mis 2 works

McGraw-Hill/Irwin

Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.

Chapter 5

Electronic Commerce:

Strategies for the New Economy

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ADVERTISING $$ GO WHERE THE EYES ARE

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ADVERTISING $$ GO WHERE THE EYES ARE

• Some observations from the previous slide
• The Internet
• Adults spend 29% of their time there
• Advertisers spend only 8% of $$ there
• Newspaper
• Adults spend only 8% of their time there
• Advertisers spend 20% of $$ there

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ADVERTISING $$ GO WHERE THE EYES ARE

Ratio of your time spent on TV versus the Internet?

What do you do during commercials – channel surf, get something to eat, something else?

What’s going to happen to newspaper advertising revenue?

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INTRODUCTION

• E-commerce is changing everything
• Electronic commerce (e-commerce) – commerce, but it is commerce accelerated and enhanced by IT
• Build powerful relationships with customers
• Build powerful relationships with suppliers
• Build powerful relationships with partners

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INTRODUCTION

• But e-commerce is still commerce
• You must have a clear path-to-profitability (P2P), a formal business plan that outlines key business issues such as…
• Customer targets
• Marketing strategies
• Operations strategies
• Projected income statement and balance sheet targets`

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E-COMMERCE BUSINESS MODELS

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B2G E-Commerce

• Business to Government (B2G) e-commerce – when a business sells products and services to a government entity.
• Lockheed providing products and services to DoD
• Fairly large e-commerce model in terms of revenue

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C2G E-Commerce

• Consumer to Government (C2G) e-commerce – when an individual sells products and services to a government entity
• You selling something to the government
• This market is quite small and unremarkable

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G2B E-Commerce

• Government to Business (G2B) e-commerce – when a government entity sells products and services to businesses
• SBA providing surety guarantees, disaster assistance, ombudsmen, etc to small businesses
• TSA holding auctions and selling off confiscated items (most times, you must be a “business” to participate in these auctions)

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G2C E-Commerce

• Government to Consumer (G2C) e-commerce – e-commerce activities performed between a government and its citizens
• Does not fit well at all within the traditional supply-and-demand e-commerce notion
• Paying taxes, registering vehicles, etc

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G2G E-Commerce

• Government to Government (G2G) e-commerce – e-commerce activities within a nation’s government (can also refer to e-commerce activities between 2 or more nations’ governments)

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B2B E-Commerce

• Business to Business (B2B) e-commerce – when a business sells products and services to customers who are primarily other businesses
• Where all the e-commerce money is
• Basically, it’s about businesses doing business with other businesses
• Supply chain management (from Chapter 2) is a big part of B2B e-commerce

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B2C E-Commerce

• Business to Consumer (B2C) e-commerce – when a business sells products and services to customers who are primarily individuals
• B2C is the glitzy e-commerce like iTunes, eBay, etc
• B2C is a primary focus of the later sections in this chapter

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C2B E-Commerce

• Consumer to Business (C2B) e-commerce – when an individual sells products and services to a business
• True economic inversion of the B2C model
• Fotolia is a good example (www.fotolia.com)
• You can also advertise businesses on your personal Web site (called an affiliate program) and receive monies for visitors who jump from your site to the business’ Web sites

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C2C E-Commerce

• Consumer to Consumer (C2C) e-commerce – when an individual sells products and services to another individual.
• You selling to another person (or the reverse)
• Usually occurs through an intermediary such as eBay

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UNDERSTAND YOUR BUSINESS, PRODUCTS, SERVICES, & CUSTOMERS

• To be successful, you must…
• Define your products and services
• Define your target customers
• B2B (other businesses)
• B2C (individuals)
• Define your customers perception of the value of your products and services

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Who Are Your Customers?

• Business to Business
• Other businesses
• Business to Consumer
• Individuals
• Each is different and has different needs and wants

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Customer Product and Service Value Perception

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B2C: Convenience Versus Specialty

• Convenience
• Lower priced
• Purchased frequently
• Example: common food items
• Specialty
• Higher priced
• Purchased less frequently
• Example: Stereos, computers

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B2C: Commoditylike and Digital

• Commoditylike
• Same no matter where you purchase it
• Examples: books, music, movies
• Price and ease of ordering are important
• Digital
• Purchased and delivered over the Internet
• Best product type for B2C e-commerce
• Examples: Music, software

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B2C: Mass Customization

• Mass customization – the ability of an organization to give its customers the opportunity to tailor its products or services
• Dell – customized computer purchases
• Apple iTunes – only the music you want (not necessarily the whole album)

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B2B: MRO Versus Direct

• Maintenance, repair, and operations (MRO) materials (indirect materials) – materials necessary for running a company but do not relate to the company’s primary business activities
• Similar to convenience items in B2C
• Office supplies, repair parts, lubricating oils

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MRO Materials

• Buyers in B2B make large purchases
• Can then demand a discount (not true in B2C)
• Can team up with other buyers to create demand aggregation
• Demand aggregation – combining purchase requests from multiple buyers which justifies a larger discount

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Direct Materials

• Direct materials – materials that are used in production in a manufacturing company or are placed on the shelf for sale in retail environments
• Relate directly to a company’s primary business activities
• Quality, quantity, and delivery timing are important

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Direct Materials

• Buyers can participate in reverse auctions for direct materials
• Reverse auction – process in which a buyer posts its interests in buying items and sellers compete by submitting successively lower bids
• The lowest bidder wins

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B2B: Horizontal Versus Vertical

• B2B e-commerce takes advantage of e-marketplaces
• Electronic marketplace (e-marketplace) – interactive business providing a central market where multiple buyers and sellers can engage in e-commerce
• Horizontal e-marketplaces
• Vertical e-marketplaces

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E-Marketplaces

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Horizontal E-Marketplace

• Horizontal e-marketplace – connects buyers and sellers across many industries
• Primarily for MRO materials
• All industries need office supplies, travel, and the like

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Vertical E-Marketplace

• Vertical e-marketplace – connects buyers and sellers in a given industry
• Primarily for direct materials
• Each industry has unique direct material needs
• Covisint (www.covisint.com) – automotive
• Many others

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To Summarize

• B2C
• Varying demographics and lifestyles
• Convenience versus specialty products
• Commoditylike and digital work best of all
• Mass customization necessary in some instances

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To Summarize

• B2B
• MRO versus direct materials
• Demand aggregation is present
• E-marketplaces are vitally important
• Horizontal (MRO materials mainly)
• Vertical (direct materials mainly)

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FIND CUSTOMERS AND ESTABLISH RELATIONSHIPS

• You must first find customers
• Then establish relationships
• Otherwise, you can’t make a sale
• B2C and B2B techniques are very different

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Business to Consumer

• Need to determine your marketing mix
• Marketing mix – set of marketing tools your organization will use to pursue its marketing objectives in reaching and attracting potential customers
• There are many such tools for B2C

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B2C Marketing Mix Tools

• Registering with search engines
• Online ads
• Viral marketing
• Affiliate programs

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Registering with Search Engines

• Some search engines will list your site for free
• Others charge a fee
• For an additional fee, your site can appear at top of a search list (every time)

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Online Ads

• Online ads (banner ads) – small advertisements that appear on other sites
• Two variations are:
• Pop-up ad – small Web page advertisement that appears on your screen outside the current Web site
• Pop-under ad – pop-up ad you do not see until you close your current browser window

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Online Ads

Banner ad for a stock brokerage firm

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Viral Marketing

• Viral marketing – encourages users of a product or service supplied by a B2C business to encourage friends to join in as well
• Blue Mountain Arts (www.bluemountain.com)
• Send a card
• Card has link so the other person can send you a card back

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Affiliate Programs

• Affiliate program – arrangement between two e-commerce sites that directs viewers from one site to another
• If viewers buy at the second site, the second site pays a small fee to the first site
• Usually a percentage of the sale

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Affiliate Programs

• Click-throughs and conversion rates are important
• Click-through – count of the number of people who visit one site and use an ad to get to another
• Conversion rate – percentage of potential customers who actually buy something

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Affiliate Programs

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Business to Business Marketing

• Much more personal
• Not usually done with generic ads designed for mass distribution
• Often take place in e-marketplaces

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Business to Business Marketing

• Once a contact is made, the relationship must be established
• This often requires face-to-face meetings
• Must also integrate the IT systems to the supplier business and customer business

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To Summarize

• B2C
• Marketing mix drives customers to Web site
• Search engines, online ads, viral marketing, and affiliate programs
• Focus on conversion rates to measure success

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To Summarize

• B2B
• Frequently occurs in an e-marketplace
• Requires establishing formal business relationship
• Requires IT system integration
• Doesn’t include broad and generic marketing mix

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MOVE MONEY EASILY & SECURELY

• In e-commerce, most money moves electronically
• Security becomes very important

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B2C Payment Systems

• Credit cards
• Financial cybermediaries
• Electronic checks
• Electronic Bill Presentment and Payment
• Smart cards

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Financial Cybermediaries

• Financial cybermediary – Internet-based company that makes it easy for one person to pay another person or organization over the Internet
• PayPal (www.paypal.com) is the most well-known

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Financial Cybermediaries

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Electronic Checks

• Electronic check – mechanism for sending money from your checking or savings account to another person or organization
• Many implementations
• Most common implementation is online banking

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Electronic Bill Presentment & Payment

• Electronic Bill Presentment and Payment (EBPP) – system that sends bills over the Internet and provides an easy-to-use mechanism (perhaps a button) to pay for them if the amount looks correct
• Available through Checkfree (www.checkfree.com) and Quicken (www.quicken.com)

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Smart Cards

• Smart card – plastic card (the size of a credit card) that contains an embedded chip on which digital information can be stored and updated
• Debit cards are an implementation

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B2C Payment Systems

• Must move money and other information such as shipping address
• Digital wallets can help
• Digital wallet – software and information
• Software provides transaction security
• Information includes delivery information and other forms of necessary information

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Digital Wallets

• Can be…
• Client-side – you create this digital wallet and keep it on your computer
• Server-side (also called a thin wallet) – an organization creates this for you and keeps it on its servers

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B2B Payment Systems

• Business customers…
• Make large purchases
• Will not pay with credit card or financial cybermediary
• Use financial EDI
• Pay for many purchases at once (perhaps the end of the month)

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EDI

• Electronic data interchange (EDI) – direct computer-to-computer transfer of transaction information in standard business documents, such as invoices and purchase orders, in a standard format

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EDI

• How businesses communicate with each other
• Used in e-marketplaces and value-added networks (VANs) – B2B service that offers information-sharing services among organizations
• VANs support the sending and receiving of purchase orders, for example

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Financial EDI

• Financial EDI – an electronic process used primarily within B2B for the payment of purchases
• This is electronic money in B2B
• Often occurs through an automated clearing house

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Security: The Pervading Concern

• Security is very important when moving money
• Some security measures…
• Encryption
• Secure Sockets Layers
• Secure Electronic Transactions
• Many, many others

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Encryption

• Encryption – scrambles the contents of a file so that you can’t read it without having the right decryption key
• Often through public key encryption (PKE) – uses two keys: a public key for everyone and private key for only the recipient of the encrypted information

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Secure Sockets Layers

• Secure Sockets Layer (SSL)…
• Creates a secure connection between a Web client and server
• Encrypts the information
• Sends the information over the Internet
• Denoted by lock icon on browser or https:// (notice the “s”)

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Secure Sockets Layers

The “s” in https and the padlock

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Secure Electronic Transactions

• Secure Electronic Transaction (SET) – transmission method that ensures transactions are legitimate as well as secure
• Helps verify use of a credit card, for example, by sending the transaction to the credit issuer as well as the seller/supplier

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To Summarize

• B2C
• Credit cards, financial cybermediaries, electronic checks, EBPP, smart cards, and digital wallets
• Pay for individual purchases, usually in small amounts
• Each payment must be validated

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To Summarize

• B2B
• Use EDI to facilitate ordering process
• VANS can provide for EDI and financial EDI
• Use financial EDI for payment of purchases

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To Summarize

• B2C and B2B – security…
• Overriding concern
• Encryption, SSLs, SET, and others

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E-BUSINESS TRENDS

• “E” is certainly changing many things
• Many trends in every part of your life
• Four important ones

Long-Tail Economics

Crowdsourcing

Virtual Goods

Mobile Commerce

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E-Business Trend – Long Tail

• Long Tail – first offered by Chris Anderson; explains e-commerce profitability in terms of a sales curve
• Brick-and-mortar businesses carry limited inventory, inventory that is popular
• E-businesses can carry huge amounts of “niche” inventory that may only sell a couple of times a year

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E-Business Trend – Long Tail

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E-Business Trend – Long Tail

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E-Business Trend - Crowdsourcing

• Many previous examples
• New York City’s App development contest
• Glaxo’s opening of its compound database for curing malaria
• Social “saving the world” contests

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E-Business Trend - Crowdsourcing

• Crowdsourcing – when businesses provide enabling technologies that allow people – instead of designated employees – to create, modify, and oversee the development of a product or service.

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Crowdsourcing and Goldcorp

• On the brink of going out of business
• Held a contest to see who could find gold on 55,000-acre property
• Put up $575,000 in prize money
• Published all geological data for the property on the Web

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Crowdsourcing and Goldcorp

• The result…
• Thousands of entrants
• Ideas yielded 8 million ounces of gold
• That’s a return of $3 billion on an investment of $575,000

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Other Crowdsourcing Examples

• Netflix – gave a million $$ in prize money to the team who could improve its recommendation engine by 10%
• All examples of crowdsourcing value
• eBay
• Facebook
• Twitter
• YouTube

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E-Business Trend – Virtual Goods

• Virtual good – nonphysical object
• Music
• E-cards
• Toys, weapons, clothes, and accessories you buy in online communities like Farmville and World of Warcraft

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E-Business Trend – Virtual Goods

• Purchases of virtual goods
• 2007 - $2.1 billion
• 2010 - $7.3 billion (245% increase)
• 2014 (projected) - $14 billion (100% increase)
• An individual (Jon Jacobs) sold a virtual bio dome, mall, stadium, and club for $335,000

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E-Business Trend – Virtual Goods

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E-Business Trend – Mobile Commerce

• Mobile computing – your ability to use technology to wirelessly connect to and use centrally located information and software
• Mobile commerce – electronic commerce transactions conducted over a wireless device such as a smartphone, laptop, or tablet PC.