For use with Strategic Electronic Marketing: Managing E-Business 2 e Copyright 2003 South-Western...

For use with Strategic Electronic Marketing: Managing E-Business 2e

Copyright 2003 South-Western College Publishing

Chapter 6 Slide: 1

Chapter 6: E-Commerce



Chapter 6 Slide: 2

LEARNING OBJECTIVES(1):1. Gain an understanding of the e-commerce

process.2. Outline why a multichannel approach is

beneficial for a retailer.3. Explain why newly formed pure-play

Internet businesses may have a hard time gaining competitive advantages in the retail market.

4. Compare and contrast how e-commerce is being used as a strategic tool by e-retailers and traditional retailers.



Chapter 6 Slide: 3

LEARNING OBJECTIVES(2):5. Outline the major types of fraud committed

online and what is being done to limit fraud.6. Perform a benefit analysis of alternative

sales channels.7. List the limitations to international e-

commerce.8. Explain the role of an ASP in a business’s

e-commerce strategy.



Chapter 6 Slide: 4

Vignette: Where Are My Groceries?

• Thinking Strategically– Evaluate your grocery shopping habits. How often do

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 grocery,

determine which aspects of grocery shopping could be automated.

– Evaluate the business model for a traditional grocery and determine where its competitive advantage lies.

– Estimate the expenses a business could save by moving grocery shopping online.

– What is the future of online grocery sales?



Chapter 6 Slide: 5

E-Commerce

• E-commerce is the process of allowing Web based technologies to facilitate commerce or trade. – E-commerce can be retail, between an e-

business and an end user, or it can be used for business-to-business transactions.



Chapter 6 Slide: 6

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 e-commerce.

– 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.



Chapter 6 Slide: 7

E-Retailing• E-retailing will not necessarily result in an

increase in overall retail sales; instead, consumers are shifting purchases by adopting a multichannel approach and using alternative sales channels. – Sales channels are the models that businesses use to

sell to their customers. These include brick-and-mortar outlets, catalogs, direct marketing, or e-commerce.

• Multichannel retailers support the commerce process in a number of ways, including:– In-store or in-catalog marketing of the online channel,

gift certificates purchased online, in-store return of online orders, catalog orders online, and others.



Chapter 6 Slide: 8

Figure 6.1: U.S. E-Commerce Sales

5.27 5.535.98

6.90

8.88

7.59 7.46 7.47

10.04

0.7 0.8 0.8 0.9 1.1 1 0.9 1 1.2

0

2

4

6

8

10

12

1999 Q4

2000 Q1

2000 Q2

2000 Q3

2000 Q4

2001 Q1

2001 Q2

2001 Q3

2001 Q4

E-commerce(billions)

Pecent oftotal RetailSales

Data source: U.S. Census Bureau, “United States Department of Commerce News,” February 20, 2002, <http://www.census.gov/mrts/www/current.html>.

http://www.census.gov/mrts/www/current.html

http://www.census.gov/mrts/www/current.html



Chapter 6 Slide: 9

Figure 6.2: Relative E-Commerce Sales by Industry

October 2001 (000)

Airline Tickets

Apparel

Computer hardw are

Hotel Reservations

Consumer Electronics

Toys/Videogames

Books

Music

Softw are

Food/Beverages

FurnitureOctober2001 (000)

Data Source: CyberAtlas staff, “November Brings Increase in E-Commerce Activity,” December 17, 2001, <http://cyberatlas.internet.com/markets/retailing/article/0,,6061_941661,00.html#table>.

http://cyberatlas.internet.com/markets/retailing/article/0,,6061_941661,00.html#table



Chapter 6 Slide: 10

Figure 6.3: E-Business Model

Supply Chain

Supply Chain

Market-of-OneCustomer

Market-of-OneCustomer

CustomizedNon-LinearPromotion

CustomizedNon-LinearPromotion

CustomizedProduction

CustomizedProduction

DynamicPricing

DynamicPricing

Shorter ChannelsDominated by

Facilitators

Shorter ChannelsDominated by

Facilitators

Knowledge Management& Data Warehousing

Knowledge Management& Data Warehousing

Electronic PaymentsElectronic Payments

Extranet



Chapter 6 Slide: 11

Figure 6.4: E-Commerce Value Chain

E-Commerce Value Chain can give insight into the problems encountered by newly formed online-only e-commerce companies.

Supply Chain:Develop and deploy inventory systems, warehousing, extranets, etc.

Product and Pricing Strategies:

Develop positioning strategy, image with market, etc.

Promotion:Need to develop customer base, experience in targeting audience.

Distribution Channels:

Need locations, shipping facilitators, payment systems, and return policies and procedures.

Knowledge Management:

Need database on customer and links to inventory and other business processes.

Management:Needs experience in field, knowledge of process and industry, strong relationships with employees, suppliers, and other constituencies.

Delivered Value to

Customer

Delivered Value to

Customer



Chapter 6 Slide: 12

Table 6.1: Retailer Value Chain Analysis

Retailer Value Chain Analysis

New online-only

New online only businesses must develop this entire value chain system from scratch.

Established online-only

Established online-only businesses such as Amazon.com may have these components developed. They may have advantages in supply chains, image as online-only firm, targeting audiences, shipping systems for distribution, data collection and knowledge management, and managerial expertise in e-business.

Catalog Businesses

Existing catalog businesses have these components developed. They may have advantages in supply chains, image as non brick-and-mortar, targeting audiences, shipping systems for distribution, knowledge management, and managerial expertise in direct marketing.

Retail Chains Existing traditional national retail chain businesses may these components developed. National chains may have advantages in supply chains, image, targeted audiences, prime locations for distribution, information capture and knowledge management systems, and managerial expertise in retailing.

SME Retailer Existing small to medium sized retailer may have none of these components developed for conducting business outside of the targeted market area.



Chapter 6 Slide: 13

Figure 6.5: E-Commerce Personalization

Personalization Customer Profiling and Suggestion Selling

One-Click AutomatedOrderingKnowledge

Database

Order Tracking

E-Mail Marketing



Chapter 6 Slide: 14

Online Growth• Amazon.com

– End of 2001: largest unique audience with more than 31 million visitors.

– From the year 2000 to 2001, increased its unique audience by 34 percent.

• Brick and Click from 2000-2001– Wal-Mart: Increased its unique audience by

133 percent.– JCPenney: Increased by 34 percent.– Target: Increased by 142 percent– Sears increased by 23 percent



Chapter 6 Slide: 15

Benefits Amazon.com Mall Bookstore:

Superstores:

Number of Books

Millions 70,000 175.000 +

Discounts on books.

Percent off on all titles (customer pays shipping)

Discounts on selected titles.

Ability to browse by topics

Online databases allow links to topic areas.

Books placed in topic sections.

Consumer's access to books

Average 2-3 days Immediate

Access to information about the book.

Immediate - online Consumer must browse or ask for help.

Table 6.2: Benefit Analysis for Amazon.com (1)



Chapter 6 Slide: 16

Table 6.2: Benefit Analysis for Amazon.com (2)

Benefits Amazon.com Mall Bookstore: Superstores:Ability toconverse withthe author.

Online throughdiscussion groups oremail.

Rarely except for signing.

Shipping ofgift books.

Handled online. Customer must ship.

Otherrelationshipdevelopmenttools

PersonalizationDatabaserecommendationsbased on pastpurchases.Email comments

Other storesfor customersto visit.

Coffee shops

Interactionwithcustomers

Email links toservice personnel.Chat rooms withother customers.

Face-to-facesalesrepresentatives.

Face-to-facesalesrepresentatives.



Chapter 6 Slide: 17

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



Chapter 6 Slide: 18

Case 6.1: A Prescription for Success?

Thinking Strategically• Consider the types of products that individuals usually purchase

at a pharmacy. Determine the importance of receiving that product immediately versus waiting until the next day.

• How important is it to talk to a pharmacist about products purchased at a pharmacy?

• Visit an online pharmacy. Compare the services it offers to what can be found at a brick-and-mortar store.

• Decide whether consumers’ purchasing patterns would differ if they were buying products on a continuing basis. – For example, if an individual were permanently on a heart

medicine, would he or she want to order the medicine online and have it delivered to his or her home?

• Speculate on the future of online pharmacies.



Chapter 6 Slide: 19

Table 6.3: Niche E-Retailers

Business Target Market Product Offering dELiA*s www.dELiAs.com

Teenage girls and young women

This Multichannel (catalog, Web site, and stores) retailer offers apparel and accessories.

Wine.com www.wine.com

Individuals interested in high quality wines and gourmet foods

Wine.com, the largest online wine retailer in the United States, offers wine and advice on purchasing wine.



Chapter 6 Slide: 20

Table 6.3: Niche E-Retailers

Business Target Market Product Offering JustBalls www.justballs.com

Individuals and institutions needing unique or specialty balls and related items.

An assortment of balls and ball related products and offer expertise and information on balls.

Another Universe www.anotheruniverse.com

Males, average age 28 with higher than average income.

The site emphasizes content about television, movies, comic books, and collectibles to hold viewers interest.



Chapter 6 Slide: 21

Case 6.2: Dell Computer Company.

• Thinking Strategically– Determine if Dell has an advantage over

traditional computer sales businesses. – Does Dell have an advantage over other online

sellers? – Consider what you would want if you were to

purchase a computer. Would you feel it is necessary to talk to a person directly?



Chapter 6 Slide: 22

Case 6.2: Dell Computer Company.

• Thinking Strategically– Evaluate the Dell Web site (http://www.dell.com).

Does this site provide all the information necessary for you to buy?

– Determine the importance of the Dell brand name.

– Explain if the business system that Dell has developed will work for other types of businesses.

– How does Dell develop and maintain relationships with its customers?

http://www.dell.com/

http://www.dell.com/



Chapter 6 Slide: 23

Figure 6.6: Dell’s Business ModelSuppliers linked through Extranet deliver just-in-time.

Lowers inventory costs.

Web page provides information and ordering.

Lowers ordering costs.

Payments are made online through Web page credit card or invoice.Lowers bad debt expense and credit

risks.

Product delivered through independent shippers such as UPS.

Contract low shipping rates, no fixed costs in assets.

Customer gathers information and purchases through Web page.

Lowers communication

costs.

Dell manufactures customized PC and sell at low price.



Chapter 6 Slide: 24

Business-to-Business E-Commerce

• Considered from three perspectives:– First, there is the supply chain system and process

described in Chapter 4. This system links suppliers, distributors, and other channel members into an integrated process.

– Second, businesses are engaging in marketplaces where goods are bought and sold. This process will be covered in more depth in Chapter 11.

– Third, e-retail has had an impact on the business-to-business market. The largest category for sales in the B-to-B e-commerce arena is in the PC hardware and software industry.



Chapter 6 Slide: 25

International E-Commerce• To develop e-commerce, four factors must be in place.

– First, the technical infrastructure must allow the flow of information.

– Second, flexibility of channel relationships is required. • In countries such as Japan, where long distribution channels are

maintained through personal relationships, disintermediation and restructuring will be much more difficult.

– Third, the political and legal structure must allow for the use of e-commerce.

• The ability to ship products without tariff restrictions and the free flow of capital are requirements.

– Fourth, although the Internet is the facilitator for this change, it is the willingness of businesses and customers to change their business and purchasing habits that allows the change to move forward.



Chapter 6 Slide: 26

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.



Chapter 6 Slide: 27

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.



Chapter 6 Slide: 28

Table 6.5: Political and Legal Problems

Problem Examples

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. Lands’ End was forced to drop its “Money Back Guarantee, No Matter What,” promise in Germany because it was seen as anti-competitive. Lands’ End German Web site will link to other Land’s End Web sites that show the guarantee.[i] Sweden: Toy advertising may not be directed at children.

Payments Credit card payments can be used, but because of 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.

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.[ii]

[i] Ann Therese Palmer, “Lands’ End’s End Run,” Business Week, October 18, 1999, p. 8.[ii] Martha Bennett, “The Worldwide Sell,” CIO - Section 1, July 15, 1998, pp. 60-63; and Henry Heilbrunn, “Interactive Marketing in Europe,” Direct Marketing, March 98, pp. 56-59.



Chapter 6 Slide: 29

Figure 6.7: Distribution of Worldwide E-Commerce Sales and Growth

010

2030

405060

7080

90100

North America Europe Asia-Pacific Japan Rest of World

MarketShare

GrowthPercent

Data Source: Michael Pastore, “New Records Predicted For Holiday E-Commerce,” CyberAtlas, October 22, 2001, <http://cyberatlas.internet.com/markets/retailing/article/0,,6061_908021,00.html#table2>.

http://cyberatlas.internet.com/markets/retailing/article/0,,6061_908021,00.html#table2



Chapter 6 Slide: 30

Figure 6.8: Relative Number of Browsers versus Shoppers in Selected Countries

0%

10%20%

30%40%

50%

60%70%

80%

Uni

ted

Sta

tes

Sw

eden

Aus

tria

Ger

man

y

Hon

gK

ong

Taiw

an

Fran

ce Italy

Spa

in

Browsing forProducts

PurchasingProducts

Data Source: Michael Pastore, “Net Users Worldwide Taking Commerce Online,” CyberAtlas, June 13, 2001, <http://cyberatlas.internet.com/big_picture/geographics/article/0,,5911_783851,00.html#table>.

http://cyberatlas.internet.com/big_picture/geographics/article/0,,5911_783851,00.html#table



Chapter 6 Slide: 31

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 e-commerce site.



Chapter 6 Slide: 32

Table 6.6: Advantages of Selling With Standalone Vs CSP Sites

Issue Standalone System Using a CSP

Costs No fees paid to the CSP.Higher costs in personnel,hardware, software, anddevelopment.

Lower cost for maintainingtechnology to support the site.

Control Business can control all of itspolicies related to selling.If mall closes, business may losepast customers.

Seller may need to complywith mall's sales, credit, andreturn polices.

PullingCustomers

Business must get customers totheir site by themselves throughpromotion.

Retail trade concentration canpull in a larger number ofshoppers.

Quality ofTraffic

A standalone site may have higherquality traffic that is more likely tobuy.

Individuals who browse oneday may turn into shoppers atanother time.



Chapter 6 Slide: 33

• Visit a number of pure-play e-commerce sites. Include sites that you have purchased from.

• Why did you purchase something from those sites?

• Indicate how your online shopping behavior related to your offline behavior.

• What were the most important criteria you used in shopping at the site?

Exercise 6.1 E-Retailer Shopping



Chapter 6 Slide: 34

• Visit a number of multichannel e-commerce sites. Include stores that you have purchased from.

• How does a multichannel retailer use the Internet to support its sales?

• Describe why you have purchased from the channel you use most often.

• Specify the most important criteria you use in shopping at the Web site.

• How is your online shopping behavior likely to change in a multichannel retail environment?

Exercise 6.2: Multi-channel Shopping



Chapter 6 Slide: 35

Exercise 6.3: Multichannel Shopping Analysis

• Choose one of the businesses you visited in Exercise 6.1 or 6.2.

• Outline its e-commerce model and e-commerce value chain.

• Where in the value chain does the business gain competitive advantages?

• Undertake a benefit analysis as indicated in Table• 6.2. • Determine the benefit categories and compare the

e-commerce site to its channel counterparts.• Indicate where competitive advantages lie.



Chapter 6 Slide: 36

ALE 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



Chapter 6 Slide: 37

• Management has asked you to outline an e-commerce model and e-commerce value chain that will give your business a competitive advantage.

• Choose an industry and identify the target market. Indicate the components that need to be included in the Web site to allow the business model to operate and the value chain to deliver value.

• Evaluate a number of ASPs. Should your Web site be hosted by the business or outsourced?

• Compare your recommendations to those of others.

Competitive Exercise 6.5: Developing Competitive E-Commerce Models

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