E-Business Value Strategies
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For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing
Chapter 5 Slide: 1
Chapter 5: E-Business Value Strategies
For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing
Chapter 5 Slide: 2
LEARNING OBJECTIVES(1):
• Be able to explain the seven strategies e-businesses are using to create value for customers. • Understand how e-commerce is being used as a strategic tool by e-retailers as well as traditional retailers. • Be able to perform a benefit analysis of alternative sales channels. • Explain how digital communication adds value to a business. • Describe how the delivery of services are changing because of new technologies.
For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing
Chapter 5 Slide: 3
LEARNING OBJECTIVES(2):
• Be able to explain how the business process is changing through the use of the Internet, Extranets, and EDI systems. • Be able to describe how a market-of-one strategy will impact businesses. • Explain how auctions are used to facilitate commerce. • Be able to describe the impact of e-business strategies on pricing. • Gain an understanding of the determinates of hosting the technology required to implement the e-business strategies. • Understand the limitations to international e-commerce.
For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing
Chapter 5 Slide: 4
Vignette: What’s Old is New Again in Grocery Shopping
• Thinking Strategically
– Evaluate your grocery shopping habits. – Determine how often you purchase the same products. – Consider if you would trust a grocer to pick out your meats, fruits, and vegetables. – On your next visit to a brick and mortar grocer determine which aspect of grocery shopping could be automated. – Evaluate the business model for a traditional grocer and determine where their competitive advantage lies. – Estimate the expenses that a business can save by moving grocery shopping online.
For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing
Chapter 5 Slide: 5
Creating Value
• Businesses create value for their customers by providing quality goods and services at acceptable prices. • A business model that provides more benefits to its customers and/or sells at a lower the price will take market share away from competitors.
– A commerce or business model is the basic process by which a business obtains its inventory, produces the good or service, and how they deliver that to the customer.
For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing
Chapter 5 Slide: 6
Six E-Business Value Creation Processes
• An online purchasing perspective: allows for buying and selling of products and information on the Internet and other online services. • A digital communication perspective: allows for delivery of digital information, products, services, or payments online. • A service perspective: allows for the cutting of costs, improving of the quality of goods, and increasing the speed of service. • A business process perspective: allows automation of business transactions and work flows. • A market-of-one perspective: allows for developing products for a single customer with close to the same costs as mass production. • An auction based perspective: allows automation of bidding for products or customers online.
www.amazon.com
For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing
Chapter 5 Slide: 7
Creating Value
Online Purchasing Market-ofOne Supplier Extranet Digital Communication and Service
Business Process
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using UPS Ground (3-7 business days). For your reference, the number you can use to track your package is 1Z38EW250330006573. You can refer to our web site's customer service page or
Auctions
http://www.amazon.com/exec/obidos/subst/trac king.html
For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing
Chapter 5 Slide: 8
Online Sales Strategy
• E-commerce is the process of allowing Web based technologies to facilitate commerce or trade.
– E-commerce can be retail, between an ebusiness and an end user, or it can be used for business-to-business transactions.
For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing
Chapter 5 Slide: 9
E-Retailing
• Retail sales are likely to shift between various alternative sales channels.
– Sales channels are the models that businesses use to sell to their customers. These could include brick and mortar outlets, catalogs, direct marketing, or ecommerce. – A destination site is a Web site that is designed to have the visitor return over and over. This requires including extras such as games, chats, contents, new information, or any other content that the targeted audience may desire.
For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing
Chapter 5 Slide: 10
Pure-Play Internet Businesses
• The 1999 top ten retail e-commerce sites were:
– eBay, Amazon, Dell, Buy.com, Onsale.com, Gateway.com, Egghead.com, Barnesnadnoble.com, CDNow, and AOL.
• Of the top 100 e-commerce sites:
– 50 used the Internet as their primary sales channel, 21 were traditional retailers, 21 were catalog/mail order retailers. – The most successful sites had established off-line brands and had proven ability to provide customer service www.nrf.com
For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing
Chapter 5 Slide: 11
Table 5.1: Benefit Analysis for Amazon.com (1)
Benefits Number of Books Discounts on books. Amazon.com 2.5 million + Percent off on all titles (customer pays shipping) Online databases allow links to topic areas. Mall Superstores: Bookstore: 70,000 175.000 + Discounts on selected titles. Books placed in topic sections. Immediate Consumer must browse or ask for help.
Ability to browse by topics Average 2-3 days Consumer's access to books Immediate - online Access to information about the book.
For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing
Chapter 5 Slide: 12
Table 5.1: Benefit Analysis for Amazon.com (2)
Benefits Ability to converse with the author. Shipping of gift books. Other relationship development tools Amazon.com Mall Bookstore: Superstores: Online through Rarely except for signing. discussion groups or email. Handled online. Customer must ship. Personalization Database recommendations based on past purchases. Email comments Email links to service personnel. Chat rooms with other customers. Other stores for customers to visit. Coffee shops
Interaction with customers
Face-to-face Face-to-face sales sales representatives. representatives.
For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing
Chapter 5 Slide: 13
Niche E-Retailers
• Niche e-retailers typically target narrow market segments with clearly differentiated offerings. • Successful niche e-retailers can offer a deep product line and add expertise and advice that cannot be found in traditional stores. • They do need to develop brand names and establish credibility with their customers if they are to succeed
For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing
Chapter 5 Slide: 14
Table 5.2: Niche E-Retailers
Business Tavolo
www.tavolo.com
Violet
www.violet.com
Target Market Individuals who desire gourmet and specialty cooking items and information. Busy, professional women and men ages 25 to 55.
Product Offering This site offers an extensive line of specialty cooking item, gourmet chef advice, and recipes. Offers six categories of gifts: house, office, identity, thanks, kids, and bath. The items are considered to be “authentic chic”.
For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing
Chapter 5 Slide: 15
Case 5.1: A Prescription for Success? (1)
• Thinking Strategically
– Consider the types of products that individuals usually purchase at a pharmacy. – Determine if it is important to receive that product immediately, or can an individual wait until the next day for the product. – Decide how important it is to talk to a pharmacist about products purchased at a pharmacy. – Compare the services they offer to what can be found at a brick and mortar store.
For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing
Chapter 5 Slide: 16
Case 5.1: A Prescription for Success? (2)
• Thinking Strategically
– Determine if the consumer’s purchase patters would differ if they were purchasing products on a continuing basis. • For example, if an individual was permanently on a heart medicine, would that individual be likely to order that online and have it delivered to his or her home? – Speculate on the future of online pharmacies.
For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing
Chapter 5 Slide: 17
Digital Communication Strategy
• Digital products are information-based products, such as multimedia entertainment, programs, online information services, published information, music, video, or any other digital content can be transferred over the Internet.
– Pay content sites are generally targeted toward individuals who have a high need for information. – Some sites follow radio and broadcast television models and obtain revenue through advertising. They also play a role in supporting and enhancing the associated traditional media.
For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing
Chapter 5 Slide: 18
Digital Communication Strategy
• Advantages of Digital Products
– Online content is the lower cost involved in transfer and delivery. – Electronic content allows for a publish-once, read many time environment. – Existing content developers can reach a wider audience. – Smaller firms that are able to provide content at low startup costs. – If sold, digital content is usually purchased on a pertime-period subscription basis or per-use basis.
For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing
Chapter 5 Slide: 19
Case 5.2: The Market Wants Its MP3.
• Thinking Strategically
– Determine the advantages and disadvantages of using MP3 for the consumer. – Consider the advantages and disadvantages of this format for the music industry. – Compare and contrast those advantages and disadvantages and speculate on the future of MP3. – It is projected that within the next five years an entire movie will be downloadable in 20 minutes or less. – Speculate on how this will effect the movie and video rental industries. www.mp3.com
For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing
Chapter 5 Slide: 20
Service Strategy
• The service strategy impacts two areas:
– Supporting businesses that specialize in providing services to the customer. • Includes educational institutions, physicians, banks, realtors, insurance agents, and many others. – Enhancing the service component of a businesses by meeting customer service needs before, during, and after the sale. • Answering questions about a product, how it is used, or how it fits a specific purpose, and handling any problems that may occur after the sale.
For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing
Chapter 5 Slide: 21
Table 5.3: Technology’s Impact on Service (1)
• Intangibility: The Internet is allowing buyers to directly compare products and services offered online allowing them to search for the greatest value.
• HSH Associates (www.hsh.com) offers information on mortgage rates. Quotesmith (www.quotesmith.com) allows individuals to obtain quotes from multiple carriers.
• Perishability: Digital information can be stored and delivered as needed. Online services need not perish, they can be created as needed by the user. Online sales systems also can fill unused capacity for transport companies such as airlines.
• National Public Radio (www.npr.org) stores its radio programs for individuals to download and play at their leisure.
For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing
Chapter 5 Slide: 22
Table 5.3: Technology’s Impact on Service (2)
• Inseparability: Real estate buyers can use the Web to view homes and take virtual walkthroughs. The medical industry is using the Web to deliver services directly to the user’s home computer. Retailers are providing shopping services online.
• WebMD (www.webmd.com) provides information on medical issues. Nordstrom (www.nordstrom.com) has a personal shopper that suggests products for customers.
• Variability: Databases and standardized procedures can remove the variability of service delivery.
• Amazon, Dell, and many other companies use email, FAQs, and other technology to standardize services.
For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing
Chapter 5 Slide: 23
Customer Relationship Management
• Customer Relationship Management systems combine software and management practices to serve the customer from order, through delivery, and after sales service.
– Enhancing customer service is rated by IT managers as the number one method to gain competitive advantages followed by improving internal business processes.
For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing
Chapter 5 Slide: 24
Table 5.4: Providing Service Online (1)
Best Practice Site Be able to respond to Respond customers within 6 hours if Quickly possible, but defiantly within 24 hours. Be sure products are Link to available for delivery. Inventory Technology Leverage Knowledge bases and intelligence agents can provide instant feedback.
Use Extranets and inventory databases linked to e-commerce software. Automatically send This can be sent from databases Automatic confirmations through email through automated email Order systems. Confirmation to customers giving confirmation numbers and routing numbers. Provide product, security, This can be designed into the Provide Web site. The use of FAQs or Information and shipping information. frequently asked questions allows for self-service.
For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing
Chapter 5 Slide: 25
Table 5.4: Providing Service Online (1)
Best Practice Provide alternative means of contact Site 800 number phone lines allow customers to place orders, inquire about orders, or receive service information as an alternative to Internet use. If off-line businesses do not charge for service support or gift wrapping, these should not by charged online. Use “live” individuals to support automated service transactions. Technology Leverage Chat systems can be a lower cost alternative to phone systems. IP telephony can also be used is the customer possesses the technology. Lower costs available through the Internet should allow for services to be delivered at low or no costs. This can be facilitated with chat or through the use of intelligence agents or wizards.
Avoid extra fees
Customer response specialists
For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing
Chapter 5 Slide: 26
Business Process Strategy
• Businesses engage in transactions with other businesses using the same techniques as business-to-consumer e-businesses.
– Business-to-Business E-Commerce – Supply Chain Management and Extranets • The supply chain is the network of suppliers and customers for goods, services, or information used from the point of origin to final consumption.
For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing
Chapter 5 Slide: 27
Market-Of-One Strategy
• Digital factory use digital manufacturing process is combined with the human worker resulting in a "soft manufacturing process" brings flexibility to production and allows manufacturers to produce individualized products at mass production speeds.
– This “mass customization” and a “market-ofone” process allows marketers to develop tight customer relationships.
For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing
Chapter 5 Slide: 28
Auction Strategy
• Sales auction sites allow individuals and businesses to sell products online and have potential customers bid for the price of the product. • Buyer-driven commerce sites allow the customer to specify how much they are willing to pay for a product or service and then let the providers bid for the customer. • Reverse auctions allow individuals and companies to have sellers bid for the purchase.
For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing
Chapter 5 Slide: 29
Pricing Strategies
• Greater efficiency allows for selling at a lower overall costs. • Cost saving can be found in lower fixed costs because of minimized use of brick and mortar assets and lower variable costs in reduced staffing requirements.
For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing
Chapter 5 Slide: 30
Table 5.6: Transaction Cost Comparisons
Traditional Method Telephone transaction cost plus related customer service charges Bank transaction cost Airline ticket cost for processing Average Internet Amount $ 5.00 Automated Internet transaction cost $ 1.07 $ 8.00 Average Amount $ 0.01
Bank transaction $ 0.01 on the web Airline ticket $ 1.00 transaction on the web
For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing
Chapter 5 Slide: 31
Obtaining Product Pricing Information • Intelligent shopping agents are software based search systems that return product and pricing information from multiple vendors.
– The customer specifies the product or they use other criteria, such as a price range for a product category. – The agent then returns information on sales outlets, prices, and availability.
For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing
Chapter 5 Slide: 32
Pricing Strategies
• Skimming pricing sets high initial prices to “skim” off payments from individuals who are willing to purchase products when they first come to market. • Penetration pricing sets prices lower in an attempt to capture market share for a product.
– E-businesses may attempt to capture market share by selling at very low prices or even below costs. – If a firm has an overriding goal of attaining market share, they may even give products away for free.
For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing
Chapter 5 Slide: 33
An Example of Changing Business Models: Stock Brokerage (1)
Figure 5.2: Traditional Brokerage System
Issuing Company
Underwriting Company
Stock Exchange Stock Investor
Stock Broker
For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing
Chapter 5 Slide: 34
An Example of Changing Business Models: Stock Brokerage (2)
Online Systems
Issuing Company
Web Stock Exchange Alternative: Direct Issue
For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing
Stock Investor
Chapter 5 Slide: 35
Table 5.7: Benefit Analysis for Online
Benefits Cost For Transaction Information on Companies and quotes. Traditional Brokers Depends upon broker and amount of stock. Broker acts as a gatekeeper between corporate information and customer. Broker required to receive quotes. Customer needs interface of broker for information and trades. Depends on broker. Online Brokers One-third to one-tenth of traditional brokers. Customer can use online information to obtain information immediately. Stock quotes available immediately. Customer can obtain immediate information at their convenience and place trades immediately. Depends on the buyer.
Speed and Convenience Expertise of Advice.
For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing
Chapter 5 Slide: 36
Figure 5.3: Online Brokerage Prices and Volume
Prices Per Trade Full Service Average $116.90 Discount Average $66.09 Volume 90 mill. a day Growth rate 44%
DLJ Direct $20 Fidelity $28.95 Ameritrade $8 Suretrade $7.95 Lowest profit limit $5 Web Street $0
Jan. 1997 July Aug. Number of Online Brokers: 15 Schwab % of trades online: 15 Sept. Oct. Nov. Dec. 1997 60 40
Chapter 5 Slide: 37
For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing
Hosting The Technology
• Commerce service providers (CSPs) are companies that facilitate commerce for other businesses.
– Businesses can form an alliance with hosting sites such as ISPs, banks, distributors, or online malls.
• The low cost entry of using a CPS is very attractive to merchants.
– The merchant must still market their site as they would any other business, but they do not have the brick and mortar costs and can reach the entire world with the ecommerce site.
For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing
Chapter 5 Slide: 38
Table 5.8: Advantages of Selling With Standalone Vs CSP Sites
Issue Costs Standalone System No fees paid to the CSP. Higher costs in personnel, hardware, software, and development. Business can control all of its policies related to selling. If mall closes, business may lose past customers. Business must get customers to their site by themselves through promotion. A standalone site may have higher quality traffic that is more likely to buy. Using a CSP Lower cost for maintaining technology to support the site.
Control
Seller may need to comply with mall's sales, credit, and return polices. Retail trade concentration can pull in a larger number of shoppers. Individuals who browse one day may turn into shoppers at another time.
Chapter 5 Slide: 39
Pulling Customers Quality of Traffic
For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing
International E-Commerce (1)
• Implementing new business models:
– First, the technical infrastructure must allow for the flow of information. – Second, flexibility of channel relationships is required.
• In countries like Japan where long distribution channels are maintained through personal relationships, disintermediation and restructuring will be much more difficult.
For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing
Chapter 5 Slide: 40
International E-Commerce (2)
• Implementing new business models:
– Third, the political and legal structure must allow E-commerce to be undertaken.
• The ability to ship products without tariff restrictions and the free flow of capital is a requirement.
– Fourth, Businesses and customers must be willing to change their business and purchasing habits.
For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing
Chapter 5 Slide: 41
Table 5.9: Political and Legal Problems (1)
• Advertising and Competition
– France: By law all Web sites aimed at French customers must be in French. – Germany: Some promotions, such as two-for-one or promotional tie-ins may be illegal. – Sweden: Toy advertising may not be directed at children.
• Payments
– Due to differing currencies customers may not know the exact price until the currency exchange is made. (The development of the Euro should allow for smoother payments.)
For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing
Chapter 5 Slide: 42
Table 5.9: Political and Legal Problems (2)
• Delivery
– The cost of shipping a product 30 miles across a border can be more expensive than 300 miles within the borders of a country.
• Legal
– Return policies may not be the same for all countries. – Setting liability for faulty products may be unclear. – It may be difficult to determine how value added taxes are assessed. – Privacy laws in Europe are more stringent than in the U.S.
For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing
Chapter 5 Slide: 43
Active Learning Exercise #5.1: Business Model Strategies
• Use the Web to evaluate different business models. • Determine how many of the strategies outlined in this chapter are used at the Web sites you visit. • Explain how those strategies are used to create value for the business.
For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing
Chapter 5 Slide: 44
Active Learning Exercise #5.2: Evaluating Business Models
• Use the following matrix to compare an e-business against traditional business models. • Determine the benefits the business provides to its customers. • Decide how these benefits compare to traditional models. • Explain what the online business would need to do to get you to purchase online. • Explain what the traditional model will need to do to keep you buying at their site.
Benefits Online Model Traditional Model
Chapter 5 Slide: 45
For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing
Active Learning Exercise #5.3: Niche Retailers
• Use the Web to find narrowly targeted niche retailers. • Determine the target market for the e-retailer. • Describe how these e-retailers target their market. • Explain how they are differentiated from other competitors.
Business Site Target Market Product Offering
For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing
Chapter 5 Slide: 46
Active Learning Exercise #5.4: Business Model Building
• Pick a business-to-consumer or business-to-business industry that you would be interested in working in. • Determine the best business model for meeting you customer’s needs. • Decide on which of the strategies outlined in this chapter would be beneficial in providing value to customers. • Use the following matrix to determine if a business should host the technology or if it should use a commerce service provider.
For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing
Chapter 5 Slide: 47
Active Learning Exercise #5.4: Business Model Building
Issue Costs Control Pulling Customers Quality of Traffic Standalone Commerce System Commerce Service Provider
For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing
Chapter 5 Slide: 48