MKTG 370 ELECTRONIC COMMERCE Lars Perner, Instructor 1 ELECTRONIC COMMERCE Potential roles of e- commerce Obstacles to growth Legal issues Web site design and problems Consumer cyber behavior

MKTG 370 ELECTRONIC COMMERCE Lars Perner, Instructor 2 Potential Roles of e-commerce Trade: –B2C [business to consumer] –B2B –C2C (e.g., eBay) –C2B Advertising/promotion Customer service/support Market research

MKTG 370 ELECTRONIC COMMERCE Lars Perner, Instructor 3 Types of Trade Object of sale –Goods –Services Traditional Information Entertainment Distribution –Shipping by operator –Shipping from manufacturer/client –Download Methods of sale –Direct to customer –Online retailer –Auction facilitator –Referral Business model –Retail sale margin –Commission –Subscription/content –Advertising/market research revenue –Support of brands/other channels –Mixed

MKTG 370 ELECTRONIC COMMERCE Lars Perner, Instructor 4 Considerations in Evaluating E- Commerce Potential Value-to-bulk ratio Ability of consumer to evaluate quality and fit through online description Extent of customization needed Geographic dispersal of consumers

MKTG 370 ELECTRONIC COMMERCE Lars Perner, Instructor 5 How Suitable For Internet Commerce? Are There Differences Among Segments?

MKTG 370 ELECTRONIC COMMERCE Lars Perner, Instructor 6 Internet User/Shopper Segments Segment% active users % online time spent Simplifiers— 50%+ of online transactions but difficult to satisfy; main benefit sought is convenience Surfers— move around quickly; main challenge is to keep these people long enough to shop 832 Bargainers— mainly interested in price; heavy users of Ebay 87 Connectors— use Internet mostly for communication with others; typically have not used internet for long 3823 Routiners— mostly looking for updated information 1512 Sportsters— like routiners but focusing on sports and entertainment 43 Source: Krishnamurthy 2003 (from Media Metrix and McKinsey)

MKTG 370 ELECTRONIC COMMERCE Lars Perner, Instructor 7 Bursting the Internet Bubble Internet sales may not actually save money –Still very labor intensive –High costs of packaging and shipping Even if online sales do save money, e-merchants are likely to compete with other e-merchants –Very easy entry

MKTG 370 ELECTRONIC COMMERCE Lars Perner, Instructor 8 Reality of Online Competition Intense competition for large demand products (large quantity demanded attracts many sellers) Use of large demand products as loss leaders (e.g., Amazon.com bestsellers) Competition will force reduced costs—if any—to be passed on to customers Competition makes charging for shipping and handling difficult. This is often more expensive than traditional distribution. Less competition on specialty products Established “brick-and-mortar” firms have large cash reserves

MKTG 370 ELECTRONIC COMMERCE Lars Perner, Instructor 9 Reasons Many Internet Businesses Failed Focusing on market share rather than profits Overestimating the value of databases Underestimating power of established, “entrenched” traditional competitors Underestimating the time required to change managerial and consumer behavior. Source: Krishnamurthy 2003

MKTG 370 ELECTRONIC COMMERCE Lars Perner, Instructor 10 SEARCH ENGINE OPTIMIZATION Search engines Search engine rankings Optimizing for rankings –Content –Reciprocal linking

MKTG 370 ELECTRONIC COMMERCE Lars Perner, Instructor 11 Search engines “Search engines” vs. –“Directories” –“Portals” –Link sites Paid vs. unpaid links Specificity –Content –Intended users Strategy/philosophy

MKTG 370 ELECTRONIC COMMERCE Lars Perner, Instructor 12 Search engines Use an algorithm to identify preferred links Algorithms may involve –Usage of keywords –“Popularity” (number of links pointing inward) –Other criteria—often proprietary

MKTG 370 ELECTRONIC COMMERCE Lars Perner, Instructor 13 Strategy General search engine (e.g., Google) Search engine with directory structure (e.g., Yahoo!) Aggregator sites Specialized search engine –Focus –Method (e.g., AskJeeves.com, About.com) –User target –Reward

MKTG 370 ELECTRONIC COMMERCE Lars Perner, Instructor 14 Search Engine Optimization: Text Credible repetition of key words –Frequently greater credit for Bolded words Words early in the document Identification of desirable key words –Analysis of competing sites –Customer interviews Misspellings

MKTG 370 ELECTRONIC COMMERCE Lars Perner, Instructor 15 Search Engine Optimization: Reciprocal Linking Linking from highly rated web sites greatly increases the ranking of a site Linking from low rated sites does not appear to help much The weight of a link may be determined by the number of links at that page—one link among many is worth less Linking to “spamming” sites may be penalized

MKTG 370 ELECTRONIC COMMERCE Lars Perner, Instructor 16 Search Engine Optimization: Other Domain names –If the domain name features the keyword, more weight is given –Google considers the underscore a space—e.g., Marketing_Tips.com. Listing in the Open Directory Project (

MKTG 370 ELECTRONIC COMMERCE Lars Perner, Instructor 17 Building Traffic “Viral” marketing –“Incidental contagion” –“Contagion due to transaction consumption” –Consumers as recruiters Search engines Internet advertising Promotions/free products

MKTG 370 ELECTRONIC COMMERCE Lars Perner, Instructor 18 Viral Marketing Suitability –Product uniqueness –Excitement –Simplicity –Low trial and switching costs Potential problems –Brand control –Limited control over growth –Measurement problems –Spam threats

MKTG 370 ELECTRONIC COMMERCE Lars Perner, Instructor 19 Promotions Free products Free content/services –Site quality Promotion models –Direct –Intermediary

MKTG 370 ELECTRONIC COMMERCE Lars Perner, Instructor 20 Internet Penetration by Country, 2004 CountryUsersPopRatioPC_GDP Australia Brazil France Germany Hong Kong Italy Japan Netherlands Spain Sweden Switzerland UK US 8,408 12,484 13,781 27,034 2,699 15,772 31,097 7,758 8,331 4,609 3,009 20, ,390 19, ,030 59,766 83,253 7,303 57, ,195 16,068 40,077 8,877 7,302 59, , $19,900 $3,070 $22,730 $23,560 $25,330 $19,390 $35,610 $24,330 $14,300 $25,400 $38,330 $25,120 $34,280 Japan Sweden Netherlands U.S. Brazil Australia Note accounting issues! Source: Nielsen.

MKTG 370 ELECTRONIC COMMERCE Lars Perner, Instructor 21 Language Issues Prior to 2000, 96% of web sites were estimated to be in English, the “first language” of 6% of the World population 40.2% of online users are estimated to speak English to some extent 2000: Non-English speakers became majority of Internet users 75% of Europeans are multi- lingual; 90% of these include English Dangers of U.S. English –British English is international standard –“American” often perceived as misspelled –Use of slang Lesser distance to British English than to other European languages

MKTG 370 ELECTRONIC COMMERCE Lars Perner, Instructor 22 Language Display Single-byte (Latin-based) vs. double-byte languages (Cyrillic, Arabic, Chinese, Japanese, Korean) –Characters may not be displayed correctly (“????” in Internet Explorer) –Conversion software –Brower adaptation may not be “backwards compatible” with other software

MKTG 370 ELECTRONIC COMMERCE Lars Perner, Instructor 23 Cultural Issues Color –Black as background “Stylish” in U.S. “Unlucky” in Asia, Europe, Latin America –Red as a “lucky” color in China but can be over- used –White and green are “unlucky” in Cina Symbolism –Dogs as pets –Numbers “Unlucky” numbers –4, 9, 13 (Japan) –4, 14 (China) “Lucky” numbers –1, 8 (China) Formality of communication

MKTG 370 ELECTRONIC COMMERCE Lars Perner, Instructor 24 More Cultural Issues Measurement issues –Metric vs. U.S., British systems –Clothing sizes Representation of numbers –1, vs ,00 –Dates Offensive content –Specific body parts –“Revealing” content –Gestures