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Chapter 2
E-Commerce Market
Mechanisms
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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
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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
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Raffles Hotel (cont.)
The Results Public portal helps in customer
acquisition Hotel is able to maintain high
occupancy rates using: Promotions Direct sales
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Electronic Marketplaces
Markets facilitate exchange of Information Goods Services Payments
Markets create economic value for Buyers Sellers Market
intermediaries Society at large
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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
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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
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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)
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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
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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
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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
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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
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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
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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
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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
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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)
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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
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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
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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
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Exhibit 2.3A Simple Supply Chain
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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
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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
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Exhibit 2.4Supply Chains: Integrated & Build-to-Order
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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
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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
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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
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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
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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
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Disintermediation &Reintermediation
Disintermediation—elimination of intermediaries between sellers and buyers
Reintermediation—establishment of new intermediary roles for traditional intermediaries that were disintermediated
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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
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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
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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
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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
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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
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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
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Exhibit 2.6: Porter’s Competitive Forces Model
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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
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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
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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
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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
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Electronic catalog :
The presentation of product information in an electronic form; the backbone of most e-selling sites.
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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.
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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.
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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.
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E-shopping cart
An order-processing technology that allows customers to accumulate items they wish to buy while they continue to shop.
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Electronic auction:
Electronic auction: auctions conducted online.
Dynamic Pricing: prices that change based on supply and demand relationship at any given time.
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Types of auctions:
Forward auction. (Most common)
English auction. Yankee auction. Dutch auction. Free-fall auction.
(Declining auction)
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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.
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Limitation of E-commerce:
Possibility of fraud. Limited
participation. Lack of security. Limited software.
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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.
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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.
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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.
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3 factors may facilitate online negotiation:
1. Products and service that are bundled and customized.
2. Computer technology.
3. Software.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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Impacts of e-markets on B2C direct marketing:
6. Brand or corporate image.
7. Customization.8. Advertising.9. Ordering system.10. Market
operations.
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Transforming organizations.
2 organizational transformations:
1. Technology and organizational learning.
2. The changing nature of work.
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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.
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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.