ECT 455 E-Commerce Web Site Engineering Lecture #2 Consumer Internet Commerce 9/22/2018 ECT 455 Susy Chan Ph.D.

Agenda Market News Types of Consumers and Purchases Business Models and Value Propositions e-Commerce Value Chain Assignments – Website Analysis Project Deliverable B 9/22/2018 ECT 455 Susy Chan Ph.D.

A Quick Poll: What types of shoppers are you? How do you shop online? 9/22/2018 ECT 455 Susy Chan Ph.D.

Types of Consumers Types of Buyers Shopping Experiences Impulsive Buyers: quick purchasing Patient Buyers: price comparison Analytical Buyers: research first Shopping Experiences Utilitarian: task-completion and rational Hedonic: involvement and entertainment 9/22/2018 ECT 455 Susy Chan Ph.D.

Types of Online Purchases Specifically Planned Purchases Generally Planned Purchases Reminder Purchases Unplanned Purchases Implications for Strategies and Design? 9/22/2018 ECT 455 Susy Chan Ph.D.

Amazon How does Amazon site support different types of shoppers, purchases, and shopping behaviors? 9/22/2018 ECT 455 Susy Chan Ph.D.

The Multichannel Consumer Embraces The Net 9/22/2018 ECT 455 Susy Chan Ph.D.

Customer Expectations Merchandize assortment About the same number of products available as the retail store (21%) About the same number of products plus specials (51%) More online SKUs than store or catalog (39%) (Global Online Retailing Report) 9/22/2018 ECT 455 Susy Chan Ph.D.

Number of new online consumers A Technographics View of New consumer Internet Adoption Mainstream Number of new online consumers Early adopters Laggards Time Forrester: Now or Never 9/22/2018 ECT 455 Susy Chan Ph.D.

Meeting Customer Expectations Top 3 Reasons for Shopping Online Good selection of items Competitive pricing Convenience Shopping carts are frequently abandoned Placed products in the cart but did not complete the purchase (78%) because: Shipping cost too high (45%) Price check (37%) Changed mind (34%) Price to high (24%) Check out process was long/unclear (18%) E&Y Global Retailing 9/22/2018 ECT 455 Susy Chan Ph.D.

User Profile: Information GVU Web User Survey 9/22/2018 ECT 455 Susy Chan Ph.D.

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The e-Commerce Value Cycle React Attract Act Interact 9/22/2018 ECT 455 Susy Chan Ph.D.

The e-Commerce Value Chain Get and keep customer interest Turn interest into orders Service customers Manage orders Attract Interact Act React Catalog Sales static dynamic Advertising Marketing channels media Order capture-- Shopping Cart Payment Fulfillment goods Customer service Order tracking 9/22/2018 ECT 455 Susy Chan Ph.D.

Attract Customers (Marketing) Purpose Build brand awareness, attract customers, and entice them to buy Merchandizing Methods Advertising Coupons Sales and Promotions Frequent buyer programs 1:1 marketing 9/22/2018 ECT 455 Susy Chan Ph.D.

Beyond Price, Research and Brand Fast Search – price Long search – branding, delivery time, and other product characteristics Brynjolfssor: Search and product differentiation at an Internet Shopbot. MIT Sloan School of Management, Dec 2004. 9/22/2018 ECT 455 Susy Chan Ph.D.

Interact with Customers (Sales) Purpose Turn interest into orders Catalog, Product and Service Techniques Registration with Internet search engines Hyperlinks Onsite product search Product and price comparison Dynamic vs. static contents Pricing 9/22/2018 ECT 455 Susy Chan Ph.D.

Act on Customer Instructions (Order Management) Purpose: Manage order and shopping experience Order Processing: Shopping cart and order aggregation Order validation; Application of coupons or discounts Cross selling Calculation of sales, taxes, shipping and delivery charges, rolled-up order Payment: handle multiple payment methods (cash, credit, credit cards, debit cards) Act – Fulfillment Delivering the goods ordered to their destination Transmission of order information to warehouse, packing or order assembly for shipping, shipping and delivery 9/22/2018 ECT 455 Susy Chan Ph.D.

React to Inquiries (Service) Purpose: customer satisfaction, experience, and repeat visits Methods 24X7 service capacity Proactive and Immediate feedback – voice and email Access to status information Self-help (FAQ) Multi-language support 9/22/2018 ECT 455 Susy Chan Ph.D.

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Online Retail –2004 Holiday Seasons Revenue growth strong.  91% of retailers reported revenue growth for the 2004 online holiday season; 17% experiencing revenues doubled. Example: PearlParadise.com: 113% growth $888m ->$1.9b   Customer satisfaction increases.  95% consumers were satisfied with online shopping experience; 89% in 2003, 84% in 2002   Free shipping remains the king of online marketing promotions (60%), Recommendations: 56% gift center, suggested items page (32%), clearance page (32%), featured sale item (31%) Search engines and affiliate marketing help retailers find customers, remained the second (58%) and third (50%) most successful marketing vehicle for retailers.  “ Multi-channel strategies – 45% research on catalog  buy online; 21% research online  buy from catalog Shop.org/BizRate 2004 eHoliday Mood study.– January 2005 9/22/2018 ECT 455 Susy Chan Ph.D.

Amazon How does Amazon site implement the e-commerce value chain? Attract Interact Act React 9/22/2018 ECT 455 Susy Chan Ph.D.

Value Propositions For Consumers/Customers/Users For the Firm/Organization 9/22/2018 ECT 455 Susy Chan Ph.D.

Value Proposition for Customers Transform customer relationship from supplier-centered to customer-centered values self service, 1:1; choices; delivery to customer location; customer needs; choice of service hours Displace traditional source of values Physical vs. digital value (information) Economies of scale vs economy of scope Mass produced vs mass customized Information vs. knowledge value Distribution as constraints vs. enabler Local vs. global 9/22/2018 ECT 455 Susy Chan Ph.D.

Value Proposition for Firms Ability to reach a global market Reduced marketing and selling expense Increased efficiency of operation Ability to target consumers more precisely Ability to convey more accurate product and availability information 9/22/2018 ECT 455 Susy Chan Ph.D.

Four Strategies Channel Master (Cisco; Amazon) Customer Magnet (Yahoo) Value Chain Pirate (Autobytel.com; e*trade) Digital Distributor (Monster.com) Disintermediation and reintermediation 9/22/2018 ECT 455 Susy Chan Ph.D.

B2C Business Models: Generating Revenues Merchant Model virtual merchants Click & Brick Multi-Channel Shopping Malls Advertising Model Horizontal portal Vertical portal Personalized portal Intermediary (Brokerage) Buy/sell fulfillment Buyer/demand aggregator Virtual mall Hypermediary (financial settlement) Auction broker Reverse auction 9/22/2018 ECT 455 Susy Chan Ph.D.

Merchant Models (virtual, C&B, MC, shopping malls) Advantages: Enables merchants to sell products on the Web Conduct business 24-by-7, worldwide An e-commerce storefront should include: Online catalog of products Order processing (robust shopping cart) Secure online payment Timely order fulfillment C&B or MC – physical location, brand recognition, established customer base, cannibalization, channel integration Virtual Merchant: avoid the cost of physical stores 9/22/2018 ECT 455 Susy Chan Ph.D.

Portal Model Portal sites : Give visitors the chance to find almost everything they are looking for in one place Horizontal portals:Portals that aggregate information on a broad range of topics Yahoo!, AltaVista, Google Vertical portals : Portals that offer more specific information within a single area of interest WebMD, IMDB, FirstGov Requires fresh and abundant content, and robust search engine to draw traffic Heavy reliance on advertising revenue, decline in effectiveness of online advertising 9/22/2018 ECT 455 Susy Chan Ph.D.

Auction Model Online auction sites Reserve price Reverse auctions Act as forums through which Internet users can log-on and assume the role of either bidder or seller Collect a commission on every successful auction Sellers post items they wish to sell and wait for buyers to bid Reserve price The minimum price a seller will accept in a given auction Reverse auctions Allow the buyer to set a price as sellers compete to match or even beat it 9/22/2018 ECT 455 Susy Chan Ph.D.

Dynamic Pricing Models The Web has changed the way products are priced and purchased Comparison pricing model Web sites using shopping bot technology to find the lowest price for a given item e.g. NextTag.com Demand-sensitive pricing model Group buying reduces price as volume of sales increase Name-your-price model Name-your-price for products and services 9/22/2018 ECT 455 Susy Chan Ph.D.

Amazon What are their customer value propositions? What are their business value propositions? What are their business models? Who are their competitors? 9/22/2018 ECT 455 Susy Chan Ph.D.

The State of Retailing Online 7.0* *Profitable online operations, 43 % (2000)  56% (2001) -> 70% (2002)  79% (2003) Overall Operating margins  21%; catalogers 28%; online retailer  -1% (from -16% in 2002) **Shoppers spent $51.3 b online in 2001, up 21% from 2000. $76 b in 2002, up 58% from 2001; expected to grow 26% in 2003 to $96 b. Most popular product categories: computer HW/SW (40%), tickets (17%), books (12%) **Marketing costs: Web based retailers ($10/per order), store-based ($5), and catalog-based ($7); shifting toward performance based affiliate marketing and search engine marketing (investment in operational efficiency) * Overall marketing costs: $8/per order  $4/per order; Web-based ($10/order  $2/order) **Customer acquisition costs $29 $14; repeat buyers 4%53% of revenue. *Customer service costs $1.9 $2.3; fulfillment $6.3 $9.8 *24% of offline sales in 2003 were influenced by Web, up from 15% in 2002 Source: *shop.org/Forrester Research, May 2004 ** 2003 report (6.0) 9/22/2018 ECT 455 Susy Chan Ph.D.

Transition of an E-Customer Interactive Marketing Transaction Processing Online Relationship Casual Visitor Prospect Buyer Repeat Buyer Evaluate interest Allow comparison Support/Interact present options Enable Transaction Develop relationship Prove reliability Push Offers Conversion rate is low Gartner Group 9/22/2018 ECT 455 Susy Chan Ph.D.

Next Week Review reading assignments Deliverable B Due Market News 9/22/2018 ECT 455 Susy Chan Ph.D.