INTERNET MARKETINGCHAPTER 5

e-business & e-Commerce:e – business models & revenue models

Pranjoy Arup Das

Topics to be covered as per syllabus

1. Introduction to Internet Marketing: meaning, scope and importance of internet marketing, Application of internet marketing, Internet versus Traditional marketing. Business to Consumer and Business to Business Internet Marketing, Internet Marketing Strategy

2. Online buyer behavior and models: The marketing mix in an online context : product, price, distribution, promotion, people, process and physical evidence ; Managing the Online customer experience : planning website design, Understanding site user requirements, site design and structure, developing and testing content, service quality.

3. Characteristics of interactive marketing communications: Integrated internet marketing communication (IIMC) ; Online Promotion techniques : Search engine marketing, online PR, Interactive advertising, online partnerships, viral marketing, opt-in-e-mail, offline communications

4. Foundation of Social Media Marketing: Social media & its platforms, Meaning, Social media strategy, tactics; creating and managing communities.

5. Business Models & revenue models over Internet: Introduction to E-Business - Electronic business, Electronic Commerce, Types of Electronic Commerce, Benefits, Value chain in E-commerce, Internet based Revenue Models, E-Commerce Models, Strategies for E-commerce Digital Commerce, Mobile Commerce, E-governance, E -commerce in India, Emerging trends in e-business.

6. Electronic Payment Systems: concept of e-money, Electronic payment system, types of electronic payment systems, smart cards, stored value cards and electronic payment systems, B2B electronic payments, infrastructure issues in EPS, Electronic fund transfer.

Business & Commerce

• Business – the continuous cycle of making and / or buying things and selling them at a profit.

Business

Industry Commerce

• So, commerce is a part of business.• They involve physical activities, transactions and

exchange of information and communication.

All activities related to making things for consumption

All activities related to buying the things made by the Industry and making them constantly available to consumers.

PHYSICAL ACTIVITIES

• Production• Storage• Transportation• Display in points of

purchase• Inspection• Inventory

management• Accounting• Collaborating with

suppliers, vendors, wholesalers, retailers, advertisers etc.

TRANSACTIONS

• Taking orders from customers

• Placing orders on suppliers

• Making payment to suppliers

• Collecting payment from customers

• Paying taxes• Revenue

generation

• Accounting & auditing reports

• Financial reports• Stock reports• Survey reports• Internal meetings• External meetings• Advertisements• Public relations• CRM

INFORMATION & COMMUNICATION EXCHANGE

e-Business & e-Commerce

• e-business & e-commerce refers to the conducting of as many physical activities, transactions and information and communication exchanges as possible through electronic networks.

• The electronic networks are of three types- Internet, Intranet & Extranet.

e-Business Vs e-Commerce

e-commerce in e-business

• e-commerce are of two types: Buy side e-commerce:

* Includes all online transactions and information & communication exchanges between an organisation and its intermediaries, its suppliers and its supplier’s suppliers.

Sell side e-commerce: * Includes all online transactions and information & and

communication exchange between an organisation and its intermediaries, its customers and its customer’s customers.

Benefits of e-commerce

• e-commerce helps an organisation to S.T.E.E.R with: Speed

Transparency

Easy access

Economy

Reliability & Relevance

e-commerce business models

• A business model is a set of planned activities designed to ensure the profitability of operations in a marketplace.

• Typical examples of offline models include: Wholesaler – retailer model Franchise modelBranch office/outlet modelPartnership modelJoint Venture model ….etc.

• An e-commerce business model aims to use and leverage the unique qualities of the Internet and the World Wide Web.

A successful business model is based on eight essential elements: • Value proposition

Why should the customer buy from you?• Revenue model

How will you earn money?• Market opportunity

Which market do you intend to serve, and what is its size?• Competitive environment

Who else occupies your target market?• Competitive advantage

What special advantages does your firm bring to the market?

• Market strategy How do you plan to promote your products or services to attract your target audience?

• Organizational development What types of organizational structures within the firm are necessary to carry out the business plan?

• Management team What kinds of experiences and background are important for

the company’s leaders to have?

Value proposition – creating value chains

• A value proposition defines how a company’s product or service fulfills the needs of customers over and above the core utility of the product.

• Successful e-commerce value proposition includes: * Personalization and customization of product offerings * Reduction of product search costs* Reduction of price search costs * Managing risks related to transportation, finance,

markets, legal aspects, etc.

• Value proposition is / should be 100% customer demand driven.

Revenue models

• A revenue model describes how the firm will earn revenue, generate profits and produce a superior return on investment (ROI).

• The major revenue models include: * The advertising model* The subscription model* The transaction fee model * The sales model* The affiliate model

The advertising model: • A Web site that offers a forum for advertisements receives fees from advertisers.

Higher the popularity of the site, higher are the advertising rates. The rates may be fixed on CPC or CPM basis.

The subscription revenue model• A website that offers basic software, reports, articles, mp3’s etc for free and offers

specialised content, upgraded software, latest mp3’s etc. only on subscription and membership can earn revenue from subscription or membership charges.

The transaction fee model • A company receives a fee for enabling or executing a transaction on their website.

Eg. Transaction fees charged by e-bay.com when goods are sold.

The sales model• Companies derive revenue by selling goods, information, or services to customers

online.

The affiliate model• A company steers business to an affiliate and receives a referral fee or percentage

of the revenue from any resulting sales. Usually on CPA basis.

PART 2

Revenue maximizing factors

• SSA 7 – Page 75 (Dave Chaffey)• What factors can improve a company’s e-commerce

revenue maximizing ability?

The e-commerce business models

• In terms of their value proposition and their revenue models, a company may formulate its e-commerce models.

• E-commerce business models may be adopted by:

> Companies introducing e-commerce to their existing systems or improving their e-commerce systems.

> Companies entering a new market or a new partnership.

> Entrepreneurial e-commerce service providers such as e-marketplaces, search engines, Aggregators (comparison sites), Affiliates…

E-commerce business model categories

Business to Consumer (B2C)• Portals• E-tailer• Content provider• Transaction broker• Market creator• Service provider• Community provider

Business to Business (B2B)• E-distributor• E- Procurement• Exchange• Industry Consortia• Private Industrial Network

Business to Consumer ModelsPortals :

“Gateways” to the Internet.

Portals offer users search engines, news, e-mail, instant messaging, calendars, shopping, music downloads, video streaming, and more, all in one place.

Eg. Yahoo.com, msn.com etc.

E-tailer :

Online retailers.

Customers only have to connect to the Internet to check their inventory and place an order.

Referred to as “bricks-and-clicks,” are subsidiaries or divisions of existing physical stores and carry the same products.

Eg. Flipkart, Myntra, Amazon, titan.co.in,

Content Provider :

Distributes copyrighted information content, such as digital news, music, photos, videos, books and artwork.

Content providers buy copyrighted content sell to its users.

They make money by charging a subscription fee to its buyers.

Eg. itunes, Slideshare.com, photobucket.com,

Transaction broker :

Site that processes transactions for consumers that are normally handled in person, by phone, or by mail.

Financial services, travel services, and job placement services.

Eg.Moneycontrol.com, Makemytrip, monster.com.

Transaction brokers make money each time a transaction occurs.

Market Creator:

Provide an online platform where buyers and sellers can meet, display products, search for products, and establish a price for products.

Eg. Ebay.com, olx.com etc.

Money is made through commission based on the percentage of the item’s sales price in

addition to a listing fee.

Service provider :

Similar to e-tailers - they provide online services.

They offer consumers valuable, convenient, time-saving, and low-cost alternatives to traditional service providers.

Eg. Passport seva, Indian Railways ticket booking.

Revenue is earned through sales, advertising etc.

Community provider :

Sites exclusively providing online communities.

People with similar interests can transact (buy and sell goods); share interests, photos, and

videos; communicate with like-minded people; and receive interest-related information.

Eg. Facebook, linkedin etc

Business to Business Models

E-distributor :A company that supplies various products and services directly to individual

businesses who are either wholesalers or retailers.

Company purchasing agents can search by type of product or by specific brand name.

E-procurement

E-procurement is the integration and management of all procurement related activities such a purchasing, ordering, delivery, payment etc.

Firms create and sell access to different digital electronic markets and e-distributors.

Users save a lot of time and money as all information related to different markets and distributors are

available under one roof.

They offer users a sophisticated set of sourcing and supply chain management tools that permit firms to reduce supply chain costs.

Exchanges

An independent digital electronic marketplace where suppliers and commercial purchasers can conduct transactions.

Hundreds of suppliers meet a smaller number of very large commercial purchasers.

They generate revenue by charging a commission or fee based on the size of the transactions conducted among trading parties.

INDUSTRY CONSORTIA

Industry consortia are industry-owned vertical marketplaces that serve specific industries, such as the automobile, aerospace, chemical, floral, or logging industries.

In contrast, horizontal marketplaces sell specific products and services to a wide range of companies.

Vertical marketplaces supply a smaller number of companies with products and services of specific interest to their industry.

Horizontal marketplaces supply companies in different industries with a particular type ofproduct and service, such as marketing-related, financial, or computing services

Private Industrial NetworksDigital network designed to coordinate the flow of communications among firms engaged in business together.

PIN’s can enable many-to-one, and many-to-many market relationships.

Single-firm networks typically evolve out of a firm’s own Intranet, and they are an effort to include key suppliers in the firm’s own business decision making.

Industry-wide private industrial networks often evolve out of industry associations. These networks are usually owned by a consortium of the large firms in an industry.

Examples of B2B models

• SSA 8 – Search the internet and list out examples of the Business to Business Models discussed earlier.

PART 3

E – commerce strategies

• Before formulating an e-commerce strategy, an organisation has to first assess their current stage of e-commerce infrastructure.

• For sell side e-commerce , the stages may be : > Stage 0 – no website or presence on the web.

> Stage 1 – Website registered but not launched.

> Stage 2 – Website is simple, static and only informational. (Also called ‘brochure-ware’ site).

> Stage 3 – Simple interactive website. Users can search and send enquiries on the site or through e-mail.

> Stage 4 - Interactive and transactional but basic and limited.

> Stage 5 – Fully interactive and graphical website supporting complete range of internet, intranet & extranet

transactions.

• For buy-side e-commerce , the stages may be :

> Stage 0 – No website or electronic dealing with suppliers.

> Stage 1 – Using B2B exchanges, intermediary sites and suppliers sites to identify, review and select suppliers.

> Stage 2– Placing orders online on suppliers via intermediaries or directly on suppliers site. No link with supplier’s system.

> Stage 3 – Establishing a direct link with the suppliers system and placing orders online.

> Stage 4 - Completely integrating with the suppliers information system and involving the suppliers in procurement, manufacturing planning, inventory management etc.

Eight key strategic decisions

• An organisation at the initial stages of e-commerce implementation need to take 8 key strategic decisions:

1) E-business channel priorities2) Market & product development3) Positioning and Differentiation strategies4) Business & revenue models5) Marketplace restructuring6) Supply Chain Management7) Internal knowledge management capabilities8) Organisational resourcing

1) E-business channel priorities : In very simple terms:

- Engaging with the right person, - At the right time,

- Using the right communication channel, - With a relevant offer, product or message.

This is termed as ‘right channeling’, i.e., prioritizing the use of e-channels to create maximum value for both customers and the organisation as well.

Eg. - ‘Buy online and get a special discount’- ‘ Click here to speak to our customer care executive’- ‘Locate your store’- ‘ Your phone bill has been emailed to you on ____’.

2) Market & product development:

• Target market strategy : Identification, segmentation and selection

of appropriate consumer segments.

Typical examples: > The most profitable customers > Large companies> Small companies> Specific interest groups> Customers who are difficult to reach offline> Customers who are brand loyal> Customers who are not brand loyal

3) Positioning and Differentiation strategies: - How do and how should customers perceive our brand?

- Strategies should focus on increasing the numerator and decreasing the denominator.

- Aim should be on : Chic-ness with cheapnessClarityComparabilityChoicesCredibilityConvenienceCustomisationControlCommunication

4) Business & revenue models: - Constantly reviewing existing business models and revenue models.

- Designing innovative models to serve customer better and also increase revenue.

Eg. A travel agent earns revenue through selling tickets, holiday

packages, hotel deals etc.

A travel & tourism related magazine makes money through sales, subscriptions and advertisement.

The two of them may join hands and put each others links and advertisements on each others websites.

5) Marketplace restructuring: - Developing new ways to operate within a marketplace.

- Typical strategies include: * Dis-intermediation* Re-intermediation* Introducing new intermediaries-

Countermediation (even on a per transaction basis, if it saves cost

and gives better value to customers). Eg. IKEA – Do It Yourself (DIY) – furniture

installation

* If things are going right, don’t do anything.

6) Supply Chain Management: - Specific to buy – side e-commerce- How closely should we work with our suppliers? - How can our suppliers help us improve our processes & products?- How can we mutually reduce our costs?

7) Internal knowledge management capabilities:- Knowledge Management: Set of processes to create, store, transfer, share and apply knowledge within an organisation?

- How can we use our Intranet to create, store, transfer, share and apply knowledge?

- In what other ways can we get our employees to record and share their knowledge throughout the organisation?

8) Organisational resourcing & capabilities: - Should our e-business unit be a part of our organisation or should it be a separate independent unit with specialised resources?

- Should we tie up with a professional e-commerce service provider?

- Should we outsource our e-commerce unit to a third party?

- Should we train up our existing employees and fit them into the e-commerce system?

- Should we recruit new specialised staff for the e-commerce unit?

Mobile Commerce

• The delivery of electronic commerce capabilities directly into the consumer’s hand, anywhere, via wireless technology.

• Electronic transactions and communications conducted using mobile devices such as laptops, PDA’s and mobile phones.

• SSA 9 – LEARN MORE ABOUT M-COMMERCE AND IDENTIFY ITS ADVANTAGES & DRAWBACKS.Page 162 - 173, Dave Chaffey.

E – Governance & E- Government

• E-Governance is the interaction through electronic networks between Government-to-Citizens(G2C),Government-to-Business(G2B), Government-to-Government( G2G) & Government-to -Employees.

• Through E-governance, Government services are made available to the citizens in a convenient, efficient and transparent manner.

• E-Government refers to a one sided information platform.

• E-Governance is a two sided interactive platform where citizens, businesses and employees can interact with the Government.

• Aspects of E-Governance 1. Information Management2. Identity Management3. Content Management4. Standards Management5. Information & Communication Technology Legal Framework

E-commerce in India

• VIDEO 1• VIDEO 2

Emerging trends in e-commerce

• Mobile Points Of Sale:- No more queuing in line for billing at stores.

• Advanced website browsing on mobile / iPad / tabs:- Just like on any other computer.

• Facebook:- 850 million + users.

• Push tactics : - Instead of pulling people to a website, people are being pushed towards online interaction. (Eg.Facebook sms alerts)

• Re-defining Customer Acquisition: - Today customer emotions and experience are more

important than selling. • Multi-channel assistance:

- Strong co-ordination between online and offline services.

END OF CHAPTER