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					E-Commerce Market
   Mechanisms
          Learning Objectives
• Define e-marketplaces and list their components
• List the major types of electronic markets and
  describe their features
• Define supply chains and value chains and
  understand their roles
• Describe the role of intermediaries in EC
• Discuss competition, quality, and liquidity issues
  in e-marketplaces
• Describe electronic catalogs, shopping carts, and
  search engines
     Learning Objectives (cont.)
• Describe the various types of auctions and list
  their characteristics
• Discuss the benefits, limitations, and impacts of
  auctions
• Describe bartering and negotiating online
• Describe the impact of e-marketplaces on
  organizations
• Define m-commerce and explain its role as a
  market mechanism
      Electronic Marketplaces
• 3 main functions of markets
  – Matching buyers and sellers
  – Facilitating the exchange of information, goods,
    services, and payments associated with market
    transactions
  – Providing an institutional infrastructure
        Marketspace Components
• Marketspace—a marketplace in which sellers and
  buyers exchange goods and services for money (or
  for other goods and services), but do so
  electronically
   –   Customers                          Sellers
   –   Goods (physical or digital)        Infrastructure
   –   Front-end                          Back-end
   –   Intermediaries/business partners
   –   Support services
Marketspace Components (cont.)
• Customers                   • Sellers
  – Web surfers looking          – Hundreds of thousands
    for                            of storefronts are on
                                   the Web
     •   Bargains
     •   customized items
                                 – Advertising and
                                   offering millions of
     •   Collectors’ items
                                   Web sites
     •   entertainment etc.
                                 – Sellers can sell
  – Organizations account           • Direct from their Web
    for over 85 percent of            site
    EC activities                   • E-marketplaces
Marketspace Components (cont.)
• Products                   • Infrastructure
  – Physical products           – Hardware
  – Digital products—           – Software
    goods that can be           – Networks
    transformed to digital
    format and delivered
    over the Internet
Marketspace Components (cont.)
• Front-end business         • Back-end activities are
  processes include            related to
   –   Seller’s portal          – Order aggregation and
   –   Electronic catalogs        fulfillment
   –   shopping cart            – Inventory management
   –   Search engine            – Purchasing from
                                  suppliers
   –   Payment gateway
                                – Payment processing
                                – Packaging and delivery
Marketspace Components (cont.)
• Intermediary—a third party that operates
  between sellers and buyers
• Other business partners—collaborate on the
  Internet, mostly along the supply chain
• Support services such as
  – Certification and trust services
  – Knowledge providers
    Types of Electronic Markets
• Electronic storefronts—a single company’s Web
  site where products and services are sold
• Mechanisms for conducting sales
   –   Electronic catalogs    Payment gateway
   –   Search engine          Shipment court
   –   Customer services      Electronic cart
   –   E-auction facilities
• Electronic malls (e-malls)—an online shopping
  center where many stores are located
Types of Electronic Markets (cont.)
  Types of stores and malls
• General stores/malls—large            • Regional vs. global stores
  marketspaces that sell all types of   • Pure online organizations vs.
  products                                click-and-mortar stores
• Public portals
• Specialized stores/malls—sell only
  one or a few types of products


  E-marketplaces—online market, usually B2B, in which
 buyers and sellers negotiate; the three types of e-
 marketplaces are private , public , consortia
               E-Marketplaces
• Private e-marketplaces—online markets owned by
  a single company:
   – Sell-side—company sells either standard or customized
     products to qualified companies
   – Buy-side marketplaces—company makes purchases
     from invited suppliers
• Public e-marketplaces—B2B markets, usually
  owned and/or managed by an independent third
  party, that include many sellers and many buyers
  (exchanges)
  Consortia & Information Portals
• Consortia—e-marketplaces that deal with
  suppliers and buyers in a single industry
  – Vertical consortia are confined to one industry
  – Horizontal allow different industries trade there
• Information portal—a personalized, single point of
  access through a Web browser to business
  information inside (and marginally from outside)
  an organization
  – Publishing portals               Commercial portals
  – Personal portals                 Corporate portals
  – Mobile portals
                 Supply Chains
• Supply chain—the flow of materials, information,
  money, and services from raw material suppliers
  through factories and warehouses to the end
  customers
   – Includes organizations and processes that create and
    deliver the following to the end customers:
      • Products
      • Information
      • Services
A Simple Supply Chain
     Supply Chain Components
• Upstream supply chain—includes the activities of
  suppliers (manufacturers and/or assemblers) and
  their suppliers
• Internal supply chain—includes all in-house
  processes used in transforming the inputs received
  from the suppliers into the organization’s outputs
• Downstream supply chain—includes all the
  activities involved in delivering the product to the
  final customers
       Types of Supply Chains
• Integrated make-to-stock
• Continuous replenishment
• Build-to-order—model in which a manufacturer
  begins assembly of the customer’s order almost
  immediately upon receipt of the order
• Channel assembly—model in which product is
  assembled as it moves through the distribution
  channel
Supply Chains: Integrated & Build-to-Order
   Value Chain & Value System
• Value chain—the series of activities a company
  performs to achieve its goal(s) at various stages of
  the production process; each activity adds value to
  the company’s product or service, contributes to
  profit, and enhances competitive position in the
  market
• Value system—a set of value chains in an entire
  industry, including the value chains of tiers of
  suppliers, distribution channels, and customers
  Supply Chain & Value Chain
• Value chain and the supply chain concepts
  are interrelated
  – Value chain shows the activities performed by
    an organization and the values added by each
  – The supply chain shows flows of materials,
    money, and information that support the
    execution of these activities
Supply Chain & Value Chain (cont.)
• EC increases the value added by:
  – Introducing new business models
  – Automating business processes
• EC smoothes the supply chain by:
  – Reducing problems in the flows of material,
   money, and information
• EC facilitates the restructuring of business
  activities and supply chains
  Intermediation in E-Commerce
• Intermediaries provide value-added activities and
  services to buyers and sellers: wholesalers,
  retailers, infomediaries
• Roles of intermediaries
   –   Search costs—databases on customer preferences
   –   Lack of privacy—anonymity of sellers and buyers
   –   Incomplete information—gather product information
   –   Contract risk—protect sellers against non-payment
   –   Pricing inefficiencies—induce appropriate trades
           E-Distributors on B2B
• E-distributor—an e-commerce intermediary that
  connects manufacturers (suppliers) with buyers by
  aggregating the catalogs of many suppliers in one
  place—the intermediary’s Web site
• E-distributors also provide support services
   –   Payments
   –   Deliveries
   –   Escrow services
   –   Aggregate buyers’ and or sellers’ orders
         Disintermediation &
          Reintermediation
• Disintermediation—elimination of
  intermediaries between sellers and buyers
• Reintermediation—establishment of new
  intermediary roles for traditional
  intermediaries that were disintermediated
Syndication as an EC Mechanism
• Syndication—the sale of the same good
  (e.g., digital content) to many customers,
  who then integrate it with other offerings
  and resell it or give it away free
             Competition in
         the Internet Ecosystem
• Competition in the Internet ecosystem (business
  model of the online economy)
   – Inclusive with low barriers to entry
   – Self-organizing
   – Old rules may no longer apply
• Competition is tense
   – Lower buyers’ search cost
   – Speedy comparisons
   – Differentiation and personalization
          Competition in
  the Internet Ecosystem (cont.)
• Differentiation—providing a product or
  service that is unique
• Personalization—the ability to tailor a
  product, service, or Web content to
  specific user preferences
• Lower prices
          Competition in
  the Internet Ecosystem (cont.)
• Customer service is an extremely important
  competitive factor
• Some competitive factors are less important as a
  result of EC:
   –   Size of company is no longer significant
   –   Geographical location is insignificant
   –   Language barriers are being removed
   –   Digital products do not have normal wear and tear
           Competition in
   the Internet Ecosystem (cont.)
• EC supports efficient markets and could result in
  almost perfect competition with these
  characteristics:
   – Many buyers and sellers must be able to enter the
     market at no entry cost
   – Large buyers or sellers are not able to individually
     influence the market
   – The products must be homogeneous
   – Buyers and sellers must have comprehensive
     information about the products and about the market
     participants’ demands, supplies, and conditions
   Porter’s Competitive Analysis
• Porter’s competitive forces model applied to an
  industry views 5 major forces of competition that
  determine the industry’s structural attractiveness
• These forces, in combination, determine how the
  economic value created in an industry is divided
  among the players in the industry
• Such an industry analysis helps companies
  develop their competitive strategy
Porter’s Competitive Forces Model
                  Liquidity
• Liquidity—the need for a critical mass of
  buyers and sellers
  – The fixed cost of deploying EC can be very
    high
  – Without a large number of buyers, sellers will
    not make money
• Early liquidity—achieving a critical mass of
  buyers and sellers as fast as possible, before
  the market-maker’s cash disappears
Quality Uncertainty & Assurance
• Quality uncertainty—the uncertainty of
  online buyers about the quality of products
  that they have never seen, especially from
  an unknown vendor
  – Provide free samples
  – Return if not satisfied
     • Microproduct—a small digital product costing a few
       cents
  – Insurance, escrow, and other services
        E-Market Success Factors
Contributors to e-market success
 • Product characteristics          • Seller characteristics
    – Type                             – Consumers find sellers with
    – Price                              the lowest prices
    – Availability of standards        – Low-volume, higher-profit-
      and product information            margin transactions
 • Industry characteristics         • Consumer characteristics
    – Brokers currently necessary      – Impulse buyers
    – Intelligent systems may          – Patient buyers
      replace brokers                  – Analytical buyers
            Electronic Catalogs
• Electronic catalogs—the presentation of product
  information in an electronic form; the backbone of
  most e-selling sites
• Evolution of electronic catalogs
   – Merchants—advertise and promote
   – Customers—source of information and price
     comparisons
   – Consist of product database, directory and search
     capability and presentation function
   – Replication of text that appears in paper catalogs
   – More dynamic, customized, and integrated
              Classifications of
             Electronic Catalogs
• Dynamics of information presentation—static or
  dynamic
• Degree of customization—ready-made or
  customized
• Electronic catalogs allow integration of:
   –   Order taking and fulfillment
   –   Electronic payment
   –   Intranet workflow
   –   Inventory and accounting system
   –   Suppliers’ extranet
   –   Relationship to paper catalogs
           Customized Catalogs
• Assembled specifically for:
   – A company
   – An individual shopper
• Customization systems can:
   – Create branded, value-added capabilities
   – Allows user to compose order
   – May include individualized prices, products, and
     display formats
   – Automatically identify the characteristics of customers
     based on the transaction records
            Search Engines
• Search engine—a computer program that
  can access a database of Internet resources,
  search for specific information or keywords,
  and report the results
• Software (intelligent) agent—software that
  can perform routine tasks that require
  intelligence
 Search Engines, Intelligent Agents
         & Shopping Carts
• E-commerce users use both search engines and
  intelligent agents
   – Search engines find products or services
   – Software agents conduct other tasks (comparisons)
• Electronic shopping cart—an order-processing
  technology that allows customers to accumulate
  items they wish to buy while they continue to shop
                 Auctions
• Auction—a market mechanism by which a
  seller places an offer to sell a product and
  buyers make bids sequentially and
  competitively until a final price is reached
• Auctions deal with products and services
  for which conventional marketing channels
  are ineffective or inefficient
     Limitations of Traditional
             Auctions
• Traditional auctions are generally a rapid
  process
• It may be difficult for sellers to move goods
  to the auction site
• Commissions are fairly high
          Electronic Auctions
• Electronic auctions (e-auctions)—auctions
  conducted online
  – Host sites on the Internet serve as brokers
    offering:
     • Services for sellers to post their goods for sale
     • Allowing buyers to bid on those items
  – Many sites have certain etiquette rules that
    must be adhered to in order to conduct fair
    business
       Electronic Auctions (cont.)
• Major online auctions offer:
   –   Consumer products
   –   Electronic parts
   –   Artwork
   –   Vacation packages
   –   Airline tickets
   –   Collectibles
   –   Excess supplies and inventories being auctioned off by
       B2B marketers
                Dynamic Pricing
• Dynamic pricing—prices that change based on
  supply and demand relationships at any given time
• The four major categories of dynamic pricing are
  based on the number of buyers and sellers
  involved:
   –   One buyer, one seller
   –   One seller, many potential buyers
   –   One buyer, many potential sellers
   –   Many sellers, many buyers
Types of Dynamic Pricing
      Dynamic Pricing (cont.)
• One buyer, one seller uses
  – Negotiation
  – Bargaining
  – Bartering
• Price will be determined by:
  – Each party’s bargaining power
  – Supply and demand in the item’s market
  – Possibly business environment factors
      Dynamic Pricing (cont.)
• One seller, many potential buyers
  – Forward auction—an auction in which a seller
    entertains bids from buyers
  – English auction—an auction in buyers bid on
    an item in sequence and the price increases with
    time
  – Yankee auction—auction of multiple identical
    items in which bidders can bid for any number
    of the items offered, and the highest bid wins
    Dynamic Pricing (cont.)
– Dutch auction—auction of multiple identical
  items, with prices starting at a very high level
  and declining as the auction time passes
– Free-fall (declining price) auction—a variation
  of the Dutch auction in which only one item is
  auctioned at a time; the price starts at a very
  high level and declines at fixed time intervals,
  the winning bid is the lowest one when the time
  expires
English Auction, Ascending Price
      Dynamic Pricing (cont.)
• One buyer, many potential sellers
  – Reverse auction (bidding, or tendering
   system)—auction in which the buyer places an
   item for bid (tender) on a request for quote
   (RFQ) system, potential suppliers bid on the
   job, with price reducing sequentially, and the
   lowest bid wins; primarily a B2B or G2B
   mechanism
The Reverse Auction Process
      Dynamic Pricing (cont.)
• One buyer, many potential sellers (cont.)
  – ‖Name-your-own-price‖ model
  – Consumer-to-business (C2B) model
• Many sellers, many buyers
  – Double Auction—buyers and their bidding
    prices and sellers and their asking prices are
    matched, considering the quantities on both
    sides
     Limitations of Electronic
             Auctions
• Possibility of fraud—defective goods or
  receive goods/services without paying
• Limited participation—invitation only or
  Open to dealers only
• Lack of security—C2C auctions sometimes
  not done in an unencrypted environment
• Limited software—only a few ―complete‖or
  ―off-the-shelf‖ market-enabling solutions
         Impacts of Auctions
• Auctions as a coordination mechanism
• Auctions as a social mechanism to
  determine a price
• Auctions as a highly visible distribution
  mechanism
• Auctions as a component in e-commerce
              Bartering Online
• Bartering—an exchange of goods and services
  – Bartering exchanges
     • Give your offer to intermediary
     • Intermediary asses value of your product or service in‖points‖
     • Use ―points‖ to buy what you need
  – Bartering sites must be financially secure
  – Alternative to bartering is to auction surplus and then
    use the money collected to buy items needed
      Bartering Online (cont.)
• E-bartering—bartering conducted online,
  usually by a bartering exchange
• Bartering exchange—a marketplace in
  which an intermediary arranges barter
  transactions
            Online Negotiating
• Online negotiation—electronic negotiation,
  usually done by software (intelligent) agents that
  perform searches and comparisons; improves
  bundling and customization of products and
  services
• Dynamic prices can be determined by negotiation
• Negotiated prices result from interactions and
  bargaining among sellers and buyers
   – Expensive items like cars and real estate
   – Deal with nonpricing terms like payment method and
     credit
     Online Negotiating (cont.)
• Three factors that facilitate negotiated
  prices
  – Intelligent agents that perform searches and
    comparisons
  – Computer technology that facilitates
    negotiation process
  – Products and services that are bundled and
    customized
           Mobile Commerce
• Mobile computing permits real-time access to
  information, applications, and tools that, until
  recently, were accessible only from a desktop
  computer
• Mobile commerce (m-commerce)—
•     e-commerce conducted via wireless devices
• M-business—the broadest definition of
•     m-commerce, in which e-business is
  conducted in a wireless environment
  The Promise of M-Commerce
• Mobility significantly   • Mobile applications
  changes the manner in      are expected to change
  which people and           the way we:
  customers:                  – Live
   – Interact                 – Play
   – Communicate              – Do business
   – Collaborate
  The Promise of M-Commerce
            (cont.)
• The PC-based Internet culture may change to one
  based on mobile devices
• M-commerce creates new business models for EC,
  notably location-based applications
• Many large corporations with huge marketing
  presence are transforming their businesses to
  include m-commerce-based products and services
  – Microsoft           AT&T
  – Intel               AOL-Time-Warner
  – Sony
  I-Mode: Successful Mobile Portal
An example of the spread of m-commerce is DoCoMo’s i-
Mode; some applications of I-Mode are:

  •   Shopping guides           • Entertainment
  •   Maps and transportation   • Dining and reservations
  •   Ticketing                 • Additional services
  •   News and reports             – Banking
                                   – Stock trading
  •   Personalized movie
                                   – Telephone directory
      service
                                     searches
                                   – Dictionary services
                                   – Horoscopes
     Impacts of E-Markets on Business
        Processes & Organizations
Impacts of e-markets on B2C direct marketing:

 •   Product promotion    •   Brand or corporate image
 •   New sales channel    •   Customization
 •   Direct savings       •   Advertising
 •   Reduced cycle time   •   Ordering systems
 •   Customer service     •   Market operations
Analysis-of-Impacts Framework
   Transforming Organizations
• Technology and organizational learning
  – To survive, companies will have to learn and
    adapt quickly to the new technologies
  – Corporate change must be planned and
    managed
  – New technologies will require new
    organizational structures and approaches
    Transforming Organizations
             (cont.)
• The changing nature of work
  – Driven by increased competition in the global
    marketplace, firms are Reducing the number of
    employees and Outsourcing whatever work they can to
    countries where wages are significantly less
  – The upheaval brought on by these changes creates new
    opportunities and new risks; forces us to think new
    ways of about jobs, careers, and salaries
 Transforming Organizations
          (cont.)
– Digital-Age workers will have to be very
  flexible—truly secure jobs will be few, many
  will work from home
– Digital-Age companies will have to prize its
  core of essential workers as its most valuable
  asset—empowering them and providing them
  with means to expand their knowledge and skill
  base
      Redefining Organizations
• New and improved product capabilities
   – E-markets allow for new products to be created and/or
     for existing products to be customized in innovative
     ways
   – Customer profiles and data on customer preferences—
     source of information for improving products or
     designing new ones
   – Mass customization enables manufacturers to create
     specific products for each customer, based on the
     customer’s exact needs
Redefining Organizations (cont.)
• New business models
   –    E-markets affect individual companies, products,
       entire industries
• Improving the supply chain
• Impacts on manufacturing
   – Manufacturing systems changing from mass production
     lines to demand-driven, just-in-time manufacturing
   – Virtual manufacturing enables global manufacturing
     plants to run as though they were one in location
Changes in the Supply Chain
Changes in the Supply Chain
Redefining Organizations (cont.)
• Impacts on Manufacturing (cont.)
  – Build-to-Order—the biggest change in
    manufacturing will be the move to build-to-
    order systems
     • Manufacturing or assembly will start only after an
       order is received
     • Will change not only the production planning and
       control, but also the entire supply chain
Redefining Organizations (cont.)
• Impacts on finance and accounting
   – E-markets require special finance and accounting
     systems—most are electronic payment systems
     complicated by legal issues and international standards
   – Executing an electronic order triggers back-office
     transactions
   – These activities must be efficient, synchronized, and
     fast so the electronic trade will not be slowed down
          Cisco’s Virtual Close
• Cisco Systems supplies vast networks that
  connect computers to the Internet
   – Virtual Close was developed to allow companies to
     close its accounting records (its ―books‖) more quickly
   – Cisco is implementing such a system for itself for
     closing quarterly accounts
      • Used to take up to 10 days; within 4 years it took 2 days—
        significantly cut its cost
      • By 2002 or 2003 Cisco hopes to close the books with 1 hour’s
        notice, on any day in the quarter
   Cisco’s Virtual Close (cont.)
• Advantages of Virtual Close
  – Companies can become proactive, spotting
    problems at any time
  – New opportunities can be detected early
  – Enables quick ―drill down‖ analysis, which
    locates the causes of either poor or excellent
    performance
  – Brings huge productivity gains related to
    corporate financial reporting
Redefining Organizations (cont.)
• Impact on human resource management and
  training
  – EC is changing how people are recruited, evaluated,
    promoted, and developed
  – EC also is changing the way training and education are
    offered to employees
     • Online distance learning and virtual courses are exploding
     • Companies are cutting training costs by 50 percent or more
Redefining Organizations (cont.)
 – New e-learning systems offer two-way video,
   on-the-fly interaction, application sharing
 – E- learning may be their ticket to corporate
   survival as changing environments, new
   technologies, and continuously changing
   procedures make it necessary for employees to
   be trained and retrained constantly
           Managerial Issues
• How do we compete in the digital economy?
• What about intermediaries?
• What organizational changes will be needed?
• Should we auction?
• What should be auctioned?
• Should we have our own auction site or use a
  third-party site?
• Should we barter?
• What m-commerce opportunities are available?
                  Summary
• E-marketplaces and their components
• The major types of e-markets
• Supply chains and value chains
• The role of intermediation
• Competition, quality, and liquidity in
•     e-markets
• Electronic catalogs, search engines, and shopping
  carts
• Types of auctions and their characteristics

				
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