send us our bills over the Internet
and give us an easy way to pay them if the amount looks correct.
Closing Case Study One
eBags: An E-Commerce Success Story
n
While many pure play e-commerce sites have
fallen by the wayside, eBags is not only surviving, it is thriving.
n
How has eBags gained a competitive
advantage over traditional bricks-and-mortar retailers of bags and accessories?
Closing Case Study Two
Making
Toyota’s Vision a Reality
n
Toyota Motor Corporation has plans to build
an IT system that will fabricate digitally designed cars and build them in
digitally designed factories.
n
What advantages will Toyota gain by
implementing this system?
Summary
Student
Learning Outcomes
n Describe the four main perspectives of e-commerce, its
current status, and the global growth expected in the next few years.
n Identify the advantages of business to consumer (B2C)
e-commerce.
n Describe the techniques that lead to success in B2C
e-commerce ventures.
Summary
Student
Learning Outcomes
n Describe the variety of ways that business to business (B2B)
e-commerce technologies are being used, and describe next generation models
which may widen the adoption of global B2B e-commerce.
n Identify the unique aspects of e-government applications.
n Describe the status and options for e-commerce payment
systems.
Summary
Assignments
& Exercises
n
Developing M-Commerce Scenarios for GPS
Cell Phones
n
Dealing with the Global Digital Divide
n
Alternatives for Personalized Digital Music
Real Hot
Electronic Commerce
Getting
Your Business on the Internet
n
Competitive Intelligence
n
Storefront Software
n
Hosting Services
n
Marketing the Site
Visit the Web to Learn More
www.mcgrawhill.ca/college/haag
n
Competitive Intelligence
n
Storefront Software
n
Hosting Services
n
Marketing the Site
n
B2B Marketplaces