MD703 Electronic Commerce II Dealing w/Competitive Threats

Dealing with Competitive Threats Strengthen brands –inspire trust, communicate quality, lower search costs Create economies of scale Differentiate products / constant innovation Create switching costs –pref. databases, communities, loyalty programs Dominate or create distribution channels Leverage alliances and partnerships

Customer Acquisition Costs Source: Sept. 98 Iconocast.

Strong Brand Can Be Extended

Scale, IPOs, and Differentiation Letting in the Little Guy The Firm Underwriters, institutions, & large investors $12/share 7% fee small Investors $15/share & Online Brokerages small Investors Result: differentiated service enabled by scale

Scale in the Marketplace vs. Marketspace Turnover –2.6 times / year –avg. book in store 20 weeks Inventory –shelf & warehouse stock –30-40% returns –little float / title Turnover –26 times / year –avg. book in house 2 weeks Inventory –all warehouse stock –few returns –avg. 32 days of float / title

If you build it... … will they come? Maybe, but they might not return. Visitors Time Branding & Value Delivery

Commodity Products Time available = X High search costs –(e.g. time to visit a firm = X/3) –customer can only visit 3 firms Low search costs –(e.g. time to visit a firm = X/30) –customer can visit 30 firms

Differentiation & Switching Costs Differentiate the product or service via: –mass customization –preference databases & collaborative filtering –communities Switching costs created via: –preference databases & collaborative filtering –frequent buyer programs –communities of users –learning, compatibility, standards

Bezos vs. the World

Cookies stored in a text file on your hard drive usage –track users (unique ID) –save passwords / prefs. –temporary storage (shopping basket) each cookie can only be accessed by the domain that placed it (ads have own domain) may be disabled (prefs) a cookie  single user

Targeting Targeting Options site categorization visitor frequency geography domain name service provider SIC codes company size (emp, $) browser type operating system click stream

Leveraging the Clickstream 1.Lycos visitor searches on “travel” 2. Lycos shares my usage pattern with the Engage database 3. The same user visits NetMarket 4. NetMarket identifies the user’s activity in the Engage database & customizes page #1 with a great deal on luggage for my trip

Why Communities? Communities create switching costs & provide a reason to return –57% of surfers return to the same sites Communities generate traffic –chat boosts traffic from 50% to 300% Communities pre-qualify users Community members spend more Communities can lower support costs

Users = Value source: InternetWorld, Wired News

Distribution Channels PC Makers (Compaq, Dell, IBM, Gateway, Apple) Operating System (Microsoft Apple, Sun) Browsers (Microsoft, Netscape/AOL) ISPs (AOL, BabyBells, Earthlink) Hosts (Exodus, Broadcast.com, Frontier, IBM, GTE) Portals (Yahoo, Excite, Infoseek, Lycos, AOL) Hybrids (Pixel Co., RadioWave, Pointcast)

Web Site Promotion Schemes Popularity: –Banners 98% –Buttons 55% –Television 30% –Affiliate Programs 17% Effectiveness (Scale of 1-5): –Affiliate Programs 4.3 –Television 4.0 –Banners 2.8 –Buttons 2.0. Source: Iconocast.

“Speed is God, Time is the Devil”