Introduction to E-commerce

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Agenda

• Marketing
• Commerce
• History of Internet
• Computer, Networks
• Intro to E-commerce
• History of E-commerce
• WWW
• What is E-commerce
• Forces shaping E-commerce
• E-commerce today
• Categories of E-commerce
• What is a web based business
• E-commerce marketing strategies
• Setting up for E-marketing (online)
• Benefits of E-commerce
• Strategy Formulation
• Business Model

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Definition of Marketing

• Philip Kotler
• Social and Managerial process by which individuals and groups obtain what they need and want through creating, offering, and exchanging products of value with others.
• This definition rests on the following core concepts: needs, wants, demands, products, value, cost and satisfaction, exchange and transactions, relationships and networks, markets, marketers and prospects.

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Definition (cont)

• Needs – exist in biology they are not created by marketers – i.e. shelter, food, clothing, safety, belonging, esteem
• Wants – Need food want hamburger, fries, coke.
• Desire – Wants for specific products backed by an ability and willingness to buy them

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Definition of Commerce

• The exchange of goods and services for money
• Consists of:

Buyers - these are people with money who want to purchase a good or service.

Sellers - these are the people who offer goods and services to buyers.

Producers - these are the people who create the products and services that sellers offer to buyers.

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Elements of Commerce

• You need a Product or service to sell
• You need a Place from which to sell the products
• You need to figure out a way to get people to come to your place.
• You need a way to accept orders.
• You also need a way to accept money.
• You need a way to deliver the product or service, often known as fulfillment.
• Sometimes customers do not like what they buy, so you need a way to accept returns.
• You need a customer service and technical support department to assist customers with products.

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History of The Internet

• Started as a US government project in 1969.
• The purpose was to create a net that can function even if one center is destroyed in a military attack.

- “Hub and spokes” can be useless if the hub is destroyed.

- Network can continue to be functional even if some nodes are destroyed, as long as information can pass through other nodes.

• Effective in 1971 with computers on both coasts of the US.

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In the 1980´s

• Personal computers or terminals were connected to a server.
• The server was a mainframe, or connected to a mainframe computer.
• The mainframe was connected to another mainframe of the company in another location via dedicated lines.
• Only large companies could afford the expense and investment in equipment.

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Today

• Connections across countries and continents made through dedicated fast lines.
• A company may have one local network (LAN) in NY, which is connected to the Internet through a Regional network.
• Well established in N.A., Europe and certain Asian countries

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Computer classifications

• Mainframes:

- term for very large computers

- used to handle large amount of data or

complex processes

- main advantage is reliability

• Midrange:

- medium sized, less expensive and smaller

- usually a server

• Micro-computer:

- work stations with computing capabilities

- single-users systems linked to form a network

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What is a network

• Series of points or nodes interconnected by communication paths
• Node is a connection point for transmitting data
• Network can interconnect with other networks to form global networks

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Benefits of a network

• Facilitates resource sharing
• Provides reliability
• Cost effective
• Provide a powerful medium across geographical divide

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Different kinds of networks

• Type of signal
• Nature of connection
• Types of physical links
• Topology
• Communication model
• Geographical distance

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Geographical Distance

• Local area network (LAN): small area, share a single server
• Metropolitan area network (MAN): a wider network, can bridge several LAN’s
• Wide area network (WAN): a broader area covered, can include several MAN’s
• Internet: a network of networks that covers the entire globe

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TCP/IP Protocol

• Allows any two computers to communicate and exchange data.
• The Internet transfers data packets among computers.
• Each packet is identified by the sender address and a receiver address.
• The sender´s computer transfers the data packet to another computer on the Internet, which transfers it to a chain of other computers until it reaches the final destination.

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Internet addressing system

• Internet uses TCP/IP, therefore every computer on the Internet has an IP address
• IP address is numerical, separated by dots
• Works with DNS:

- com: for commercial purposes

- net: for Internet Service Providers

- org: for non-profit, non-commercial groups

- gov: reserved for government

- mil: reserved for military

- int: reserved for international organizations

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Assimilation of Technology

• Technology first adopted to increase efficiency – doing the same tasks faster e.g. word processing instead of typing

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• Technology next adopted to increase effectiveness – doing tasks not only faster but better e.g. spreadsheets transformed finance and accounting (as well as science and other fields)

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Introduction to E-commerce

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• E-Commerce, Web, Networks, Internet
• The evolution of new businesses
• The adoption of Brick and Mortar companies to the new economy
• Market failures and economic explanations for the new economy

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History of E-commerce

• EC applications first developed in the early 1970s

- Electronic funds transfer (EFT)

• Limited to:

- Large corporations

- Financial institutions

- A few other daring businesses

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History of E-commerce

• Enlarged pool of participants to include:

- Manufacturers

- Retailers

- Service providers

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• Electronic data interchange (EDI)—electronic transfer of documents:

- Purchase orders

- Invoices

- E-payments between firms doing business

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History of E-commerce

• EC Successes

- Pure online

• eBay
• VeriSign
• AOL
• Checkpoint

- Click-and-mortar

• GE
• IBM
• Intel
• Schwab

• EC Failures

- E-tailors began to fail in 1999

- This does not mean that EC’s days are numbered

- Large EC companies like Amazon.com are expanding but success or failure is not certain

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E-Commerce Mechanisms

• Transformation of economic activity into digital media

- Exchange information, content, agreements, and services among parties that are connected to through the Internet.

• Enables new ways of creating, delivering and capturing value to customers.

- Availability

- Convenience

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World Wide Web (WWW)

• World Wide Web (Web):

- A collection of documents that reside on computers, and that can be accessed by other computers on the Internet.

• Multimedia documents:

- Text

- Images

- Sounds

- Drawings

- Video

• Hypertext:

- Links to other documents

- Can begin execution of a program

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Web Browsers

• Computer programs that can:

- Display Web documents

- Follow links

- Execute other programs

- Enhance applications such as real-time audio or video

• Netscape and Internet Explorer
• The Microsoft legal trouble due to the Explorer.

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Web Servers

• Computers that run server software.
• A server waits for request to arrive from a user.

- The request is typically for a document.

• The server sends (serves) the document to the requesting computer.
• Sometimes the server allows a user to fill in information on a document, and the then transfers the information to another program or a server.

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Information on Users and Sites

• Web log file

- User information

- Requested documents

• Cookies

- Information stored on a PC´s hard drive by the site.

- Enables the site to identify the user.

- Enables profiling.

- Enables targeted advertising.

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WWW and Internet

• The World Wide Web (WWW) is not the Internet
• Access to the Internet doesn’t mean you have e-commerce
• WWW works in HTTP
• Web pages works in HTML
• Web browser provide access to information on the WWW

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What is E-commerce

• Distributing, buying, selling and marketing products and services over electronic systems
• E-business for commercial transactions
• Involves supply chain management, e-marketing, online marketing, EDI
• Uses electronic technology such as:

- Internet

- Extranet/Intranet

- Protocols

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Forces Shaping the Digital Age

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Forces Shaping the Digital Age

• Digitalization & Connectivity
• Intranets : connect people within a company.
• Extranets : connect a company with its suppliers, distributors, and outside partners.
• Internet : connects users around the world.

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• Internet Explosion
• Explosive worldwide growth forms the heart of the New Economy.
• Increasing numbers of users each month.
• Companies must adopt Internet technology or risk being left behind.

Definitions

• Internet:
• A collection of computers that speak a common language – protocol
• Intranet:

- Private version of the Internet

- Main purpose to share company information and computing resources among employees

• Extranet:

- Private network that users outside the company can access

- Requires security and privacy

- Collaborate with other companies

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Forces Shaping the Digital Age

• New Types of Intermediaries:
• Direct selling via the Internet bypassed existing intermediaries (disintermediation).
• “Brick-and-mortar” firms became “click-and-mortar” companies.
• As a result, some “click-only” companies have failed.

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Forces Shaping the Digital Age

• Customization and Customerization:
• With customization, the company custom designs the market offering for the customer.

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• With customerization, the customer designs the market offering and the company makes it.

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E-commerce as the Networked Economy

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• Create value largely through gathering, synthesizing and distribution of information
• Formulate strategies that make management of the enterprise and technology convergent
• Compete in real time rather than in “cycle time”
• Operate in a world characterized by low barriers to entry, near-zero variable costs of operation and shifting competition
• Organize resources around the demand side rather than supply side
• Manage better relationships with customers through technology

E-commerce Today

• The Internet is the perfect vehicle for e-commerce because of its open standards and structure.
• No other methodology or technology has proven to work as well as the Internet for distributing information and bringing people together.
• It’s cheap and relatively easy to use it as a medium for connecting customers, suppliers, and employees of a firm.
• No other mechanism has been created that allow organizations to reach out to anyone and everyone like the Internet.

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E-commerce Today

• The Internet allows big businesses to act like small ones and small businesses to act big.
• The challenge to businesses is to make transactions not just cheaper and easier for themselves but also easier and more convenient for customers and suppliers.
• It’s more than just posting a nice looking Web site with lots of cute animations and expecting customers and suppliers to figure it out
• Web-based solutions must be easier to use and more convenient than traditional methods if a company hopes to attract and keep customers.

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Four Categories of E-Commerce

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B2B

B2C

C2B

C2C

Consumers

Business

And selling to...

Business originating from...

Business

Consumers

Distinct Categories of E-Commerce

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• Business to Business (B2B) refers to the full spectrum of e-commerce that can occur between two organizations.

This includes purchasing and procurement, supplier management, inventory management, channel management, sales activities, payment management &service and support.

Examples: FreeMarkets, Dell and General Electric

• Business to Consumer (B2C) refers to exchanges between business and consumers, activities tracked are consumer search, frequently asked questions and service and support.

Examples: Amazon, Yahoo and Charles Schwab & Co

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Distinct Categories of E-Commerce (cont’d)

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• Peer to Peer (C2C) exchanges involve transactions between and among consumers. These can include third party involvement, as in the case of the auction website Ebay.

Examples: Owners.com, Craiglist, Monster

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• Consumer to Business (C2B) involves when consumers band together to present themselves as a buyer in group.

Example: www.planetfeedback.com

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Convergence of e-Commerce Categories

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Business originating from…

Business

Consumers

And Selling to…

Consumers

Business

Publishers order paper supplies from paper companies

Amazon orders from publishers

Consumers search out sellers, offers and initiate purchases from Amazon

Consumers resell copies on eBay

Consumers buy thousands of Harry Potter books from Amazon

What is a web-based business

• Business that uses the WWW to fulfill it’s business process
• Four basic business processes:

- information dissemination

- data capture

- promotions and marketing

- transacting with stakeholders

• Business objectives interact with web based applications

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Information dissemination

• Can publish relevant information
• Can be used in crisis mode
• Identifying worst case scenarios and providing details

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Data capture

• Collect information about customers
• Two methods:

- manual input

- automated

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Promotions and Marketing

• Banner advertising
• Affiliate programs
• Registration with directories
• Traditional marketing

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Transacting with stakeholders

• Can display products and services
• Cross-selling can be implemented
• Can customize website
• Can react to competition
• Can improve relationship

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Key Drivers of E-commerce

• Technological – degree of advancement of telecommunications infrastructure
• Political – role of government, creating legislation, funding and support
• Social – IT skills, education and training of users
• Economic – general wealth and commercial health of the nation

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Key Drivers of E-business

• Organizational culture- attitudes to R&D, willingness to innovate and use technology
• Commercial benefits- impact on financial performance of the firm
• Skilled/committed workforce- willing and able to implement and use new technology
• Requirements of customers/suppliers- in terms of product and service
• Competition- stay ahead of or keep up with competitors

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Appeal of E-commerce

• Lower transaction costs - if an e-commerce site is implemented well, the web can significantly lower both order-taking costs up front and customer service costs
• Larger purchases per transaction - Amazon offers a feature that no normal store offers
• Integration into the business cycle
• People can shop in different ways. The ability to build an order over several days
• The ability to configure products and see actual prices
• The ability to easily build complicated custom orders
• The ability to compare prices between multiple vendors easily
• The ability to search large catalogs easily
• Larger catalogs
• Improved customer interactions - company.

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Limitations of E-commerce

• To organizations: lack of security, reliability, standards, changing technology, pressure to innovate, competition, old vs. new technology
• To consumers: equipment costs, access costs, knowledge, lack of privacy for personal data, relationship replacement
• To society: less human interaction, social division, reliance on technology, wasted resources, JIT manufacturing

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Technical limitations

• There is a lack of universally accepted standards for quality, security, and reliability
• The telecommunications bandwidth is insufficient
• Software development tools are still evolving
• There are difficulties in integrating the Internet and EC software with some existing (especially legacy) applications and databases.
• Special Web servers in addition to the network servers are needed (added cost).
• Internet accessibility is still expensive and/or inconvenient

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Web based technology

• Websites
• E-mail
• Search engines
• Interactive communications

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Old Economy Firms

• Brick and Mortar companies need to adopt to the new economy

- Create a new Internet company.

- Create a new subsidiary.

- Invest in an Internet competitor.

- Buy the technology from a consultant.

- Work with other firms to create an exchange.

- Integrate with suppliers and or customers.

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Old Economy Firms

• Failure of old economy companies to adopt may result in:

- Loss of market share.

- Inability to meet new economy competitors´prices.

- Reduced profits and cash flows.

- Inability to raise new financing.

- Loss of control in an acquisition by a new economy firm.

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Business Opportunity

• The Internet revolutionized ways of doing business
• Entrepreneurs found ways to exploit market failures and earn economic rents
• New businesses were created that were not feasible earlier
• The new economy poses threats to old economy firms that do not wish to adapt
• The transformation is still in process. The evolution continues

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Benefits and Challenges of E-commerce

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Benefits

• Persistent connection with customers
• New value for customers
• Access to new customers
• Scalability

Challenges

• Cannibalization
• Channel conflict
• Customer confusion
• Investor confusion

Front end systems

• Direct user interface with business processes
• Accessible via WWW
• Front-end systems:

- e-CRM

- e-marketing

- e-services

- e-marketplace

- e-auction

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Marketing Strategy in the Digital Age

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Requires a new model for marketing strategy and practice

Some suggest that all buying and selling will eventually be done electronically

Companies need to retain old skills and practices but add new competencies

E-Business in the Digital Age

• Involves the use of electronic platforms to conduct company business.
• Web sites for selling and customer relations
• Intranets for within-company communication
• Extranets connecting with major suppliers and distributors

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E-Commerce in the Digital Age

• More specific than e-business.
• Involves buying and selling processes supported by electronic means, primarily the Internet.
• Includes:
• e-marketing
• e-purchasing (e-procurement)

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E-commerce vs. E-business

• E-commerce is about doing business electronically
• E-commerce conducting financial transactions electronically

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• E-business is conducting business on the Internet
• E-business is the transformation of business processes through the Internet

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E-Marketing in the Digital Age

• The marketing side of e-commerce.
• Includes efforts to communicate about, promote, and sell products and services over the Internet.
• E-purchasing is the buying side of e-commerce.
• It consists of companies purchasing goods, services, and information from online suppliers.

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Types of e-Marketers

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Click-Only Companies

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E-tailers

Search Engines and Portals

Internet Service Providers

Transaction Sites

Content Sites

Enabler Sites

Types of Sites

Reasons for dot.com Failures

• Poor research or planning.
• Relied on spin and hype instead of marketing strategies.
• Spent too heavily on brand identities.
• Devoted too much effort to acquiring new customers instead of building loyalty.

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Click-and-Mortar Companies

• Most established companies resisted adding Web sites because of the potential for channel conflict and cannibalization.
• Many are now doing better than click-only companies.
• Reasons:
• Trusted brand names and more resources
• Large customer bases
• More knowledge and experience
• Good relationships with suppliers
• Can offer customers more options

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Setting Up for E-Marketing� Online Marketing

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Setting up for E-Marketing

• Corporate websites
• Build goodwill and relationships; generate excitement
• Marketing websites
• Engage consumers �and attempt to influence purchase
• Website design
• 7 C’s of effective website design

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• Creating websites
• Placing online ads and promotions
• Creating or using Web communities
• Using E-mail

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Options

Conducting E-Commerce

• Context
• Content
• Community

• Communication
• Connection
• Commerce

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Seven C’s of Website Design

• Customization

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The 7C’s of Website design

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Context

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Site’s layout and design

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Commerce

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Site’s capabilities to enable commercial transactions

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Connection

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Degree site is linked to other sites

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Communication

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The ways sites enable site-to-user communication or two-way communication

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Customization

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Site’s ability to self-tailor to different users or to allow users to personalize the site

Community

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The ways sites enable user-to-user communication

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Content

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Text, pictures, sound and video that web pages contain

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Fit and Reinforcement of Cs�

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Context

Content

Community

Customization

Communication

Connection

Commerce

Consistent Reinforcement

Individually Supporting Fit

Setting up for E-Marketing

• Online forms of ads and promotions
• Banner ads/tickers
• Skyscrapers
• Interstitials
• Content sponsorships
• Microsites
• Viral marketing
• Future of online ads

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• Creating websites
• Placing online ads and promotions
• Creating or using Web communities
• Using E-mail

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Options

Web Advertising

• Banner ads: allows for more targeted advertising

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• Pop-up ads: pop-under ads are displayed in a separate browser window beneath your main browser window

and remain there until you close them

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• Skyscrapers: An advertisement on a Web site that is vertically oriented on the page and larger than the

typical banner ad

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This is a pop-up ad

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Click here to close me

Web Advertising

• Interstitials: are usually full-page ads displayed while a user is in transit from one page to another, triggered by code included in the link

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Web Advertising

Content Sponsorship: are sites that pay for placement in search results on keywords that are relevant to their business

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Web Advertising

• Microsites: limited areas on the Web managed and paid for by external companies

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http://www.autotrader.com/

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Viral Marketing

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Gillette used viral marketing to introduce the 3-bladed Venus razor for women, greatly expanding the audience reached by its “Reveal the Goddess in You” truck tour and beach-site promotions.

Setting up for E-Marketing

• Web communities allow members with special interests to exchange views
• Social communities
• Work-related communities
• Marketers find well-defined demographics and shared interests useful when marketing

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• Creating websites
• Placing online ads and promotions
• Creating or using Web communities
• Using E-mail

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Options

Setting up for E-Marketing

• E-mail marketing
• Key tool for B2B and B2C marketing
• Clutter is a problem
• Enriched forms of�e-mail attempt to break through clutter
• Spam is a problem

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• Creating websites
• Placing online ads and promotions
• Creating or using Web communities
• Using E-mail

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Options

Benefits of E-commerce

• To consumers: 24/7 access, more choices, price comparisons, improved delivery, competition
• To organizations: International marketplace (global reach), cost savings, customization, reduced inventories, digitization of products/services
• To society: flexible working practices, connects people, delivery of public services

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Benefits to Consumers

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Convenience

Buying is easy and private

Provides greater product access and selection

Provides access to comparative information

Buying is interactive and immediate

Benefits to Organizations

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Powerful tool for building customer relationships

Can reduce costs

Can increase speed and efficiency

Offers greater flexibility in offers and programs

Is a truly global medium

Benefits to Society

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More individuals can work from home

Benefits less affluent people

Third world countries gain access

Facilitates delivery of public services

Discussion Questions

• What features do you look for on a Web site that you feel make the site appealing?
• What are your major concerns about making online purchases?
• What types of things can an online retailer do to create a more secure buying environment?

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Online Ads and Promotion

• Forms of online advertising & promotion:
• Banner ads & tickers (move across the screen)
• Skyscrapers (tall, skinny ads at the side of a page)
• Rectangles (boxes that are larger than a banner)
• Interstitials (pop up between changes on Web site)
• Content sponsorships (sponsoring special content)
• Microsites (limited areas paid for by an external company)
• Viral marketing (Internet version of word-of-mouth)

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Business Pressures

• The term business environment refers to the social, economic, legal, technological, and political actions that affect business activities
• Business pressures are divided into the following categories:

- Market (economic)

- Societal

- Technological

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Major Business Pressures & the Role of EC

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Organizational Responses

• Strategic systems

- Provide organizations with strategic advantages, enabling them to:

• Increase their market share
• Better negotiate with their suppliers
• Prevent competitors from entering into their territory
• Continuous improvement efforts

- Many companies continuously conduct programs to improve:

• Productivity
• Quality
• Customer service
• Business process reengineering (BPR)

- Strong business pressures may require a radical change

- Such an effort is referred to as business process reengineering (BPR)

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Organizational Responses

• Business alliances

- Alliances with other companies, even competitors, can be beneficial

- Virtual corporation—electronically supported temporary joint venture

• Special organization for a specific
• Time-limited mission
• Electronic markets

- Optimize trading efficiency

- Enable their members to compete globally

- Require the collaboration of the different companies and competitors

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Organizational Responses

• Reduction in cycle time and time to market

- Cycle time reduction—shortening the time it takes for a business to complete a productive activity from its beginning to end

- Extremely important for increasing productivity and competitiveness

- Extranet-based applications expedite steps in the process of product or service development, testing, and implementation

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Strategy Formulation

• Porter’s three generic strategies for business:

- focus

- low cost leadership

- differentiation

• Differentiation in the new e-commerce sector is the key to success

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Classic Framework for Strategy Management

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Mission

Goals

Implementation

Control and Monitoring

Strategy

Formulation

• Corporate
• Business-unit
• Functional
• Operating

External

Analysis

Internal

(Company)

Analysis

E-commerce and Organizations

• Organizations that undertake e-commerce do so from two possible starting points:

- new online organizations

- traditional established organizations

• Factors for success:

- first-mover advantage

- differentiation in the marketplace

- flexibility and agility in the electronic

marketspace

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Seven dimensions of E-commerce Strategy

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Four positional factors

• Technology: goal must be understood within its’ market and industry
• Market: must determine its’ target market and whether it is still open to new entrants
• Service: must know its’ customer’s expectations
• Brand: must understand if it has the ability to create a strong brand

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Three bonding factors

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• Leadership: vision of CEO for e-commerce
• Infrastructure: technology support for new model of business
• Organizational Learning: does the organization support internal learning

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Technology Leadership

• Involves more than hardware and software
• Seven major areas:

- strategy: focus upon alignment and planning

- structure: focus upon becoming an e-organization

- systems: technology integration

- staffing: developing a strong pool of skills

- skills: developing the necessary knowledge

- style: add value to customers

- shared values: must build value to the organization

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Service Leadership

• Established strategies of customer still apply
• Internet service strength derived from providing additional information to the customer
• Internet provides a low-cost, high-quality service channel with a global reach
• Call centre strategy must be defined
• E-mail interface channel must be defined

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Brand Leadership

• Branding strength comes from being a first mover
• Brand reinforcement is a continuous task
• Brand positioning can be defined using the Internet service value chain
• Brand followers need to reposition as quickly and effectively as possible
• Four brand

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Developing a Winning E-strategy

• Ensure that the project is backed by senior management
• Develop a strategy before a Web presence
• Develop a strategy by focusing on technology, branding, marketing and service
• Identify and use knowledge in the organization
• Strategy must add value for customers and must change as the requirements of the customers change

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The Three Approaches to Strategy

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• Position approach: “Where should we be vs. our competition?”

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• Resources approach: “what resources should we possess?”

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• Simple rules approach: “What processes should we follow?”

Three Approaches to Strategy

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Position

Resources

Simple Rules

Strategic Logic

Strategic Steps

Strategic Question

Source of Advantage

Works Best In

Duration of Advantage

Risk

Performance Goal

• Establish position

• Leverage resources

• Pursue opportunities

• Identify an attractive market
• Locate a defensible position
• Fortify and defend

• Establish a vision
• Build resources
• Leverage across markets

• Jump into the confusion
• Keep moving
• Seize opportunities
• Finish strong

• Where should we be?

• What should we be?

• How should we proceed?

• Unique, valuable position with tightly integrated activity system

• Unique, valuable, inimitable resources

• Key processes and unique simple rules

• Slowly changing, well-structured markets

• Moderately changing, well structured markets

• Sustained

• It will be too difficult to alter position as conditions change

• Sustained

• Unpredictable

• Company will be too slow to build new resources as conditions change

• Managers will be too tentative in executing on promising opportunities

• Profitability

• Long-term dominance

• Growth

• Rapidly changing, ambiguous markets

Business Model

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Business Models

• A method of doing business by which a company can generate revenue to sustain itself
• Spells out where the company is positioned in the value chain
• Business models are a component of a business plan or a business case

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Business Plans & Business Cases

• Business plan:

- A written document that identifies the business goals and outlines the plan of how to achieve them

• Business case:

- A written document that is used by managers to garner funding for specific applications or projects; its major emphasis is the justification for a specific investment

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The Content of a Business Plan

• Mission statement and company description
• The management team
• The market and the customers
• The industry and competition
• The specifics of the products and/or services

• Marketing and sales plan
• Operations plan
• Financial projections and plans
• Risk analysis
• Technology analysis

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Structure of Business Models

• All business models must specify their revenue model (the description of how the company or an E-commerce project will earn revenue)
• Value proposition is the description of the benefits a company can derive from using EC
• Revenue sources are

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- Transaction fees

- Subscription fees

- Advertisement fees

- Affiliate fees

- Sales

- Other models

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Business Models in E-commerce

• Method of doing business
• Well-planned model gives a competitive advantage
• Impacts on sustainability and growth
• Three areas:

- value stream

- revenue stream

- logistical stream

105

Transaction costs

• Cost of providing some good or service through the market
• Effects of e-commerce and the internet that impacts the business model
• Searching for an obtaining information
• Participating in a market
• Policing and enforcing transactions
• Bargaining and decision costs
• Actual cost of buying or selling the product

106

Value Stream

• Create long-term sustainability
• Benefit for business stakeholders
• Can be achieved in four ways:

- creation/participation in an e-marketplace

- creation/participation of virtual communities

- additional value offers

- exploitation of offers

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107

Creation/participation in an e-marketplace

• Reduce transaction costs directly/indirectly
• Economics of e-market similar to traditional market
• Can be setup by supplier/buyer or run independently
• Buyer value:

- reduced costs

- improved service

- convenience

• Supplier value:

- reduced costs

- differentiation

- reduced lead time

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108

Creation/participation of virtual communities

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• Bringing together members of a community
• Larger communities mean larger sources
• Improves customer service

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109

Additional value offers�

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• Value is added by improving product mix
• Through association or partnership
• Can be achieved with minimum costs
• Can be integrated into the host sites

110

Exploitation of offers

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• E-commerce/Internet economy founded on information
• Value can be added by using this information
• Target customers demographically
• Can bridge the uncertainty gap
• Can post RFP’s

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111

Revenue Stream

• Short-term realization of value proposition
• Direct:

- cost reduction

- free offerings of service/products

- pricing strategies

• Indirect:

- internet advertising

- selling customer information

- joining affiliate programs

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112

Logistical stream

• Examines organization restructure to deliver value added and revenue streams
• Issues such as:

- organizational culture

- pre/post restructuring

- implementing information

- communication and training

- reward systems for motivation

113

Restructure value systems

• In order to realize value and revenue streams
• Disintermediation: the removal of one or more layers in the value chain to increase efficiency, improve responsiveness, reduce costs
• Re-intermediation: reassembly of buyers, sellers and other partners in the value chain in new ways
• Infomediation: overabundance of knowledge on the WWW marketspaces
• Digitization: Digital goods are much cheaper to produce in the long run with little or no distribution costs compared to traditional channels. Digital goods also provide relatively cheap and efficient channels for merchants who otherwise could not afford to reach customers on a global scale

114

Kinds of business models

• Brokerage: market makers bring together buyer and sellers
• Advertising: web advertising providing advertising messages
• Infomediary: collecting and disseminating information

115

Assessing a business model

• Can be assessed by looking at the marketing strategy
• Can also be assessed by technology

- imitation

- complementary assets

• Financial measures
• Competitor benchmarking
• Market analysis

116

Traditional vs. New Business Models

117

Consumer Decision Process

118

Consumer Decision Process — Flower Example

119

Flowers

• Need recognition, potentially triggered by a holiday, anniversary or everyday events

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• Search for ideas and offerings, including:
• Available on-line and off-line stores
• Gift ideas and recommendations
• Advice on selection style and match

• Evaluation of alternatives along a number of dimensions, such as price, appeal, availability, etc.

• Purchase decision
• Message selection (medium and content)

• Post-sales support
• Order tracking
• Customer service

• Education on flowers and decoration
• Post sales perks

Metrics

• Response times
• Site availability
• Download times
• Timeliness

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• Security and privacy
• On-time order fulfillment
• Return policy
• Navigability

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120

• Measures of performance; may be quantitative or qualitative

• Metrics: If it moves, measure it!