Slide 2.1 Dave Chaffey, E-Business and E-Commerce Management, 4 th Edition, © Marketing Insights Limited 2009 Chapter 2 E-commerce fundamentals

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Dave Chaffey, E-Business and E-Commerce Management, 4th Edition, © Marketing Insights Limited 2009

Chapter 2

E-commerce fundamentals

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Learning outcomes

• After completing this chapter the reader should be able to:– Complete an online marketplace analysis to

assess competitor, customer, and intermediary and competitor use of the Internet as part of strategy development

– Identify the main business and marketplace models for electronic communications and trading

– Evaluate the effectiveness of business and revenue models for online businesses.

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Management issues

• What are the implications of changes in marketplace structures for how we trade with customers and other partners?

• Which business models and revenue models should we consider in order to exploit the Internet?

• What will be the importance of online intermediaries and marketplace hubs to our business and what actions should we take to partner these intermediaries?

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Figure 2.1 The environment in which e-business services are provided

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Activity – the e-commerce environment

• For each of the environment influences shown in Figure 2.1, give examples of why it is important to monitor and respond in an e-business context.

• For example, the personalization mentioned in the text is part of why it is important to respond to technological innovation.

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Environment constraints and opportunities

• Customers – which services are they offering via their web site that your organization could support them in?

• Competitors – need to be benchmarked in order to review the online services they are offering – do they have a competitive advantage?

• Intermediaries – are new or existing intermediaries offering products or services from your competitors while you are not represented?

• Suppliers – are suppliers offering different methods of procurement to competitors that give them a competitive advantage?

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• Macro-environment• Society – what is the ethical and moral consensus on

holding personal information?• Country specific, international legal – what are the

local and global legal constraints for example, on holding personal information, or taxation rules on sale of goods?

• Country specific, international economic – what are the economic constraints of operating within a country or global constraints?

• Technology – what new technologies are emerging by which to deliver online services such as interactive digital TV and mobile phone-based access?

Environment constraints and opportunities (Continued)

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• Capability to respond to environmental opportunities and threats to gain competitive advantages

• Read the pp. 58-59 Mini Case Study 2.1• The video may be searched form Google video

search.• Discuss the key points of strategic agility

• P. 59, Activity 2.1 Give examples of why it’s important to monitor and respond in an e-business context

Strategic Agility

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Figure 2.2 Professor Donald Sull of London Business School talks aboutstrategic agilitySource: www.ft.com

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Figure 2.3 An online marketplace map

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• Customer Segment– The phase that the customer is at in his/her lifecycle

http://academic.brooklyn.cuny.edu/economic/friedman/mmmarketsegmentation.htm

– Psychographic segmentation is sometimes also referred to as behavioural segmentation. http://tutor2u.net/business/marketing/segmentation-psychographic.html

• Search Intermediaries

Online Marketplace Analysis

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• Intermediaries and Media Sites– Mainstream news media sites or portal, e.g., cbc.ca, Google– Niche or vertical media sites, e.g., e-consultancy– Price comparison sites (also called aggregator), e.g.,

http://www.pricecanada.com/ – Super-affiliates– Niche affiliate or bloggers—often small or individual sites

• Destination Sites– The sites that the marketer tries to generate traffic to

Online Marketplace Analysis

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Resource for Analysing e-Marketplace

• Ref. pp. 63-64, Tab 2.2. Some websites have changed and some need registration

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Figure 2.4 Google trends for web sites – useful for benchmarking the growth of online intermediaries and destination sitesSource: http://trends.google.com/websites

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Marketplace Channel Structure

• It describes the way a manufacture / supplier delivers products and services to its customers

• Fig. 2.5 and Fig 2.6 display variety of options

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Figure 2.5 B2B and B2C interactions between an organization, its suppliers and its customers

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B2B and B2C characteristics

Characteristics B2C B2B

Proportion of adopters with access

Low to medium High to very high

Complexity of buying decisions

Relatively simple – individual and influencers

More complex – buying process involves users, specifiers, buyers, etc.

Channel Relatively simple – direct or from retailer

More complex, direct or via wholesaler, agent or distributor

Purchasing characteristics Low value, high volume or high value, low volume. May be high involvement

Similar volume/value. May be high Involvement. Repeat orders (rebuys) more common

Product characteristic Often standardized items Standardized items or bespoke for Sale

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Figure 2.6 Disintermediation of a consumer distribution channel showing (a) the original situation, (b) disintermediation omitting the wholesaler, and(c) disintermediation omitting both wholesaler and retailer

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Reinter-mediation

• The creation of new intermediaries between customers and suppliers, such as search engine, price comparator, etc. such as http://www.esurance.com/, http://www.pricecanada.com/

• Supplies need to– Be represented with new intermediaries– Monitor other suppliers via intermediaries– Create own intermediaries

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Figure 2.7 From original situation (a) to disintermediation (b) and reintermediation (c)

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Countermediation

• Creation of a new intermediary by an established company

• Example:– B&Q www.diy.com– Opodo www.opodo.com– Boots www.wellbeing.com www.handbag.com– Ford, Daimler (www.covisint.com)

• Partnering with existing intermediary – Mortgage broker Charcol and Freeserve

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Trading Location

• Trading can be done on seller-controlled site, buyer-controlled side, or neutral third-party site

• P. 67, Table 2.3 and P. 69 Fig. 2.8 present various options

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Figure 2.8 Variations in the location and scale of trading on e-commerce sites

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Commercial Mechanisms

• There are several ways for closing a transactions

• Ref. p. 69, Table 2.4 for detail

• Priceline.com uses a new model that allows client to bid on the services such as hotel, airline ticket

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Figure 2.9 Priceline Hong Kong service (www.priceline.com.hk)

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Multi-channel Marketplace Model

• Consumers use a combination of channels for their purchases.

• M-Channel Defines how different marketing channels should integrate and support each other

• Fig. 2.10 (p.71) shows an example channel chain map

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Figure 2.10 Example channel chain map for consumers selecting an estate agent to sell their property

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Types of Online Intermediary

• Infor-mediaries— intermediaries that capture, profile, and sell customer information

• Metamediaries— intermediaries that assist with selection and discussion of about different product and services; they connects customers with the providers– Example: http://www.metacritic.com/

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Figure 2.11 Metacritic (www.metacritic.com)Source: CBS Interactive

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Types of Intermediary

• Intermediaries changed quite a lot since E-commerce first started.

• For a comprehensive list of intermediaries, ref. p. 75, table 2.5

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Interactive activity – portals

Q1. Define portal (p.74)

Q2. Is a search engine the same as a portal? Yes, No

Q3. Is a search engine the same as a directory? Yes, No

Q4. List search engines / portals you use and explain why

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Search engines

Directories

News aggregators

MR aggregators

Comparers

Exchanges

Meta services

Portal

‘A gateway to information resources and services’

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Figure 2.12 Number of searches through the Google Keyword ToolSource: Google https://adwords.google.com/select/KeywordTool

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Business model

Timmers (1999) defines a ‘business model’ as:

An architecture for product, service and information flows, including a description of the various business actors and their roles; and a description of the potential benefits for the various business actors; and a description of the sources of revenue.

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Business model

Key elements1. Value proposition-products & services to offer

2. Market or audience

3. Revenue models and cost base

4. Competitive environment

5. Value chain and marketing positioning

6. Representation in the physical & virtual world

7. Organizational structure

8. Management

Complete Activity 2.3 on page 79

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Business model

Timmers identified 11 different types of business models. –ref. p. 78

Alternative Perspectives on Business Model1. Marketplace position perspective

2. Revenue model perspective

3. Commercial arrangement perspective

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Figure 2.13 Alternative perspectives on business models

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Revenue model

• It describes how a business generate revenue• What are traditional ways?• The New Ways

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Revenue Model- Publisher Example

• Advertising CPM (cost per thousand/mille)• Advertising CPC (cost per click)• Sponsorship of section, content, or widget• Affiliate Revenue (CPA or CPC)• Transaction Fee• Subscription access to content or services• Per-per-view Access to document• Subscription Data Access for e-mail Marketing

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Figure 2.14 Alex Tew’s Million Dollar Home Page (www.milliondollarhomepage.com)

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Online Business Revenue Calculation

• What factors to consider?– Number and size of ad units– Ads Capacity to be sold– Fee level negotiated for different ads models– Traffic – Visitor engagement (time to stay)

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Figure 2.15 Example spreadsheet for calculating a site revenue model. Available for download at www.davechaffey.com/Spreadsheets

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Figure 2.15 Example spreadsheet for calculating a site revenue model. Available for download at www.davechaffey.com/Spreadsheets (Continued)

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Online Business Revenue Calculation

• Lab exercise: Activity 2.4 on page 85.

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Figure 2.16 Econsultancy (www.econsultancy.com)

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Revenue Model- Auction Example

Roles for auction (Klein 1997)

• Price discovery

• Efficient Allocation mechanism

• Distribution mechanism—attracting audience

• Coordination mechanism

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Business Model- Auction Example

Types of auction

• English—forward or upward, initiated by sellerthis is more of conventional auctions we commonly seen in physical world and on virtual market

• Dutch—Reverse, downward, initiated by buyerThis is more commonly seen in large manufacture procurement

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Business Model- Auction Example

• Read the Case Study 2.1 on page 87-88. Discuss the questions.

• Research on the web to find Reverse auction examples in Canada

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Business Model-Start-ups

1. Many dot.com start-ups failed. Some succeeded and newer ones are still created.

2. Value the Internet start-ups (pp. 90-91)– Concept– Innovation– Execution—promotion, performance, availibility,

security– Traffic– Financing– Profile—publicity and awareness in the market

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Lab Exercises

Case Study 2.2 on Pages 91-93– Read the case

– Discuss the question 1-3 on page 93

Mini Case Study 2.3 on pages 93-94– What’s business model of Firebox?

– What made it a success?

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Figure 2.17 Firebox (www.firebox.com)

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Lab Exercises

Case Study 2.3 on Pages 95-98– What is Zopa’s business model?

– Do you think it can succeed and develop further and why?

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Next Class

Preview the E-consultancy Interview.107-109

Prepare to discuss the following– What’re the impacts of the Internet to publishing

industry– How are publish industry coping with the challenges?– How do they reach online readers?– How do they use social network for their advantage?– What a role do digital content and ecommerce play in

their business?– From this interview, how do you feel about the

publishing industry and where it is going?

Documents

Slide 2.1 Dave Chaffey, E-Business and E-Commerce Management, 4 th Edition, © Marketing Insights Limited 2009 Chapter 2 E-commerce fundamentals