09_chap005_marketing.ppt

8/14/2019 09_Chap005_Marketing.ppt

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McGraw-Hill/Irwin 2005 The McGraw-Hill Companies, All rights reserved

2005 The McGraw-HillCompanies,

All rights reservedMcGraw-Hill/Irwin


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McGraw-Hill/Irwin 2005 The McGraw-Hill Companies, All rights reserved

Chapter 5

ELECTRONIC COMMERCE

Strategies for the New

Economy


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5-3

OPENING CASE STUDY

Is America Online (AOL) Inching Toward

Becoming an Internet Bank? AOLs new service isAOL Bill Pay

It notifies members when bills are due

Members can log into many different bill-paying systems with only one password

through AOL


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OPENING CASE STUDY

Members cannot pay directly through AOL

(yet) But they may be able to in the future

E-commerce is changing the way all of

business works


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STUDENT LEARNING OUTCOMES

1. Define/describe the 2 major e-commerce

business models2. Summarize Porters Five Forces model and

how business people use it

3. Describe the emerging role of e-marketplaces in B2B e-commerce


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STUDENT LEARNING OUTCOMES

4. Identify differences/similarities among

customers and their perceived value ofproducts and services

5. Compare/contrast marketing mixes for the

B2B and B2C business models6. Summarize ways of moving money in e-

commerce and related issues


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INTRODUCTION

E-commerce is changing everything

Elect ron ic commerce (e-commerce)commerce, but it is commerce accelerated

and enhanced by IT

Build powerful relationships with customers Build powerful relationships with suppliers

Build powerful relationships with partners


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INTRODUCTION


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E-COMMERCE BUSINESS MODELS

There are 2 that are most prominent

Business to B usiness (B2B)when abusiness sells products and services tocustomers who are primarily otherbusinesses

Business to Consumer (B2C)when abusiness sells products and services toindividuals


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B2B is where most of the money is

About 97%

B2C is the most well-known

Amazon, eBay, etc.

B2B and B2C differences require that youknow your customers well, develop the right

marketing mix, and move money easily


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PORTERS FIVE FORCE MODEL

Five Forces Modelhelps business people

understand the relative attractiveness of an

industry


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The Five Forces

1. Buyer power

2. Supplier power

3. Threat of substitute products and services

4. Threat of new entrants

5. Rivalry among existing competitors


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Buyer Power

Buyer pow erhigh when buyers have many

choices from whom to buy, and low whentheir choices are few

If youre a buyer, you want buyer power to be

high

If youre a supplier, you want buyer power to be

low


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Buyer Power

Loyalty programs can help you as a supplier

Loyalty prog ramrewards customersbased on the amount of business they do

with a particular organization

Airline frequent flyer programs


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Supplier Power

Supp l ier powerhigh when buyers have

few choices from whom to buy, and low when

their choices are few The converse of buyer power


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Threat of Substitute Products or

Services

Threat of subs t i tute produc ts or serv ices

high when there are many alternatives to aproduct or service, and low when there are

few alternatives

If youre a buyer, you want this to be high

If youre a supplier, you want this to be low


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Threat of Substitute Products or

Services

As a supplier, you can use switching costs

Sw i tch ing costscosts that makecustomers reluctant to switch to another

supplier

Can be monetary penalties for early termination Can be like Amazon, which tracks information

about you and tailors offerings


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Threat of New Entrants

Threat of new entrantshigh when it is

easy for new competitors to enter, and lowwhen there are significant entry barriers




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Threat of New Entrants

Entry barr ierproduct or service feature

that customers have come to expect and allnew competition must offer

Bankingonline banking

Grocery storessavings cards


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Rivalry Among Existing Competition

Rivalry among exis t ing compet it ionhigh

when competition is fierce, and low when it ismore complacent




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Five Forces Model and E-Commerce

Because of IT, in most industries

Buyer power has increased Entry barriers have lessened

Threat of substitute products or services has

increased


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BUSINESS RULES TO LIVE BY

1. Understand your business, products,

services, and customers2. Find customers and establish relationships

3. Move money easily and securely


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UNDERSTAND YOUR BUSINESS, PRODUCTS,

SERVICES, AND CUSTOMERS

To be successful, you must

Define your products and services Define your target customers

B2B (other businesses)

B2C (individuals)

Define your customers perception of the value of

your products and services


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Who Are Your Customers?

Business to Business

Other businesses

Business to Consumer

Individuals

Each is different and has different needs andwants


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Product and Service Value as

Perceived by Your Customers


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B2C: Convenience Versus Specialty

Convenience

Lower priced

Purchased frequently

Example: common food items

Specialty

Higher priced Purchased less frequently

Example: Stereos, computers


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B2C: Commoditylike and Digital

Commoditylike

Same no matter where you purchase it

Examples: books, music, movies

Price and ease of ordering are important

Digital

Purchased and delivered over the Internet

Best product type for B2C e-commerce

Examples: Music, software


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B2C: Mass Customization

Mass custom izat ionthe ability of an

organization to give its customers theopportunity to tailor its products or services

Dellcustomized computer purchases

Apple iTunesonly the music you want (not

necessarily the whole album)


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B2B: MRO Versus Direct

Maintenance, repair , and operat ion s

(MRO) materials (ind irect materials)materials necessary for running a company

but do not relate to the companys primary

business activities

Similar to convenience items in B2C

Office supplies, repair parts, lubricating oils


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MRO Materials

Buyers in B2B make large purchases

Can then demand a discount (not true inB2C)

Can team up with other buyers to create

demand aggregation

Demand agg regat ioncombining purchase

requests from multiple buyers which justifies

a larger discount


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Direct Materials

Direct materialsmaterials that are used in

production in a manufacturing company orare placed on the shelf for sale in retail

environments

Relate directly to a companys primary business

activities

Quality, quantity, and delivery timing are

important


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Direct Materials

Buyers can participate in reverse auctions for

direct materials Reverse auc t ionprocess in which a buyer

posts its interests in buying items and sellers

compete by submitting successively lowerbids

The lowest bidder wins


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B2B: Horizontal Versus Vertical

B2B e-commerce takes advantage of e-

marketplaces Electronic marketplace(e-marketplace)

interactive business providing a central

market where multiple buyers and sellers can

engage in e-commerce

Horizontal e-marketplaces

Vertical e-marketplaces


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E-Marketplaces


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Horizontal E-Marketplace

Hor izontal e-marketplaceconnects

buyers and sellers across many industries Primarily for MRO materials

All industries need office supplies, travel, and the

like


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Vertical E-Marketplace

Vert ical e-marketp laceconnects buyers

and sellers in a given industry Primarily for direct materials

Each industry has unique direct material needs

Covisint (www.covisint.com)automotive

Many others
http://www.covisint.com/http://www.covisint.com/


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To Summarize

B2C

Varying demographics and lifestyles Convenience versus specialty products

Commoditylike and digital work best of all

Mass customization necessary in some instances


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To Summarize

B2B

MRO versus direct materials Demand aggregation is present

E-marketplaces are vitally important

Horizontal (MRO materials mainly)

Vertical (direct materials mainly)


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FIND CUSTOMERS AND ESTABLISH

RELATIONSHIPS

You must first find customers

Then establish relationships Otherwise, you cant make a sale

B2C and B2B techniques are very different


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Business to Consumer

Need to determine your marketing mix

Market ing m ixset of marketing tools yourorganization will use to pursue its marketing

objectives in reaching and attracting potential

customers

There are many such tools for B2C


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B2C Marketing Mix Tools

Registering with search engines

Online ads Viral marketing

Affiliate programs


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Registering with Search Engines

Some search engines will list your site for

free Others charge a fee

For an additional fee, your site can appear at

top of a search list (every time)


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Online Ads


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Viral Marketing

Viral market ingencourages users of a

product or service supplied by a B2Cbusiness to encourage friends to join in as

well

Blue Mountain Arts (www.bluemountain.com)

Send a card

Card has link so the other person can send you a

card back
http://www.bluemountain.com/http://www.bluemountain.com/


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Affiliate Programs

A ff i liate programarrangement between

two e-commerce sites that directs viewersfrom one site to another

If viewers buy at the second site, the second site

pays a small fee to the first site

Usually a percentage of the sale


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Affiliate Programs

Click-throughs and conversion rates are

important Cl ick- throughcount of the number of

people who visit one site and use an ad to

get to another

Convers ion ratepercentage of potential

customers who actually buy something


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Affiliate Programs


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Business to Business Marketing

Much more personal

Not usually done with generic ads designedfor mass distribution

Often take place in e-marketplaces


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Business to Business Marketing

Once a contact is made, the relationship

must be established This often requires face-to-face meetings

Must also integrate the IT systems to the

supplier business and customer business


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To Summarize

B2C

Marketing mix drives customers to Web site Search engines, online ads, viral marketing, and

affiliate programs

Focus on conversion rates to measure success


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To Summarize

B2B

Frequently occurs in an e-marketplace Requires establishing formal business

relationship

Requires IT system integration

Doesnt include broad and generic marketing mix

MOVE MONEY EASILY AND


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MOVE MONEY EASILY AND

SECURELY

In e-commerce, most money moves

electronically Security becomes very important


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B2C Payment Systems

Credit cards

Financial cybermediaries Electronic checks

Electronic Bill Presentment and Payment

Smart cards


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Financial Cybermediaries

Financ ial cybermediaryInternet-based

company that makes it easy for one person topay another person or organization over the

Internet

PayPal (www.paypal.com) is the most well-known
http://www.paypal.com/http://www.paypal.com/


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Financial Cybermediaries


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Electronic Checks

Elect ron ic checkmechanism for sending

money from your checking or savingsaccount to another person or organization

Many implementations

Most common implementation is online banking


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Smart Cards

Smart cardplastic card (the size of a credit

card) that contains an embedded chip onwhich digital information can be stored and

updated

Debit cards are an implementation


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B2C Payment Systems

Must move money and other information

such as shipping address Digital wallets can help

Digital walletsoftware and information

Software provides transaction security Information includes delivery information and

other forms of necessary information


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Digital Wallets

Can be

Client-sideyou create this digital wallet andkeep it on your computer

Server-side (also called a thin wallet)an

organization creates this for you and keeps it on

its servers


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B2B Payment Systems

Business customers

Make large purchases Will not pay with credit card or financial

cybermediary

Use financial EDI

Pay for many purchases at once (perhaps the

end of the month)


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EDI

Electro nic data interchange (EDI)direct

computer-to-computer transfer of transactioninformation in standard business documents,

such as invoices and purchase orders, in a

standard format

How businesses communicate with each other

Used in e-marketplaces and VANs


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Financial EDI

Financ ial EDIan electronic process used

primarily within B2B for the payment ofpurchases

This is electronic money in B2B

Often occurs through an automated clearing

house


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Security: The Pervading Concern

Security is very important when moving

money Some security measures

Encryption

Secure Sockets Layers

Secure Electronic Transactions

Many, many others


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Encryption

Encrypt ionscrambles the contents of a file

so that you cant read it without having theright decryption key

Often through publ ic key enc ryp t ion (PKE)

uses two keys: a public key for everyone

and private key for only the recipient of the

encrypted information


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Public Key Encryption


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Secu re Sockets Layer (SSL)

Creates a secure connection between a Webclient and server

Encrypts the information

Sends the information over the Internet

Denoted by lock icon on browser or https://

(notice the s)


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Secure Electronic Transactions

Secu re Electro nic Transact ion (SET)

transmission method that ensurestransactions are legitimate as well as secure

Helps verify use of a credit card, for example, by

sending the transaction to the credit issuer as

well as the seller/supplier


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To Summarize

B2C

Credit cards, financial cybermediaries, electronicchecks, EBPP, smart cards, and digital wallets

Pay for individual purchases, usually in small

amounts

Each payment must be validated


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To Summarize

B2B

Use EDI to facilitate ordering process VANS can provide for EDI and financial EDI

Use financial EDI for payment of purchases


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To Summarize

B2C and B2Bsecurity

Overriding concern Encryption, SSLs, SET, and others


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CAN YOU

1. Define/describe the 2 major e-commerce

business models2. Summarize Porters Five Forces model and

how business people use it

3. Describe the emerging role of e-marketplaces in B2B e-commerce


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CAN YOU

4. Identify differences/similarities among

customers and their perceived value ofproducts and services

5. Compare/contrast marketing mixes for the

B2B and B2C business models

6. Summarize ways of moving money in e-

commerce and related issues

CHAPTER 5


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CHAPTER 5

End of Chapter 5

09_chap005_marketing.ppt

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