Selling on the Web: Revenue Models and Building a Web Presence Chapter 3 Selling on the Web: Revenue Models and Building a Web Presence

Learning Objectives We are going to look at: Revenue models for selling on the Web How some companies move from one revenue model to another to achieve success Revenue strategy issues that companies face when selling on the Web Creating an effective business presence on the Web Web site usability Communicating effectively with customers on the Web

Selling Goods and Services When the catalog model is expanded to a Web site, it is called a Web catalog model. Dell and Gateway are examples of selling computers on the Web. Customers can place orders through the Web site or by telephone.

Apparel Retailers A number of apparel sellers have adopted their catalog sales model to the Web. Eddie Bauer Lands’ End L. L. Bean Talbots Their intentions are to have customers examine the clothing and place orders through the Web site.

Learning Objectives Creating an effective business presence on the Web Web site usability Communicating effectively with customers on the Web

The Web Catalog Model The Web catalog model is a revenue model of selling goods and services on the Web that is based on the mail order catalog revenue model. In the Web catalog model, a Web site replaces or supplements print catalog distribution with information on its Web site.

Businesses Employing the Web Catalog Model Computer manufacturers, for example Dell and Gateway Clothing retailers Flowers and gifts General discounters Many of the most successful Web catalog businesses are firms that were in the mail order business and have simply expanded their operations to the Web.

Computer Manufacturers Many of the most successful Web catalog businesses are firms that were in the mail order business and have simply expanded their operations to the Web. Personal computer manufacturers, such as Dell and Gateway, have had great success selling on the Web. Dell has been a leader, allowing customers to specify the configuration of their computer.

Luxury Goods For many types of products, people are still unwilling to buy through a Web site. For example, luxury goods and high fashion items. The Web sites of Vera Wang and Versace are not designed to generate income but to provide information to customers who would then visit the physical store. Evian is another site geared towards affluent customers.

Books, Music, and Videos Amazon.com is a hugely successful business using the Web catalog model for many reasons: There are over 4 million books in print throughout the world, but no physical store could hold them Books and videos are small-ticket items people are willing to buy without inspection Amazon’s success spurred other book and music sellers to undertake e-commerce. For example: Barnesandnoble.com, towerrecords.com

Flowers and Gifts Gift retailers have also successfully moved or expanded their revenue models to the Web. 1-800-Flowers has created an online extension to its highly successful telephone order business. Harry and David has opened an international Web site to promote its existing catalog business.

Digital Content Revenue Models Firms that own intellectual property have embraced the Web as a new and highly efficient distribution mechanism. LexisNexis is an online service that offers a variety of legal, corporate, government, etc. information. ProQuest is a Web site that sells digital copies of published documents. The ACM Digital Library offers subscriptions to electronic versions of its journals to its members and to libraries.

Advertising-Supported Model The advertising-supported business model is the one used by network television in the U.S. The success of Web advertising has been hampered by two major problems: No consensus has emerged on how to measure and charge for site visitor views. Very few Web sites have sufficient numbers of visitors to interest large advertisers.

Advertising-Supported Model Web Portals Only a few general-interest sites have sufficient traffic to be profitable based on advertising revenue alone. Newspaper publishers It is still unclear whether advertising helps or hurts the newspaper’s business as a whole. Target Classified Advertisers Employment and used-vehicle sites are successful examples of the advertising-supported revenue model.

Advertising-Supported Model

Advertising-Subscription Mixed Model In this mixed model, subscribers pay a fee and accept some level of advertising. The New York Times and The Wall Street Journal use a mixed advertising-subscription model. Business Week offers a variation on the mixed model theme; it offers some free content but requires a subscription to access the entire site. ESPN sells advertising and offers a vast amount of free information, but fans can subscribe to its Insider service.

Advertising-Subscription Mixed Model Business Week offers a variation on the mixed model theme; it offers some free content but requires a subscription to access the entire site. ESPN sells advertising and offers a vast amount of free information, but fans can subscribe to its Insider service.

Fee-for-Transaction Models The travel agency business model involves receiving a fee for facilitating a transaction. A number of online travel agencies began doing business on the Web. Stock brokerage firms use a fee-for-transaction model. They charge their customers a commission for each trade executed.

Fee-for-Transaction Models Automobile Sales Auto dealers buy cars from the manufacturer and sell them to consumers MSN Carpoint, CarsDirect.com, and Autoweb.com provide an information service to car buyers Each of these firms implements the fee-for-transaction revenue model in a slightly different way

Fee-for-Transaction Models Insurance Brokers Insurance companies have been slow to offer policies and investments for sale on the Web A number of intermediaries that sell insurance policies have emerged, for example Quotesmith.com Other Web sites that offer insurance policy information, comparisons, and sales include: InsWeb, Answer Financial, Insurance.com, and YouDecide.com

Fee-for-Transaction Models Event Tickets The Web offers event-promoters an ability to sell tickets from one virtual location to customers practically anywhere in the world. Real estate and mortgage loan brokers Online real estate brokers provide all of the services that a traditional broker might provide. Online banking and financial services The greatest concerns that most people have when considering moving financial transactions to the Web are security and reliability.

Fee-for-Services Models The fee in this model is based on the value of the service provided. These are neither broker services nor based on the number or size of transactions processed. These models range from games and entertainment to financial advice and the professional services of accountants, lawyers, and physicians.

Fee-for-Services Models The fee in this model is based on the value of the service provided. These are neither broker services nor based on the number or size of transactions processed. Online games Many online games sites offer premium games. Site visitors must pay to play these games. Concerts and films As more households obtain broadband access to the Internet, companies will provide streaming video of concerts and films to paying customers. Professional services State laws have been one of the main forces preventing U.S. professionals from extending their practices to the Web.

Revenue Models in Transition Several companies have changed their revenue models over the years in response to their new and changing Web customers: Subscription to Advertising-Supported Model Slate Magazine Advertising-Supported to Advertising-Subscription Mixed Model Salon.com Advertising-Supported to Fee-for-Service Model Xdrive Technologies Advertising-Supported to Subscription Model Northern Light

Multiple Transitions Encyclopedia Britannica Print publisher to Advertising-Supported model to Advertising-Subscription Mixed Model

Revenue Strategy Issues Channel conflict – when web sites compete with existing parts of organisation Cannibalisation – when customers are “churned” rather than the web attracting new customers Problem: Channel conflict or cannibalization can occur when sales activity on a company’s website interferes with existing sales channels. Solution: Web sites provide product information but directs customers to online and physical stores where goods can be purchased.

Revenue Strategy Issues Problem: Goods purchased on company website can be returned to physical store thereby stressing retailers’ time and causing further inventory management. Solution: Channel cooperation: Retail stores are credited with inventory and labor costs for each Web site return they handle, while catalog division managers are given credit for customers who purchase goods from the Web site.

Strategic Alliances When two or more companies join forces to undertake an activity over a long period of time Example: Amazon.com has partnered with Target, Tool Crib of the North, Borders, Toys R Us, drugstore.com

Strategic Alliances

Creating an Effective Web Presence Businesses always create a presence in the physical world by building stores and office buildings. The only contact that customers and other stakeholders have with a firm on the Web is through its presence there. Creating an effective Web presence can be critical for even the smallest and newest firm operating on the Web.

Identifying Web Presence Goals Businesses always create a presence in the physical world by building stores and office buildings. On the Web, businesses have the luxury of intentionally creating a space that creates a distinctive presence. A Web site can perform many image-creation tasks very effectively, including: Serving as a sales brochure Serving as a product showroom Showing a financial report Posting an employment ad Serving as a customer contact point

Making Web Presence Consistent with Brand Image Different firms, even those in the same industry, might establish different Web presence goals. Coca Cola and Pepsi are two companies that have developed strong brand images and are in the same business, but have developed different Web presences. The Web presence conveys the image the company wants to project.

Achieving Web Presence Goals An effective site is one that creates an attractive presence that meets the objectives of the business or other organization. Possible objectives include: attracting visitors to the Web site making the site interesting enough that visitors stay and explore convincing visitors to follow the site’s links creating an impression of corporate image building a trusting relationship with visitors reinforcing positive images of the organization encouraging visitors to return to the site

The Toyota Site The Toyota site is a good example of an effective Web presence. The site provides: a product showroom feature links to detailed information about each product line links to dealers links to information about the company

The Toyota Site

Quaker Oats Quaker Oats created Web sites that did not offer any corporate presence until 1999. In 1999, Quaker Oats changed its Web page to improve its general appearance and user-friendliness. The Toyota and Quaker Oats examples illustrate that the Web can integrate an opportunity for enhancing the image of a business with the dissemination of information.

Not-for-Profit Organizations A key goal for many not-for-profit organizations is information dissemination. The combination of information dissemination and a two-way contact channel is a key element in any Web site. The American Civil Liberties Union and American Red Cross have created effective Web presences. Political parties and museums also use Web sites for their image presences.

How the Web is Different When firms started creating Web sites in the mid 1990s, they often built simple sites that conveyed basic information about their business. The failure to understand how the Web is different from other presence-building media is one reason that businesses fail to achieve their Web objectives. Firms must use the Web’s capability for two-way, meaningful communication with their customers.

Meeting the Needs of Web Site Visitors Businesses that are successful on the Web realize that every visitor to their Web site is a potential customer. An important concern for businesses is the variation in important visitor characteristics. People who visit a Web site seldom arrive by accident; they are there for a reason. Technology variations among visitors (e.g., connection speed) should be a concern for Web sites.

Many Motivations of Web Site Visitors Creating a Web site that meets the needs of visitors with a wide range of motivations can be challenging. to learn about products or services that the company offers to buy the products or services that the company offers to obtain information about warranty service, or repair policies for products they have purchased

Meeting the Needs of Web Site Visitors to obtain general information about the company or organization to obtain financial information for making an investment or credit granting decision to identify the people who manage the company or organization to obtain contact information for a person or department in the organization

Making Web Sites Accessible One of the best ways to accommodate a broad range of visitors’ needs is to build flexibility into the Web site’s interface. Many sites offers separate versions with and without frames and give visitors the option to choose either one. A good site design lets visitors choose among information attributes, such as level of detail, forms of aggregation, viewing format, and downloading format.

Trust and Loyalty When customers buy a product, they are also buying a service element. A seller can create value in a relationship with a customer by nurturing customers’ trust and developing it into loyalty. Customer service is a problem for many corporate sites. A primary weak spot for many sites is the lack of integration between the company's call centers and their Web sites.

Rating E-Commerce Web Sites Two companies routinely review electronic commerce Web sites for usability, customer service, and other factors. BizRate.com provides a comparison shopping service and offers links to sites with low prices and good service ratings for specific products. Gomez.com provides scorecards for electronic commerce sits in specific categories.

Usability Testing Firms are now starting to perform usability testing of their Web sites. As usability testing becomes more common, more Web sites will meet their goals. Eastman Kodak, T. Rowe Price, and Maytag have found that a series of Web site test designs helped them to understand visitors’ needs.

Customer-Centric Web Site Design Putting the customer at the center of all site designs is called a customer-centric approach to Web site design. Electronic commerce sites are encouraged to focus on the customer’s buying process rather than the company’s perspective and organization.

Connecting with Customers An important element of corporate Web presence is connecting with site visitors who are customers or potential customers. Mass media is a one-to-many communication model, the Web is a many-to-one communication model, and personal contact is a one-to-one communication model.

Connecting with Customers Most businesses are familiar with two ways of identifying and reaching customers: personal contact and mass media. These two ways are referred to as communication modes. Some experts also distinguish between broadcast and addressable media.

Connecting with Customers The Web is an intermediate step between mass media and personal contact. Using the Web to communicate with potential customers offers many of the advantages of personal contact selling and many of the cost savings of mass media.

Summary We have looked at: Revenue models for selling on the Web How some companies move from one revenue model to another to achieve success Revenue strategy issues that companies face when selling on the Web Creating an effective business presence on the Web Web site usability Communicating effectively with customers on the Web