PPT - ELECTRONIC COMMERCE by liwenting

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									ELECTRONIC COMMERCE
Potential roles of e-commerce ● Economics of online sales ● Collaborative Filtering
● Search Engine Optimization ● Micro Payments ● “Bricks-and-Clicks” ●
Social Media
Learning Objectives

• Understanding
  – Opportunities to use e-
    commerce
  – Circumstances when e-
    commerce is more
    appropriate
  – Influences on a site’s rank
    on major search engines




BUAD 307      ELECTRONIC COMMERCE   Lars Perner, Instructor   2
Some Potential Ways to Make Money
Online

• Sales of tangible and/or electronic products
  (including services)
• Advertising revenue—message can be targeted to
    – Demographics/characteristics of web visitors to this site
    – Individual web surfer

• Subscription revenue (difficult to collect in practice
  due to the prevalence of free online content)
• Referral fees/commissions
   – Links to sites selling product
   – ―Affiliate‖ marketing
• Online research data collected and sold to clients

BUAD 307                ELECTRONIC COMMERCE                   Lars Perner, Instructor   3
Basic Internet Economics

• In most markets, online merchants
  tend to have HIGHER costs than do
  conventional retailers
   – Much more of the work is done by the
      merchant rather than by the
      customer.
• Intermediaries usually add value through
  specialization of labor and consolidation
  of tasks. Eliminating intermediaries
  usually results in higher costs.
• Customers do a lot of the work when
  they select, aggregate, bring for check-
  out, and carry away their products.
  Employees of e-commerce companies
  and their transportation services have
  to be paid to do this work!

 BUAD 307           ELECTRONIC COMMERCE       Lars Perner, Instructor   4
    Considerations in Evaluating E-Commerce
    Potential
•   Value-to-bulk ratio. High value,              •   Customer sensitivity to
    low weight/volume items can be                    delayed delivery.
    more readily handled and                      •   Extent of customization
    shipped.                                          needed—highly customized
•   Absolute margin. Even if the                      items—e.g., insurance, plane
    percentage margin on a high                       tickets, personalization—allow
    price item is low (e.g., 15%), the                the customer to do much of
    absolute margin can cover                         the work (i.e., data entry).
    considerable expenses (e.g.,                  •   Geographic dispersal of
    0.15x$1,000=$150)                                 consumers—even if direct-to-
•   Ability of consumer to                            consumer sales are not
    evaluate quality and fit                          efficient, this may be the only
    through online description.                       cost effective way to reach
    Standard branded items from a                     customers who are widely
    trusted source can be more                        dispersed (e.g., bee keepers,
    easily evaluated than items that                  Civil War buffs, tall people).
    need to be examined up close.                 •   Extent of inventory value
•   Convenience to the customer                       decline over time. A
    and willingness to pay for this                   computer can be distributed to
    convenience. Some                                 consumers at a lower price
    consumers may be willing to pay                   through retailers, but the
    more for door-to-door delivery. It                process takes longer and
    is usually more expensive to buy                  computer parts lose value
    groceries online.                                 fast.

    BUAD 307                ELECTRONIC COMMERCE        Lars Perner, Instructor   5
The Case of Dell Computer

•      Customizing computers for each customer probably does
       NOT save money. It is probably cheaper to provide a limited
       number of computers that offer each consumer a little bit MORE
       than what he or she would have wanted in a customized unit.
•      Prices for “upgrades” to default models tend to be very
       high—e.g., additional RAM often costs more than twice as much
       as the ―street‖ price for the components. ―Base‖ models usually
       have low prices, but the final prices paid tend to be high.
•      Although the percentage margins on computers tends to be
       low due to competition (e.g., 10-25%), absolute margins can
       be significant—e.g., 10% of $1,500=$150. That margin can
       pay for a lot of work.
•      It would probably be cheaper to ship directly to an efficient
       retailer—e.g., Wal-Mart may take in hundreds of computers and
       a number of other materials at one time. These items are put
       out on floors using fork lifts and other efficient transportation
       methods. The customer does much of the work.
•      However, because computer parts may lose as much as 1.5% in
       value per week. Thus, reducing distribution lag time by five
       weeks may “rescue” 7.5%.
•      If Dell claims to have an inventory turnover time of 48
       hours, someone else—probably a supplier—has to carry the
       needed “buffer” inventory to accommodate fluctuations in
       demand.
    BUAD 307                ELECTRONIC COMMERCE                   Lars Perner, Instructor   6
How Suitable For Internet Commerce?
Are There Differences Among Segments?




 BUAD 307     ELECTRONIC COMMERCE   Lars Perner, Instructor   7
BUAD 307   ELECTRONIC COMMERCE   Lars Perner, Instructor   8
Estimated Margins—Costco Pearl
Earrings




BUAD 307   ELECTRONIC COMMERCE   Lars Perner, Instructor   9
Books




                                 40%+ discount required to
                                 be competitive in this
                                 market




                                   Discount NOT needed to be
                                   competitive in this market


BUAD 307   ELECTRONIC COMMERCE            Lars Perner, Instructor   10
“Collaborative Filtering”

•      Comparing purchases by a customer to others who have made “similar”
       purchases to identify additional products of potential interest
•      Largely a matter of “brute force” computer analysis
•      Often a more effective way to identify additional items of interest if it is
       difficult to conceptually compare items to identify others like them
        –   E.g., favorite songs: What drives the preference? Sound, lyrics, singer characteristics?
        –   E.g., books: Which authors are “similar?”
•      “Win-win” deal: Merchant has the opportunity to sell more items; the
       customer finds value that he or she would otherwise have been less likely
       to find




    BUAD 307                  ELECTRONIC COMMERCE                     Lars Perner, Instructor   11
How Suitable For Internet Commerce?
Are There Differences Among Segments?




 BUAD 307     ELECTRONIC COMMERCE   Lars Perner, Instructor   12
Reality of Online Competition

•      Intense competition for large market products
       (large quantity demanded attracts many sellers)
•      Use of large demand products as loss leaders
       (e.g., Amazon.com bestsellers)
•      Competition will force reduced costs—if any—to
       be passed on to customers. Even if there is a cost
       advantage to selling online in a particular market,
       you will NOT be competing just against “brick-
       and-mortar” stores but also against those who
       have the same cost advantage in selling to
       customers. In the long run, you can probably
       make NORMAL profits but not above market level
       profits.
•      Competition makes charging for shipping and
       handling difficult. This is often more expensive
       than traditional distribution.
•      Less competition on specialty products  greater
       margins
    BUAD 307           ELECTRONIC COMMERCE            Lars Perner, Instructor   13
“Bricks-and-Clicks”

• Traditional retail chains and online
  presence tend to have synergy
    – Online access to store information—hours,
      locations, directions
    – Checking on ―in stock‖ status on local
      stores
    – Online orders with store pickup
    – Online orders with delivery; store return
      option
• Brand equity
• Volume purchasing power
• Inventory assortment warranted by
  combined store and online sales
BUAD 307           ELECTRONIC COMMERCE            Lars Perner, Instructor   14
Micro-payments: Opportunities and costs

• Considerable online content and
  services could be made profitably
  available for a small charge (e.g., 1¢-
  $2.00)
• However, collecting small amounts of
  money can be
   – Costly—credit card firms or debit
     processing firms may charge a
     significant per transaction fee
   – Inconvenient—the customer may
     not be willing to enter much
     information
• Mobile technology—with active login—
  may be helpful for the higher end (e.g.,
  50¢+)
BUAD 307          ELECTRONIC COMMERCE        Lars Perner, Instructor   15
SEARCH ENGINE OPTIMIZATION

• Search engines
• Search engine rankings
• Optimizing for rankings
   – Content
   – Reciprocal linking




BUAD 307         ELECTRONIC COMMERCE   Lars Perner, Instructor   16
Search Engines

• Search engine market
  dominated by Google
• Microsoft’s new BING
  search engine—the
  “decision engine”
    – Reported to match
      search results to user IP
      address  local results
      possible
    – Deals with Facebook
      and Twitter for better
      “real time” access



BUAD 307           ELECTRONIC COMMERCE   Lars Perner, Instructor   17
Search engines

• Use an algorithm to identify the most
  optimal links
• Algorithms may involve
    –   Usage of keywords
    –   ―Popularity‖ (number of links pointing inward)
    –   Other criteria—often proprietary
    –   ―Click-through‖ rates from the respective search
        engine (NOT overall traffic volume on the site)
• Historically, key word repetition was the
  most important factor. Today, on Google,
  quality links appear to be more
  important than key words.
• Internet consultants will make
  recommendations for a fee. Many have
  strong opinions on ―what works.‖ Most are
  short on evidence that they are correct.
BUAD 307                 ELECTRONIC COMMERCE               Lars Perner, Instructor   18
Search Engine Optimization: Reciprocal
Linking

• Linking from highly rated
  web sites greatly increases
  the ranking of a site
• Linking from low rated sites
  does not appear to help
  much
• The weight of a link may be
  determined by the number
  of links at that page—one
  link among many is worth
  less
• Linking to ―spamming‖ sites
  may be penalized
BUAD 307        ELECTRONIC COMMERCE   Lars Perner, Instructor   19
Search Engine Optimization: Text

• Credible repetition of key words
   – Frequently greater credit for
      • Bolded words
      • Words early in the
        document
• Identification of desirable key
  words
   – Analysis of competing sites
   – Customer interviews
• Misspellings


BUAD 307        ELECTRONIC COMMERCE   Lars Perner, Instructor   20
Search Engine Optimization: Other
• Domain names
   – If the domain name features the keyword, more
     weight is given
   – Google considers the underscore a space—e.g.,
     Marketing_Tips.com .
• Listing in the Open Directory Project
  (http://www.DMOZ.org) .
• Most search engines no longer rely
  significantly on meta tags—‖invisible‖
  information from webmasters about the site—
  since these can be manipulated. Using meta
  tags, however, tells your competitors what
  you are trying to accomplish.



 BUAD 307           ELECTRONIC COMMERCE              Lars Perner, Instructor   21
M-commerce: Mobile phone/PDA/
“gadget” access and sales
• High growth in mobile technology with
  Internet access
• .mobi domain is intended for web sites
  optimized for small screens
• Google Android project is intended to
  increase uniformity of display across
  cell phone models
• Many countries are running ahead of
  the U.S.
• Useful in making ―micro-payments‖—
  buying a soda or other low cost item
• Current advertisements for mobile
  phone banking



BUAD 307           ELECTRONIC COMMERCE     Lars Perner, Instructor   22
Social Media

• “Word-of-mouth” or
  “word-of-click
  campaigns”
• Targeting of specific
  demographics 
  efficiency
• Exposure through
  online games
• Credibility of known
  individuals and their
  friends

BUAD 307       ELECTRONIC COMMERCE   Lars Perner, Instructor   23
Facebook

• Targeting by
  demographics
• Online presences
  through
   – Applications
   – “Managed” (“Fan”)
     pages
• “Viral” potential




BUAD 307      ELECTRONIC COMMERCE   Lars Perner, Instructor   24

								
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