BSAD 113 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

BSAD 113 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

BSAD 113 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

BSAD 113 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

BSAD 113 ELECTRONIC COMMERCE Lars Perner, Instructor 5 How Suitable For Internet Commerce? Are There Differences Among Segments?

BSAD 113 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)

BSAD 113 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

BSAD 113 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

BSAD 113 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

BSAD 113 ELECTRONIC COMMERCE Lars Perner, Instructor 10 Obstacles to Growth of Electronic Commerce Limited reach –U.S. (access vs. use) –Foreign (per minute access charges) Concerns about –privacy –security Reputational issues Slow entry of firms into actual order processing Transshipment across countries Technical –Limitations and “glitches” –Slow access Costs –Efficiency –Absolute margins Language –Non-English –U.S. vs. British English Government regulations Cultural

BSAD 113 ELECTRONIC COMMERCE Lars Perner, Instructor 11 Cultural Obstacles Preference for face-to- face transactions Preference for secrecy Reluctance to use credit cards--80% of Chinese consumers completed the transaction off-line

BSAD 113 ELECTRONIC COMMERCE Lars Perner, Instructor 12 Web Site Problems Incompatibility of browsers Managing the site –Updating –Response (it is much easier to complain online!) –Implementing electronic shopping Getting traffic to your firm (and not to someone else) –Ownership of domain name –Indexing in search engines listing of site deliberate “false positives” for competitors (misleading meta tags)

BSAD 113 ELECTRONIC COMMERCE Lars Perner, Instructor 13 Legal Issues Jurisdiction--applying local laws to a global medium Inter-country sales tax/duty collection Reach of the Internet: whose laws apply? – Advertising messages – Product assortment Privacy laws--restrictions on data that can be collected on customers Tax collection: is the sender or recipient liable? (High shipment volumes allow only for random customs searches)

BSAD 113 ELECTRONIC COMMERCE Lars Perner, Instructor 14 Language Issues Increasing proportion of non-English speaking Net users “Drawing” of Asian pictorals--download time Language variations –Taiwanese vs. mainland Chinese –British vs. American English--is the word “color” an Americanization or misspelling? Regional variations in word meanings--less opportunity for tuning advertising to local meanings At least pronoun- ciation is not so much of an issue on the Web !

BSAD 113 ELECTRONIC COMMERCE Lars Perner, Instructor 15 Optimal Web Site Design Speed vs. aesthetics (may be temporary problem) Keeping customers on your site--beware of links Cookies--advantages and disadvantages

BSAD 113 ELECTRONIC COMMERCE Lars Perner, Instructor 16 Consumer Cyber Behavior Easy comparison shopping—but do consumers actually compare? –Between merchants –Between countries Online purchases vs. information gathering Premature departure from site

BSAD 113 ELECTRONIC COMMERCE Lars Perner, Instructor 17 Perceived Risks Financial Product performance Psychological Time/convenience loss

BSAD 113 ELECTRONIC COMMERCE Lars Perner, Instructor 18 Consumer Privacy Concerns Risks of fraud –Identity theft Dynamic pricing –Appeal to potential “switchers” rather than loyal ones Disclosure of private information (emotional and philosophical concern)

BSAD 113 ELECTRONIC COMMERCE Lars Perner, Instructor 19 Search Engine Optimization “Cat and mouse game” between webmasters and search engines Some placement strategies –Paid rankings –Massive amounts of text –Reciprocal or paid links

BSAD 113 ELECTRONIC COMMERCE Lars Perner, Instructor 20 Marketing Opt-in vs. spamming Spamming –Intensely disliked by the vast majority of customers Potential state and Federal bans Filtering software and attempts to circumvent it –Only small response rates are needed for success