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McGraw-Hill/Irwin 2005 The McGraw-Hill Companies, All rights reserved 2005 The McGraw-Hill Companies, All rights reserved McGraw-Hill/Irwin Slide 2 McGraw-Hill/Irwin 2005 The McGraw-Hill Companies, All rights reserved Chapter 5 ELECTRONIC COMMERCE Strategies for the New Economy ELECTRONIC COMMERCE Strategies for the New Economy Slide 3 5-3 OPENING CASE STUDY Is America Online (AOL) Inching Toward Becoming an Internet Bank? AOLs new service is AOL Bill Pay It notifies members when bills are due Members can log into many different bill- paying systems with only one password through AOL Slide 4 5-4 OPENING CASE STUDY Members cannot pay directly through AOL (yet) But they may be able to in the future E-commerce is changing the way all of business works Slide 5 5-5 STUDENT LEARNING OUTCOMES 1.Define/describe the 2 major e-commerce business models 2.Summarize Porters Five Forces model and how business people use it 3.Describe the emerging role of e- marketplaces in B2B e-commerce Slide 6 5-6 STUDENT LEARNING OUTCOMES 4.Identify differences/similarities among customers and their perceived value of products and services 5.Compare/contrast marketing mixes for the B2B and B2C business models 6.Summarize ways of moving money in e- commerce and related issues Slide 7 5-7 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 Slide 8 5-8 INTRODUCTION Slide 9 5-9 E-COMMERCE BUSINESS MODELS There are 2 that are most prominent Business to Business (B2B) when a business sells products and services to customers who are primarily other businesses Business to Consumer (B2C) when a business sells products and services to individuals Slide 10 5-10 E-COMMERCE BUSINESS MODELS B2B is where most of the money is About 97% B2C is the most well-known Amazon, eBay, etc. B2B and B2C differences require that you know your customers well, develop the right marketing mix, and move money easily Slide 11 5-11 E-COMMERCE BUSINESS MODELS Slide 12 5-12 PORTERS FIVE FORCE MODEL Five Forces Model helps business people understand the relative attractiveness of an industry Slide 13 5-13 The Five Forces 1.Buyer power 2.Supplier power 3.Threat of substitute products and services 4.Threat of new entrants 5.Rivalry among existing competitors Slide 14 5-14 Buyer Power Buyer power high when buyers have many choices from whom to buy, and low when their choices are few If youre a buyer, you want buyer power to be high If youre a supplier, you want buyer power to be low Slide 15 5-15 Buyer Power Loyalty programs can help you as a supplier Loyalty program rewards customers based on the amount of business they do with a particular organization Airline frequent flyer programs Slide 16 5-16 Supplier Power Supplier power high when buyers have few choices from whom to buy, and low when their choices are few The converse of buyer power Slide 17 5-17 Threat of Substitute Products or Services Threat of substitute products or services high when there are many alternatives to a product or service, and low when there are few alternatives If youre a buyer, you want this to be high If youre a supplier, you want this to be low Slide 18 5-18 Threat of Substitute Products or Services As a supplier, you can use switching costs Switching costs costs that make customers reluctant to switch to another supplier Can be monetary penalties for early termination Can be like Amazon, which tracks information about you and tailors offerings Slide 19 5-19 Threat of New Entrants Threat of new entrants high when it is easy for new competitors to enter, and low when there are significant entry barriers If youre a buyer, you want this to be high If youre a supplier, you want this to be low Slide 20 5-20 Threat of New Entrants Entry barrier product or service feature that customers have come to expect and all new competition must offer Banking online banking Grocery stores savings cards Slide 21 5-21 Rivalry Among Existing Competition Rivalry among existing competition high when competition is fierce, and low when it is more complacent If youre a buyer, you want this to be high If youre a supplier, you want this to be low Slide 22 5-22 Five Forces Model and E-Commerce Because of IT, in most industries Buyer power has increased Entry barriers have lessened Threat of substitute products or services has increased Slide 23 5-23 BUSINESS RULES TO LIVE BY 1.Understand your business, products, services, and customers 2.Find customers and establish relationships 3.Move money easily and securely Slide 24 5-24 UNDERSTAND YOUR BUSINESS, PRODUCTS, SERVICES, AND 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 Slide 25 5-25 Who Are Your Customers? Business to Business Other businesses Business to Consumer Individuals Each is different and has different needs and wants Slide 26 5-26 Product and Service Value as Perceived by Your Customers Slide 27 5-27 B2C: Convenience Versus Specialty Convenience Lower priced Purchased frequently Example: common food items Specialty Higher priced Purchased less frequently Example: Stereos, computers Slide 28 5-28 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 Slide 29 5-29 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) Slide 30 5-30 B2B: MRO Versus Direct Maintenance, repair, and operations (MRO) materials (indirect materials) materials necessary for running a company but do not relate to the companys primary business activities Similar to convenience items in B2C Office supplies, repair parts, lubricating oils Slide 31 5-31 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 Slide 32 5-32 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 companys primary business activities Quality, quantity, and delivery timing are important Slide 33 5-33 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 Slide 34 5-34 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 Slide 35 5-35 E-Marketplaces Slide 36 5-36 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 Slide 37 5-37 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) automotivewww.covisint.com Many others Slide 38 5-38 To Summarize B2C Varying demographics and lifestyles Convenience versus specialty products Commoditylike and digital work best of all Mass customization necessary in some instances Slide 39 5-39 To Summarize B2B MRO versus direct materials Demand aggregation is present E-marketplaces are vitally important Horizontal (MRO materials mainly) Vertical (direct materials mainly) Slide 40 5-40 FIND CUSTOMERS AND ESTABLISH RELATIONSHIPS You must first find customers Then establish relationships Otherwise, you cant make a sale B2C and B2B techniques are very different Slide 41 5-41 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 Slide 42 5-42 B2C Marketing Mix Tools Registering with search engines Online ads Viral marketing Affiliate programs Slide 43 5-43 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) Slide 44 5-44 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 Slide 45 5-45 Online Ads Slide 46 5-46 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)www.bluemountain.com Send a card Card has link so the other person can send you a card back Slide 47 5-47 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 Slide 48 5-48 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 Slide 49 5-49 Affiliate Programs Slide 50 5-50 Business to Business Marketing Much more personal Not usually done with generic ads designed for mass distribution Often take place in e-marketplaces Slide 51 5-51 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 Slide 52 5-52 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 Slide 53 5-53 To Summarize B2B Frequently occurs in an e-marketplace Requires establishing formal business relationship Requires IT system integration Doesnt include broad and generic marketing mix Slide 54 5-54 MOVE MONEY EASILY AND SECURELY In e-commerce, most money moves electronically Security becomes very important Slide 55 5-55 B2C Payment Systems Credit cards Financial cybermediaries Electronic checks Electronic Bill Presentment and Payment Smart cards Slide 56 5-56 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-knownwww.paypal.com Slide 57 5-57 Financial Cybermediaries Slide 58 5-58 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 Slide 59 5-59 Electronic Bill Presentment and 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)www.checkfree.comwww.quicken.com Slide 60 5-60 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 Slide 61 5-61 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 Slide 62 5-62 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 Slide 63 5-63 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) Slide 64 5-64 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 How businesses communicate with each other Used in e-marketplaces and VANs Slide 65 5-65 EDI Slide 66 5-66 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 Slide 67 5-67 Security: The Pervading Concern Security is very important when moving money Some security measures Encryption Secure Sockets Layers Secure Electronic Transactions Many, many others Slide 68 5-68 Encryption Encryption scrambles the contents of a file so that you cant 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 Slide 69 5-69 Public Key Encryption Slide 70 5-70 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) Slide 71 5-71 Secure Sockets Layers Slide 72 5-72 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 Slide 73 5-73 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 Slide 74 5-74 To Summarize B2B Use EDI to facilitate ordering process VANS can provide for EDI and financial EDI Use financial EDI for payment of purchases Slide 75 5-75 To Summarize B2C and B2B security Overriding concern Encryption, SSLs, SET, and others Slide 76 5-76 CAN YOU 1.Define/describe the 2 major e-commerce business models 2.Summarize Porters Five Forces model and how business people use it 3.Describe the emerging role of e- marketplaces in B2B e-commerce Slide 77 5-77 CAN YOU 4.Identify differences/similarities among customers and their perceived value of products and services 5.Compare/contrast marketing mixes for the B2B and B2C business models 6.Summarize ways of moving money in e- commerce and related issues Slide 78 McGraw-Hill/Irwin 2005 The McGraw-Hill Companies, All rights reserved CHAPTER 5 End of Chapter 5