For use with Strategic Electronic Marketing: Managing E-Business 2 e Copyright 2003 South-Western College Publishing Chapter 6 Slide: 1 Chapter 6: E-Commerce

For use with Strategic Electronic Marketing: Managing E-Business 2 e Copyright 2003 South-Western College Publishing Chapter 6 Slide: 2 LEARNING OBJECTIVES (1) : 1. Gain an understanding of the e-commerce process. 2. Outline why a multichannel approach is beneficial for a retailer. 3. Explain why newly formed pure-play Internet businesses may have a hard time gaining competitive advantages in the retail market. 4. Compare and contrast how e-commerce is being used as a strategic tool by e-retailers and traditional retailers.

For use with Strategic Electronic Marketing: Managing E-Business 2 e Copyright 2003 South-Western College Publishing Chapter 6 Slide: 3 LEARNING OBJECTIVES (2) : 5. Outline the major types of fraud committed online and what is being done to limit fraud. 6. Perform a benefit analysis of alternative sales channels. 7. List the limitations to international e- commerce. 8. Explain the role of an ASP in a businesss e-commerce strategy.

For use with Strategic Electronic Marketing: Managing E-Business 2 e Copyright 2003 South-Western College Publishing Chapter 6 Slide: 4 Vignette: Where Are My Groceries? Thinking Strategically –Evaluate your grocery shopping habits. How often do you purchase the same products? –Consider if you would trust a grocer to pick out your meats, fruits, and vegetables. –On your next visit to a brick-and-mortar grocery, determine which aspects of grocery shopping could be automated. –Evaluate the business model for a traditional grocery and determine where its competitive advantage lies. –Estimate the expenses a business could save by moving grocery shopping online. –What is the future of online grocery sales?

For use with Strategic Electronic Marketing: Managing E-Business 2 e Copyright 2003 South-Western College Publishing Chapter 6 Slide: 5 E-Commerce E-commerce is the process of allowing Web based technologies to facilitate commerce or trade. –E-commerce can be retail, between an e- business and an end user, or it can be used for business-to-business transactions.

For use with Strategic Electronic Marketing: Managing E-Business 2 e Copyright 2003 South-Western College Publishing Chapter 6 Slide: 6 E-Retailing Retail sales are likely to shift between various alternative sales channels. –Sales channels are the models that businesses use to sell to their customers. These could include brick and mortar outlets, catalogs, direct marketing, or e- commerce. –A destination site is a Web site that is designed to have the visitor return over and over. This requires including extras such as games, chats, contents, new information, or any other content that the targeted audience may desire.

For use with Strategic Electronic Marketing: Managing E-Business 2 e Copyright 2003 South-Western College Publishing Chapter 6 Slide: 7 E-Retailing E-retailing will not necessarily result in an increase in overall retail sales; instead, consumers are shifting purchases by adopting a multichannel approach and using alternative sales channels. –Sales channels are the models that businesses use to sell to their customers. These include brick-and-mortar outlets, catalogs, direct marketing, or e-commerce. Multichannel retailers support the commerce process in a number of ways, including: –In-store or in-catalog marketing of the online channel, gift certificates purchased online, in-store return of online orders, catalog orders online, and others.

For use with Strategic Electronic Marketing: Managing E-Business 2 e Copyright 2003 South-Western College Publishing Chapter 6 Slide: 8 Figure 6.1: U.S. E-Commerce Sales Data source: U.S. Census Bureau, United States Department of Commerce News, February 20, 2002,.

For use with Strategic Electronic Marketing: Managing E-Business 2 e Copyright 2003 South-Western College Publishing Chapter 6 Slide: 9 Figure 6.2: Relative E-Commerce Sales by Industry Data Source: CyberAtlas staff, November Brings Increase in E-Commerce Activity, December 17, 2001,.

For use with Strategic Electronic Marketing: Managing E-Business 2 e Copyright 2003 South-Western College Publishing Chapter 6 Slide: 10 Figure 6.3: E-Business Model Supply Chain Extranet

For use with Strategic Electronic Marketing: Managing E-Business 2 e Copyright 2003 South-Western College Publishing Chapter 6 Slide: 11 Figure 6.4: E-Commerce Value Chain E-Commerce Value Chain can give insight into the problems encountered by newly formed online-only e- commerce companies. Supply Chain: Develop and deploy inventory systems, warehousing, extranets, etc. Product and Pricing Strategies: Develop positioning strategy, image with market, etc. Promotion: Need to develop customer base, experience in targeting audience. Distribution Channels: Need locations, shipping facilitators, payment systems, and return policies and procedures. Knowledge Management: Need database on customer and links to inventory and other business processes. Management: Needs experience in field, knowledge of process and industry, strong relationships with employees, suppliers, and other constituencies. Delivered Value to Customer Delivered Value to Customer

For use with Strategic Electronic Marketing: Managing E-Business 2 e Copyright 2003 South-Western College Publishing Chapter 6 Slide: 12 Table 6.1: Retailer Value Chain Analysis RetailerValue Chain Analysis New online- only New online only businesses must develop this entire value chain system from scratch. Established online- only Established online-only businesses such as Amazon.com may have these components developed. They may have advantages in supply chains, image as online-only firm, targeting audiences, shipping systems for distribution, data collection and knowledge management, and managerial expertise in e-business. Catalog Business es Existing catalog businesses have these components developed. They may have advantages in supply chains, image as non brick-and-mortar, targeting audiences, shipping systems for distribution, knowledge management, and managerial expertise in direct marketing. Retail ChainsExisting traditional national retail chain businesses may these components developed. National chains may have advantages in supply chains, image, targeted audiences, prime locations for distribution, information capture and knowledge management systems, and managerial expertise in retailing. SME RetailerExisting small to medium sized retailer may have none of these components developed for conducting business outside of the targeted market area.

For use with Strategic Electronic Marketing: Managing E-Business 2 e Copyright 2003 South-Western College Publishing Chapter 6 Slide: 13 Figure 6.5: E-Commerce Personalization Personalization Customer Profiling and Suggestion Selling One-Click Automated Ordering Knowledge Database Order Tracking Marketing

For use with Strategic Electronic Marketing: Managing E-Business 2 e Copyright 2003 South-Western College Publishing Chapter 6 Slide: 14 Online Growth Amazon.com –End of 2001: largest unique audience with more than 31 million visitors. –From the year 2000 to 2001, increased its unique audience by 34 percent. Brick and Click from –Wal-Mart: Increased its unique audience by 133 percent. –JCPenney: Increased by 34 percent. –Target: Increased by 142 percent –Sears increased by 23 percent

For use with Strategic Electronic Marketing: Managing E-Business 2 e Copyright 2003 South-Western College Publishing Chapter 6 Slide: 15 Table 6.2: Benefit Analysis for Amazon.com (1)

For use with Strategic Electronic Marketing: Managing E-Business 2 e Copyright 2003 South-Western College Publishing Chapter 6 Slide: 16 Table 6.2: Benefit Analysis for Amazon.com (2)

For use with Strategic Electronic Marketing: Managing E-Business 2 e Copyright 2003 South-Western College Publishing Chapter 6 Slide: 17 Niche E-Retailers Niche e-retailers typically target narrow market segments with clearly differentiated offerings. Successful niche e-retailers can offer a deep product line and add expertise and advice that cannot be found in traditional stores. They do need to develop brand names and establish credibility with their customers if they are to succeed

For use with Strategic Electronic Marketing: Managing E-Business 2 e Copyright 2003 South-Western College Publishing Chapter 6 Slide: 18 Case 6.1: A Prescription for Success? Thinking Strategically Consider the types of products that individuals usually purchase at a pharmacy. Determine the importance of receiving that product immediately versus waiting until the next day. How important is it to talk to a pharmacist about products purchased at a pharmacy? Visit an online pharmacy. Compare the services it offers to what can be found at a brick-and-mortar store. Decide whether consumers purchasing patterns would differ if they were buying products on a continuing basis. –For example, if an individual were permanently on a heart medicine, would he or she want to order the medicine online and have it delivered to his or her home? Speculate on the future of online pharmacies.

For use with Strategic Electronic Marketing: Managing E-Business 2 e Copyright 2003 South-Western College Publishing Chapter 6 Slide: 19 Table 6.3: Niche E-Retailers

For use with Strategic Electronic Marketing: Managing E-Business 2 e Copyright 2003 South-Western College Publishing Chapter 6 Slide: 20 Table 6.3: Niche E-Retailers

For use with Strategic Electronic Marketing: Managing E-Business 2 e Copyright 2003 South-Western College Publishing Chapter 6 Slide: 21 Case 6.2: Dell Computer Company. Thinking Strategically –Determine if Dell has an advantage over traditional computer sales businesses. –Does Dell have an advantage over other online sellers? –Consider what you would want if you were to purchase a computer. Would you feel it is necessary to talk to a person directly?

For use with Strategic Electronic Marketing: Managing E-Business 2 e Copyright 2003 South-Western College Publishing Chapter 6 Slide: 22 Case 6.2: Dell Computer Company. Thinking Strategically –Evaluate the Dell Web site ( Does this site provide all the information necessary for you to buy? –Determine the importance of the Dell brand name. –Explain if the business system that Dell has developed will work for other types of businesses. –How does Dell develop and maintain relationships with its customers?

For use with Strategic Electronic Marketing: Managing E-Business 2 e Copyright 2003 South-Western College Publishing Chapter 6 Slide: 23 Figure 6.6: Dells Business Model Suppliers linked through Extranet deliver just-in-time. Lowers inventory costs. Web page provides information and ordering. Lowers ordering costs. Payments are made online through Web page credit card or invoice. Lowers bad debt expense and credit risks. Product delivered through independent shippers such as UPS. Contract low shipping rates, no fixed costs in assets. Customer gathers information and purchases through Web page. Lowers communication costs. Dell manufactures customized PC and sell at low price.

For use with Strategic Electronic Marketing: Managing E-Business 2 e Copyright 2003 South-Western College Publishing Chapter 6 Slide: 24 Business-to-Business E-Commerce Considered from three perspectives: –First, there is the supply chain system and process described in Chapter 4. This system links suppliers, distributors, and other channel members into an integrated process. –Second, businesses are engaging in marketplaces where goods are bought and sold. This process will be covered in more depth in Chapter 11. –Third, e-retail has had an impact on the business-to- business market. The largest category for sales in the B- to-B e-commerce arena is in the PC hardware and software industry.

For use with Strategic Electronic Marketing: Managing E-Business 2 e Copyright 2003 South-Western College Publishing Chapter 6 Slide: 25 International E-Commerce To develop e-commerce, four factors must be in place. –First, the technical infrastructure must allow the flow of information. –Second, flexibility of channel relationships is required. In countries such as Japan, where long distribution channels are maintained through personal relationships, disintermediation and restructuring will be much more difficult. –Third, the political and legal structure must allow for the use of e- commerce. The ability to ship products without tariff restrictions and the free flow of capital are requirements. –Fourth, although the Internet is the facilitator for this change, it is the willingness of businesses and customers to change their business and purchasing habits that allows the change to move forward.

For use with Strategic Electronic Marketing: Managing E-Business 2 e Copyright 2003 South-Western College Publishing Chapter 6 Slide: 26 International E-Commerce (1) Implementing new business models: –First, the technical infrastructure must allow for the flow of information. –Second, flexibility of channel relationships is required. In countries like Japan where long distribution channels are maintained through personal relationships, disintermediation and restructuring will be much more difficult.

For use with Strategic Electronic Marketing: Managing E-Business 2 e Copyright 2003 South-Western College Publishing Chapter 6 Slide: 27 International E-Commerce (2) Implementing new business models: –Third, the political and legal structure must allow E-commerce to be undertaken. The ability to ship products without tariff restrictions and the free flow of capital is a requirement. –Fourth, Businesses and customers must be willing to change their business and purchasing habits.

For use with Strategic Electronic Marketing: Managing E-Business 2 e Copyright 2003 South-Western College Publishing Chapter 6 Slide: 28 Table 6.5: Political and Legal Problems ProblemExamples Advertising and Competition France: By law all Web sites aimed at French customers must be in French. Germany: Some promotions, such as two-for-one or promotional tie-ins may be illegal. Lands End was forced to drop its Money Back Guarantee, No Matter What, promise in Germany because it was seen as anti-competitive. Lands End German Web site will link to other Lands End Web sites that show the guarantee.[i][i] Sweden: Toy advertising may not be directed at children. Payments Credit card payments can be used, but because of differing currencies customers may not know the exact price until the currency exchange is made. The development of the Euro should allow for smoother payments. Delivery The cost of shipping a product 30 miles across a border can be more expensive than 300 miles within the borders of a country. Legal Return policies may not be the same for all countries. Setting liability for faulty products may be unclear. It may be difficult to determine how value added taxes are assessed. Privacy laws in Europe are more stringent than in the U.S.[ii][ii] [i][i] Ann Therese Palmer, Lands Ends End Run, Business Week, October 18, 1999, p. 8. [ii][ii] Martha Bennett, The Worldwide Sell, CIO - Section 1, July 15, 1998, pp ; and Henry Heilbrunn, Interactive Marketing in Europe, Direct Marketing, March 98, pp

For use with Strategic Electronic Marketing: Managing E-Business 2 e Copyright 2003 South-Western College Publishing Chapter 6 Slide: 29 Figure 6.7: Distribution of Worldwide E-Commerce Sales and Growth Data Source: Michael Pastore, New Records Predicted For Holiday E-Commerce, CyberAtlas, October 22, 2001,.

For use with Strategic Electronic Marketing: Managing E-Business 2 e Copyright 2003 South-Western College Publishing Chapter 6 Slide: 30 Figure 6.8: Relative Number of Browsers versus Shoppers in Selected Countries Data Source: Michael Pastore, Net Users Worldwide Taking Commerce Online, CyberAtlas, June 13, 2001,.

For use with Strategic Electronic Marketing: Managing E-Business 2 e Copyright 2003 South-Western College Publishing Chapter 6 Slide: 31 Hosting The Technology Commerce service providers (CSPs) are companies that facilitate commerce for other businesses. –Businesses can form an alliance with hosting sites such as ISPs, banks, distributors, or online malls. The low cost entry of using a CPS is very attractive to merchants. –The merchant must still market their site as they would any other business, but they do not have the brick and mortar costs and can reach the entire world with the e- commerce site.

For use with Strategic Electronic Marketing: Managing E-Business 2 e Copyright 2003 South-Western College Publishing Chapter 6 Slide: 32 Table 6.6: Advantages of Selling With Standalone Vs CSP Sites

For use with Strategic Electronic Marketing: Managing E-Business 2 e Copyright 2003 South-Western College Publishing Chapter 6 Slide: 33 Visit a number of pure-play e-commerce sites. Include sites that you have purchased from. Why did you purchase something from those sites? Indicate how your online shopping behavior related to your offline behavior. What were the most important criteria you used in shopping at the site? Exercise 6.1 E-Retailer Shopping

For use with Strategic Electronic Marketing: Managing E-Business 2 e Copyright 2003 South-Western College Publishing Chapter 6 Slide: 34 Visit a number of multichannel e-commerce sites. Include stores that you have purchased from. How does a multichannel retailer use the Internet to support its sales? Describe why you have purchased from the channel you use most often. Specify the most important criteria you use in shopping at the Web site. How is your online shopping behavior likely to change in a multichannel retail environment? Exercise 6.2: Multi- channel Shopping

For use with Strategic Electronic Marketing: Managing E-Business 2 e Copyright 2003 South-Western College Publishing Chapter 6 Slide: 35 Exercise 6.3: Multichannel Shopping Analysis Choose one of the businesses you visited in Exercise 6.1 or 6.2. Outline its e-commerce model and e-commerce value chain. Where in the value chain does the business gain competitive advantages? Undertake a benefit analysis as indicated in Table 6.2. Determine the benefit categories and compare the e-commerce site to its channel counterparts. Indicate where competitive advantages lie.

For use with Strategic Electronic Marketing: Managing E-Business 2 e Copyright 2003 South-Western College Publishing Chapter 6 Slide: 36 ALE 5.3: Niche Retailers Use the Web to find narrowly targeted niche retailers. Determine the target market for the e-retailer. Describe how these e-retailers target their market. Explain how they are differentiated from other competitors.

For use with Strategic Electronic Marketing: Managing E-Business 2 e Copyright 2003 South-Western College Publishing Chapter 6 Slide: 37 Management has asked you to outline an e- commerce model and e-commerce value chain that will give your business a competitive advantage. Choose an industry and identify the target market. Indicate the components that need to be included in the Web site to allow the business model to operate and the value chain to deliver value. Evaluate a number of ASPs. Should your Web site be hosted by the business or outsourced? Compare your recommendations to those of others. Competitive Exercise 6.5: Developing Competitive E-Commerce Models