For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing Chapter 5 Slide: 1 Chapter 5: E-Business Value Strategies

For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing Chapter 5 Slide: 2 LEARNING OBJECTIVES (1) : Be able to explain the seven strategies e-businesses are using to create value for customers. Understand how e-commerce is being used as a strategic tool by e-retailers as well as traditional retailers. Be able to perform a benefit analysis of alternative sales channels. Explain how digital communication adds value to a business. Describe how the delivery of services are changing because of new technologies.

For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing Chapter 5 Slide: 3 LEARNING OBJECTIVES (2) : Be able to explain how the business process is changing through the use of the Internet, Extranets, and EDI systems. Be able to describe how a market-of-one strategy will impact businesses. Explain how auctions are used to facilitate commerce. Be able to describe the impact of e-business strategies on pricing. Gain an understanding of the determinates of hosting the technology required to implement the e-business strategies. Understand the limitations to international e-commerce.

For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing Chapter 5 Slide: 4 Vignette: What’s Old is New Again in Grocery Shopping Thinking Strategically –Evaluate your grocery shopping habits. –Determine how often 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 grocer determine which aspect of grocery shopping could be automated. –Evaluate the business model for a traditional grocer and determine where their competitive advantage lies. –Estimate the expenses that a business can save by moving grocery shopping online.

For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing Chapter 5 Slide: 5 Creating Value Businesses create value for their customers by providing quality goods and services at acceptable prices. A business model that provides more benefits to its customers and/or sells at a lower the price will take market share away from competitors. –A commerce or business model is the basic process by which a business obtains its inventory, produces the good or service, and how they deliver that to the customer.

For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing Chapter 5 Slide: 6 Six E-Business Value Creation Processes An online purchasing perspective: allows for buying and selling of products and information on the Internet and other online services. A digital communication perspective: allows for delivery of digital information, products, services, or payments online. A service perspective: allows for the cutting of costs, improving of the quality of goods, and increasing the speed of service. A business process perspective: allows automation of business transactions and work flows. A market-of-one perspective: allows for developing products for a single customer with close to the same costs as mass production. An auction based perspective: allows automation of bidding for products or customers online.

For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing Chapter 5 Slide: 7 Creating Value Online Purchasing We thought you'd like to know that the following items have been shipped to: Brad Kleindl 614 W. Jaccard Place Joplin MO using UPS Ground (3-7 business days). For your reference, the number you can use to track your package is 1Z38EW You can refer to our web site's customer service page or king.html Digital Communication and Service Business Process Supplier Extranet Market-of- One Auctions

For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing Chapter 5 Slide: 8 Online Sales Strategy 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 Copyright 2000 South-Western College Publishing Chapter 5 Slide: 9 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 Copyright 2000 South-Western College Publishing Chapter 5 Slide: 10 Pure-Play Internet Businesses The 1999 top ten retail e-commerce sites were: –eBay, Amazon, Dell, Buy.com, Onsale.com, Gateway.com, Egghead.com, Barnesnadnoble.com, CDNow, and AOL. Of the top 100 e-commerce sites: –50 used the Internet as their primary sales channel, 21 were traditional retailers, 21 were catalog/mail order retailers. –The most successful sites had established off-line brands and had proven ability to provide customer service

For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing Chapter 5 Slide: 11 Table 5.1: Benefit Analysis for Amazon.com (1)

For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing Chapter 5 Slide: 12 Table 5.1: Benefit Analysis for Amazon.com (2)

For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing Chapter 5 Slide: 13 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 Copyright 2000 South-Western College Publishing Chapter 5 Slide: 14 Table 5.2: Niche E-Retailers

For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing Chapter 5 Slide: 15 Case 5.1: A Prescription for Success? (1) Thinking Strategically –Consider the types of products that individuals usually purchase at a pharmacy. –Determine if it is important to receive that product immediately, or can an individual wait until the next day for the product. –Decide how important it is to talk to a pharmacist about products purchased at a pharmacy. –Compare the services they offer to what can be found at a brick and mortar store.

For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing Chapter 5 Slide: 16 Case 5.1: A Prescription for Success? (2) Thinking Strategically –Determine if the consumer’s purchase patters would differ if they were purchasing products on a continuing basis. For example, if an individual was permanently on a heart medicine, would that individual be likely to order that 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 Copyright 2000 South-Western College Publishing Chapter 5 Slide: 17 Digital Communication Strategy Digital products are information-based products, such as multimedia entertainment, programs, online information services, published information, music, video, or any other digital content can be transferred over the Internet. –Pay content sites are generally targeted toward individuals who have a high need for information. –Some sites follow radio and broadcast television models and obtain revenue through advertising. They also play a role in supporting and enhancing the associated traditional media.

For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing Chapter 5 Slide: 18 Digital Communication Strategy Advantages of Digital Products –Online content is the lower cost involved in transfer and delivery. –Electronic content allows for a publish-once, read many time environment. –Existing content developers can reach a wider audience. –Smaller firms that are able to provide content at low startup costs. –If sold, digital content is usually purchased on a per- time-period subscription basis or per-use basis.

For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing Chapter 5 Slide: 19 Case 5.2: The Market Wants Its MP3. Thinking Strategically –Determine the advantages and disadvantages of using MP3 for the consumer. –Consider the advantages and disadvantages of this format for the music industry. –Compare and contrast those advantages and disadvantages and speculate on the future of MP3. –It is projected that within the next five years an entire movie will be downloadable in 20 minutes or less. –Speculate on how this will effect the movie and video rental industries.

For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing Chapter 5 Slide: 20 Service Strategy The service strategy impacts two areas: –Supporting businesses that specialize in providing services to the customer. Includes educational institutions, physicians, banks, realtors, insurance agents, and many others. –Enhancing the service component of a businesses by meeting customer service needs before, during, and after the sale. Answering questions about a product, how it is used, or how it fits a specific purpose, and handling any problems that may occur after the sale.

For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing Chapter 5 Slide: 21 Table 5.3: Technology’s Impact on Service (1) Intangibility: The Internet is allowing buyers to directly compare products and services offered online allowing them to search for the greatest value. HSH Associates ( offers information on mortgage rates. Quotesmith ( allows individuals to obtain quotes from multiple carriers. Perishability: Digital information can be stored and delivered as needed. Online services need not perish, they can be created as needed by the user. Online sales systems also can fill unused capacity for transport companies such as airlines. National Public Radio ( stores its radio programs for individuals to download and play at their leisure.

For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing Chapter 5 Slide: 22 Table 5.3: Technology’s Impact on Service (2) Inseparability: Real estate buyers can use the Web to view homes and take virtual walkthroughs. The medical industry is using the Web to deliver services directly to the user’s home computer. Retailers are providing shopping services online. WebMD ( provides information on medical issues. Nordstrom ( has a personal shopper that suggests products for customers. Variability: Databases and standardized procedures can remove the variability of service delivery. Amazon, Dell, and many other companies use , FAQs, and other technology to standardize services.

For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing Chapter 5 Slide: 23 Customer Relationship Management Customer Relationship Management systems combine software and management practices to serve the customer from order, through delivery, and after sales service. –Enhancing customer service is rated by IT managers as the number one method to gain competitive advantages followed by improving internal business processes.

For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing Chapter 5 Slide: 24 Table 5.4: Providing Service Online (1)

For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing Chapter 5 Slide: 25 Table 5.4: Providing Service Online (1)

For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing Chapter 5 Slide: 26 Business Process Strategy Businesses engage in transactions with other businesses using the same techniques as business-to-consumer e-businesses. –Business-to-Business E-Commerce –Supply Chain Management and Extranets The supply chain is the network of suppliers and customers for goods, services, or information used from the point of origin to final consumption.

For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing Chapter 5 Slide: 27 Market-Of-One Strategy Digital factory use digital manufacturing process is combined with the human worker resulting in a "soft manufacturing process" brings flexibility to production and allows manufacturers to produce individualized products at mass production speeds. –This “mass customization” and a “market-of- one” process allows marketers to develop tight customer relationships.

For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing Chapter 5 Slide: 28 Auction Strategy Sales auction sites allow individuals and businesses to sell products online and have potential customers bid for the price of the product. Buyer-driven commerce sites allow the customer to specify how much they are willing to pay for a product or service and then let the providers bid for the customer. Reverse auctions allow individuals and companies to have sellers bid for the purchase.

For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing Chapter 5 Slide: 29 Pricing Strategies Greater efficiency allows for selling at a lower overall costs. Cost saving can be found in lower fixed costs because of minimized use of brick and mortar assets and lower variable costs in reduced staffing requirements.

For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing Chapter 5 Slide: 30 Table 5.6: Transaction Cost Comparisons

For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing Chapter 5 Slide: 31 Obtaining Product Pricing Information Intelligent shopping agents are software based search systems that return product and pricing information from multiple vendors. –The customer specifies the product or they use other criteria, such as a price range for a product category. –The agent then returns information on sales outlets, prices, and availability.

For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing Chapter 5 Slide: 32 Pricing Strategies Skimming pricing sets high initial prices to “skim” off payments from individuals who are willing to purchase products when they first come to market. Penetration pricing sets prices lower in an attempt to capture market share for a product. –E-businesses may attempt to capture market share by selling at very low prices or even below costs. –If a firm has an overriding goal of attaining market share, they may even give products away for free.

For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing Chapter 5 Slide: 33 An Example of Changing Business Models: Stock Brokerage (1) Figure 5.2: Traditional Brokerage System Issuing Company Underwriting Company Stock Exchange Stock Investor Stock Broker

For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing Chapter 5 Slide: 34 An Example of Changing Business Models: Stock Brokerage (2) Online Systems Issuing Company Web Stock Exchange Stock Investor Alternative: Direct Issue Alternative: Direct Issue

For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing Chapter 5 Slide: 35 Table 5.7: Benefit Analysis for Online

For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing Chapter 5 Slide: 36 Figure 5.3: Online Brokerage Prices and Volume Prices Volume Per Trade 90 mill. a day Full Service Average $ Growth rate 44% Discount Average $66.09 DLJ Direct $20 Fidelity $28.95 Ameritrade $8 Suretrade $7.95 Lowest profit limit $5 Web Street $0 Jan. 1997JulyAug.Sept.Oct.Nov. Dec Number of Online Brokers: Schwab % of trades online: 1540

For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing Chapter 5 Slide: 37 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 Copyright 2000 South-Western College Publishing Chapter 5 Slide: 38 Table 5.8: Advantages of Selling With Standalone Vs CSP Sites

For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing Chapter 5 Slide: 39 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 Copyright 2000 South-Western College Publishing Chapter 5 Slide: 40 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 Copyright 2000 South-Western College Publishing Chapter 5 Slide: 41 Table 5.9: Political and Legal Problems (1) 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. –Sweden: Toy advertising may not be directed at children. Payments –Due to 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.)

For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing Chapter 5 Slide: 42 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. Table 5.9: Political and Legal Problems (2)

For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing Chapter 5 Slide: 43 Active Learning Exercise #5.1: Business Model Strategies Use the Web to evaluate different business models. Determine how many of the strategies outlined in this chapter are used at the Web sites you visit. Explain how those strategies are used to create value for the business.

For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing Chapter 5 Slide: 44 Active Learning Exercise #5.2: Evaluating Business Models Use the following matrix to compare an e-business against traditional business models. Determine the benefits the business provides to its customers. Decide how these benefits compare to traditional models. Explain what the online business would need to do to get you to purchase online. Explain what the traditional model will need to do to keep you buying at their site.

For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing Chapter 5 Slide: 45 Active Learning Exercise #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 Copyright 2000 South-Western College Publishing Chapter 5 Slide: 46 Active Learning Exercise #5.4: Business Model Building Pick a business-to-consumer or business-to-business industry that you would be interested in working in. Determine the best business model for meeting you customer’s needs. Decide on which of the strategies outlined in this chapter would be beneficial in providing value to customers. Use the following matrix to determine if a business should host the technology or if it should use a commerce service provider.

For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing Chapter 5 Slide: 47 Active Learning Exercise #5.4: Business Model Building