Chapter 2

E-Commerce Market

Mechanisms

How Raffles Hotel is Conducting E-Commerce

The Problem The company’s success depends on the its ability to lure

customers to its hotels and facilities and on its ability to contain costs

Solution Business-to-consumer—maintains a public portal

(raffles.com) that includes: Information on the hotels Reservation system Links to travelers’ resources Customer relationship management (CRM) program Online store for Raffles products

Raffles Hotel (cont.)

Business-to-business—maintains an interorganizational systems that enable efficient contacts with its suppliers

The e-marketplace also has a sell-side, allowing other hotels to buy Raffles-branded products from electronic catalogs (bathrobes)

Competitors buy Raffles-branded products because they are inexpensive, but look upscale

Raffles Hotel (cont.)

The Results Public portal helps in customer

acquisition Hotel is able to maintain high

occupancy rates using: Promotions Direct sales

Electronic Marketplaces

Markets facilitate exchange of Information Goods Services Payments

Markets create economic value for Buyers Sellers Market

intermediaries Society at large

Electronic Marketplaces (cont.)

3 main functions of markets Matching buyers and sellers Facilitating the exchange of

information, goods, services, and payments associated with market transactions

Providing an institutional infrastructure

NTE Evens the Load

National Transportation Exchange (nte.com) is attempting to keep trucks on the road full on both outbound and return trips—uses the Internet to connect shippers with fleet managers who have space to fill Creates spot market Gets information from shippers about their needs and

flexibility in dates Works out the best deals for the shippers and the haulers Issues the contract and handles payments The process takes only a few minutes

NTE Evens the Load (cont.)

NTE collects a commission based on the value of each deal

Fleet manager gets extra revenue that they would otherwise have missed out on

The shipper gets a bargain price, at the cost of some loss of flexibility

NTE reaches down to the level of individual truck drivers and provides a much wider range of services (wireless Internet access)

Marketspace Components

Marketspace—a marketplace in which sellers and buyers exchange goods and services for money (or for other goods and services), but do so electronically Customers Sellers Goods (physical or digital)

Infrastructure Front-end Back-end Intermediaries/business partners Support services

Marketspace Components (cont.)

Customers Web surfers looking

for Bargains customized items Collectors’ items entertainment

etc. Organizations

account for over 85 percent of EC activities

Sellers Hundreds of

thousands of storefronts are on the Web

Advertising and offering millions of Web sites

Sellers can sell Direct from their

Web site E-marketplaces

Marketspace Components (cont.)

Products Physical products Digital products—

goods that can be transformed to digital format and delivered over the Internet

Infrastructure Hardware Software Networks

Marketspace Components (cont.)

Front-end business processes include Seller’s portal Electronic catalogs shopping cart Search engine Payment gateway

Back-end activities are related to Order aggregation and

fulfillment Inventory management Purchasing from

suppliers Payment processing Packaging and delivery

Marketspace Components (cont.)

Intermediary—a third party that operates between sellers and buyers

Other business partners—collaborate on the Internet, mostly along the supply chain

Support services such as Certification and trust services Knowledge providers

Types of Electronic Markets

Electronic storefronts—a single company’s Web site where products and services are sold

Mechanisms for conducting sales Electronic catalogs Payment

gateway Search engine Shipment court Customer services Electronic cart E-auction facilities

Electronic malls (e-malls)—an online shopping center where many stores are located

Types of Electronic Markets (cont.)

General stores/malls—large marketspaces that sell all types of products

Public portals Specialized stores/malls

—sell only one or a few types of products

Regional vs. global stores

Pure online organizations vs. click-and-mortar stores

Types of stores and malls

E-marketplaces—online market, usually B2B, in which buyers and sellers negotiate; the three types of e-marketplaces are private , public , consortia

E-Marketplaces

Private e-marketplaces—online markets owned by a single company: Sell-side—company sells either

standard or customized products to qualified companies

Buy-side marketplaces—company makes purchases from invited suppliers

Public e-marketplaces—B2B markets, usually owned and/or managed by an independent third party, that include many sellers and many buyers (exchanges)

Consortia & Information Portals

Consortia—e-marketplaces that deal with suppliers and buyers in a single industry Vertical consortia are confined to one industry Horizontal allow different industries trade there

Information portal—a personalized, single point of access through a Web browser to business information inside (and marginally from outside) an organization Publishing portals Commercial portals Personal portals Corporate portals Mobile portals

Supply Chains

Supply chain—the flow of materials, information, money, and services from raw material suppliers through factories and warehouses to the end customers

Includes organizations and processes that create and deliver the following to the end customers:

Products Information Services

Supply Chains (cont.)

A supply chain involves activities that take place during the entire product life cycle

It also includes: Movement of information and money

and procedures that support the movement of a product or a service

The organizations and individuals involved

Exhibit 2.3A Simple Supply Chain

Supply Chain Components

Upstream supply chain—includes the activities of suppliers (manufacturers and/or assemblers) and their suppliers

Internal supply chain—includes all in-house processes used in transforming the inputs received from the suppliers into the organization’s outputs

Downstream supply chain—includes all the activities involved in delivering the product to the final customers

Types of Supply Chains

Integrated make-to-stock Continuous replenishment Build-to-order—model in which a

manufacturer begins assembly of the customer’s order almost immediately upon receipt of the order

Channel assembly—model in which product is assembled as it moves through the distribution channel

Exhibit 2.4Supply Chains: Integrated & Build-to-Order

Value Chain & Value System

Value chain—the series of activities a company performs to achieve its goal(s) at various stages of the production process; each activity adds value to the company’s product or service, contributes to profit, and enhances competitive position in the market

Value system—a set of value chains in an entire industry, including the value chains of tiers of suppliers, distribution channels, and customers

Supply Chain & Value Chain

Value chain and the supply chain concepts are interrelated Value chain shows the activities

performed by an organization and the values added by each

The supply chain shows flows of materials, money, and information that support the execution of these activities

Supply Chain & Value Chain (cont.)

EC increases the value added by: Introducing new business models Automating business processes

EC smoothes the supply chain by:Reducing problems in the flows of material, money, and information

EC facilitates the restructuring of business activities and supply chains

Intermediation in E-Commerce

Intermediaries provide value-added activities and services to buyers and sellers: wholesalers, retailers, infomediaries

Roles of intermediaries Search costs—databases on customer preferences Lack of privacy—anonymity of sellers and buyers Incomplete information—gather product

information Contract risk—protect sellers against non-payment Pricing inefficiencies—induce appropriate trades

E-Distributors on B2B

E-distributor—an e-commerce intermediary that connects manufacturers (suppliers) with buyers by aggregating the catalogs of many suppliers in one place—the intermediary’s Web site

E-distributors also provide support services Payments Deliveries Escrow services Aggregate buyers’ and or sellers’ orders

Disintermediation &Reintermediation

Disintermediation—elimination of intermediaries between sellers and buyers

Reintermediation—establishment of new intermediary roles for traditional intermediaries that were disintermediated

Syndication as an EC Mechanism

Syndication—the sale of the same good (e.g., digital content) to many customers, who then integrate it with other offerings and resell it or give it away free

Competition in the Internet Ecosystem

Competition in the Internet ecosystem (business model of the online economy) Inclusive with low barriers to entry Self-organizing Old rules may no longer apply

Competition is tense Lower buyers’ search cost Speedy comparisons Differentiation and personalization

Competition in the Internet Ecosystem (cont.)

Differentiation—providing a product or service that is unique

Personalization—the ability to tailor a product, service, or Web content to specific user preferences

Lower prices

Competition in the Internet Ecosystem (cont.)

Customer service is an extremely important competitive factor

Some competitive factors are less important as a result of EC: Size of company is no longer significant Geographical location is insignificant Language barriers are being removed Digital products do not have normal wear

and tear

Competition in the Internet Ecosystem (cont.)

EC supports efficient markets and could result in almost perfect competition with these characteristics: Many buyers and sellers must be able to enter the

market at no entry cost Large buyers or sellers are not able to individually

influence the market The products must be homogeneous Buyers and sellers must have comprehensive

information about the products and about the market participants’ demands, supplies, and conditions

Porter’s Competitive Analysis

Porter’s competitive forces model applied to an industry views 5 major forces of competition that determine the industry’s structural attractiveness

These forces, in combination, determine how the economic value created in an industry is divided among the players in the industry

Such an industry analysis helps companies develop their competitive strategy

Exhibit 2.6: Porter’s Competitive Forces Model

Liquidity

Liquidity—the need for a critical mass of buyers and sellers The fixed cost of deploying EC can

be very high Without a large number of buyers,

sellers will not make money Early liquidity—achieving a critical

mass of buyers and sellers as fast as possible, before the market-maker’s cash disappears

Quality Uncertainty & Assurance

Quality uncertainty—the uncertainty of online buyers about the quality of products that they have never seen, especially from an unknown vendor Provide free samples Return if not satisfied

Microproduct—a small digital product costing a few cents

Insurance, escrow, and other services

E-Market Success Factors

Product characteristics Type Price Availability of

standards and product information

Industry characteristics Brokers currently

necessary Intelligent systems

may replace brokers

Seller characteristics Consumers find sellers

with the lowest prices Low-volume, higher-

profit-margin transactions

Consumer characteristics Impulse buyers Patient buyers Analytical buyers

Contributors to e-market success

Electronic Catalogs

Electronic catalogs—the presentation of product information in an electronic form; the backbone of most e-selling sites

Evolution of electronic catalogs Merchants—advertise and promote Customers—source of information and price

comparisons Consist of product database, directory and search

capability and presentation function Replication of text that appears in paper catalogs More dynamic, customized, and integrated

Electronic catalog :

The presentation of product information in an electronic form; the backbone of most e-selling sites.

Electronic catalog can be classified to 3 dimensions:

1. The dynamics of the information presentation.

2. The degree of customization.

3. Integration with business processes.

Customized catalog:

Is a catalog assembled specifically for a company, usually a customer of the catalog owner.

2 approaches:1. 1st approach is to let

customers identify the interesting parts.

2. 2nd approach is to let system identify it automatically.

Search engine:

A computer program that can access a database of internet resources, search for specific information or keywords, and report the results.

Software (intelligent) agent: software that can perform routine tasks that require intelligence.

E-shopping cart

An order-processing technology that allows customers to accumulate items they wish to buy while they continue to shop.

Electronic auction:

Electronic auction: auctions conducted online.

Dynamic Pricing: prices that change based on supply and demand relationship at any given time.

Types of auctions:

Forward auction. (Most common)

English auction. Yankee auction. Dutch auction. Free-fall auction.

(Declining auction)

Benefits of auction:

Seller → ex. optimal price setting, more buyers than regular auction.

Buyers → ex. Convenience, buyers conduct trade from anywhere even with a cell phone.

E-auctioner (e-Bay) → ex. Research has proven that auction sites such as eBay tend to have higher repeat purchase rates than ordinary e-commerce sites.

Limitation of E-commerce:

Possibility of fraud. Limited

participation. Lack of security. Limited software.

Bartering and negotiating online

Bartering: An exchange of goods and services.

E-bartering: Bartering conducted online, usually by a bartering exchange.

Bartering exchange: A marketplace in which an intermediary arranges barter transactions.

Advantages of e- bartering

The commission by the third party is much lower. (5%-10%)

It may take short time to arrange a transactions in e- bartering.

Online negotiating

Online negotiating: electronic negotiation, usually supported by software (intelligent) agents that perform searches and comparisons; improves bundling and customization of products and services.

3 factors may facilitate online negotiation:

1. Products and service that are bundled and customized.

2. Computer technology.

3. Software.

Mobile computing

This is fully portable and permits real time access to information, application and tools that, until recently, were accessible only from a desktop computer.

What is m-commerce (mobile commerce)?

It is E-commerce conducted via wireless devices. it is also called some times m-business which is the broadest definition of m-commerce in which e-business is conducted in a wireless environment.

Example of m-commerce

DoCoMo is the world’s largest mobile portal, which is most used by customers in Japan.

It offers many services via its I-mode services.

Some applications of I-mode: Shopping guide:

addresses and telephone numbers of the favorite shops. Users can purchase online.

Maps and transportation: digital maps show detailed guides of local routes and stops of the major public transportation system.

Some applications of I-mode: Ticketing: airline

and movie tickets can be purchased online.

News and reports: fast access to global news, traffic conditions and weather reports.

Personalized movie service: updates on the latest movies.

Some applications of I-mode: Entertainment: up-to-date

personalized entertainment such as, playing favorite games, online chatting, sending and receiving photos.

Dining and reservations: the exact location of a selected restaurant Reservations and discount coupons are available online.

Additional services: such as banking, stock trading, telephone directory.

Impacts of e-markets on business process and organizations

Bloch’s et al.model divided to:

1. Improving direct marketing.

2. Transforming organizations.

3. Redefining organizations.

Improving direct marketing.

Bloch et al. suggested the following impacts of e-markets on B2C direct marketing:

1. Product promotion.2. New sales channel.3. Direct saving.4. Reduced cycle time.5. Customer service.

Impacts of e-markets on B2C direct marketing:

6. Brand or corporate image.

7. Customization.8. Advertising.9. Ordering system.10. Market

operations.

Transforming organizations.

2 organizational transformations:

1. Technology and organizational learning.

2. The changing nature of work.

Redefining organizations.

Ways in which e-markets will redefine organizations:

1. New and improved product capabilities.

2. New business models.3. Improving the supply chain.4. Impacts on manufacturing.

Virtual manufacturing:

Running global manufacturing plants as though they were one location, by a single company electronically controlling the entire manufacturing process.

5. Impacts on finance and accounting.

6. Impacts on human resources management and training.