E-COMMERCE Learning Unit 2: RETAILING IN ELECTRONIC COMMERCE

E-COMMERCE

Learning Unit 2: RETAILING IN ELECTRONIC COMMERCE

OUTCOMES:• Define the factors that determine the business

models of electronic marketing• Identify the critical success factors of direct

marketing• Identify the typical products that sell well in the

electronic market• Identify the consumer’s shopping procedure on

the Internet• Understand the types of comparison-shopping

aids

WHAT IS A BUSINESS MODEL? (Manual p. 19)• A method of doing business by which a business can generate revenue to sustain

itself• A method of spelling out where the business is positioned in the value chain• A component of a business plan

Business models and factors that determine business models:

BUSINESS MODEL OVERVIEW: (Textbook p. 43)• Business models describe the plan used by an e-commerce firm to generate

revenue• PAST: The reason why e-commerce grew very fast : low entry barriers,

availability of venture capital, high value in the stock market, investors were convinced that e-commerce would replace traditional commerce

• The year 2000 marked a shift in investor perceptions: failure of e-commerce business modules, insecurities, devaluation of e-commerce stock

• PRESENT: E-commerce business models are now viewed more realistically with more reasonable expectations of their ability to yield profit

TYPES OF E-COMMERCE (Textbook p. 44)1. Business-to-business (B2B)• The Internet offers businesses several advantages in

terms of speed, coverage and digital communication which will streamline operations, improve efficiency and reduce costs

EXAMPLE: Retailers and delivery agents2. Business-to-consumer (B2C)• Websites are designed to accommodate customers,

to facilitate trade and payment with the added convenience and efficiency of the Internet

EXAMPLE: Online banking services

3. Consumer-to-Business (C2B)• Consumers can use their collective buying

power to purchase in bulk or to negotiate prices• The Internet provides a convenient meeting

point and forum for consumers to unite EXAMPLE: internet forums

4. Consumer-to-Consumer (C2C)• Consumers can use the Internet as a point of

contact to exchange between each otherEXAMPLE: eBay, bidorbuy

E-COMMERCE BUSINESS MODELS (Textbook p. 46)Def: a business model stipulate the manner in which an e-commerce firm plans to generate revenue (the firm should have a competitive advantage and offer value to consumers)

Four (4) Elements/components of a business model1. Value offering• The firm must be able to define the value that it intends

to provide to customers• It must also determine the manner in which this value will

be created and transferred to customers• The value should refer to the competitive advantage of

the firm (unique/superior value or low cost)

• Attributes of e-commerce:-speed and convenience (24h, 7 days a week)-trust (if a company builds a reputation of trust,

consumers will stay loyal-intellectual property rights-network effects-customisation and personalisation

2. Target market(s)Organisations should understand the needs of their target market (niche) or target markets3. ScopeThe geographic coverage of the organisation and the extent of products/services offered

4. ResourcesThe organisation should have access to the resources required to produce value offerings. Examples of resources are: supplier networks, intermediaries, human capital, internet and software infrastructure, organisational systems also intangible resources for example: information, communication or relationships

REFER TO YOUR TEXTBOOK P. 50 FOR THE AMAZON AND 20/TWENTY EXAMPLES

TYPOLOGIES OF BUSINESS MODELSOrganisations should be willing to experiment with new business models to find new sources of competitive or first move advantage

The following typologies can be treated as broad guidelines for e-commerce business:1. Advertising model/content providers(websites offer services or content to attract web users. The website becomes a meeting point for web users. Revenue is generated by selling space on the website to companies who place banner ads or links on the site – used by popular ISPs, search engines, portals and e-tailors)2. E-tailing(Organisations are using the web to trade goods or services)EXAMPLES: amazon, kalahari.net, kulula3. Infomediary(similar to content providers. Offer free content to lure users to their site, but revenue is not generated from hosting advertising, but from the sale of personal behavioural data about their users)4. Brokers(A person hired to act as an agent or intermediary in making contracts or sales. Online brokers match the needs of buyers and sellers

Unique brokerage models available on the Internet:-auctions and reverse auctions e.g eBay-search engines e.g Google-virtual malls e.g Standard Bank

5. Market makers(provide 3 core functions namely: online space to trade, rules that govern trade, online and physical infrastructure to process trade)6. Community(formed to build relationships. Mainly C2C, also B2B)Categories of community sites:

-Open source model (free of charge for members)-Public broadcaster model (digital content is supplied by community members

e.g music file sharing)-Knowledge network (expert/specialised sites)

7. Payment models (subscription models)8. Networked utility providers(specialised software providers that permit users to make better use of the Internet e.g Adobe Acrobat)

REFER TO YOUR TEXTBOOK P. 61 FOR THE COMPARISON OF THE VARIOUS BUSINESS MODELS

CRITICAL SUCCESS FACTORS OF DIRECT MARKETING AND E-TAILING (Manual p. 20)Let us compare the different views:1. Turban and King• Profitability (e-tailors lose money when cutting prices to attract customers, they

also have underlying cost)• Manage new risk exposure (organisations are facing new competitors due to

global reach of technology)• Branding (branding is expensive and respect and a positive reputation takes

time to establish)• Starting with insufficient funds (start-up cost as well as costs to maintain the

online business)• Keep it interesting (dynamic)• Web 2.0 (aims to facilitate creativity , collaboration and sharing between user

e.g social networking sites like Facebook and Twitter)

2. Martin Lindstrom• The full story (e-tailoring = intangible, therefore e-

tailors must compensate by providing adequate info, pictures, colour, photos)

• Keep it simple (help customers by narrow down options, only manage a few products)

• Clean up (quick turnaround of inventory)• Be upfront, even about bad news ( do not hide

information such as shipping costs from customers)• Learn about your consumer (do research about

customer needs and monitor customer behaviour)

3. Eid, Trueman and AhmedCategory A: Marketing strategy related factors• Top management support• Clear goals• Integrate internet and offline marketing• Partners• Potential target marketsCategory B: Website related factors• Design• Online and offline promotion of the siteCategory C: Global related factors• Foreign marketing environment• Global resources• Language• Culture• Delivering

Category D: Internal related factors• Technological infrastructure• Internal culture• Sales force• Online support trainingCategory E: External related factors• Trust• Online security• Relationships with suppliers• Affordable Internet access• Customer acceptance

TYPICAL PRODUCTS THAT SELL WELL ON THE ELECTRONIC MARKET

Computers, sporting goods, office supplies, books, music, toys, health and beauty, entertainment, clothing, cars, services

Characteristics of products that are suitable for web sales:• High value (rare/special products e.g diamonds)• Suitable for shipping by mail (shipping cost should not be too

high)• Information based products (non-perishable, info-intensive e.g

books, software, electronics)• Services (hotel reservations, investments, air travel

E-TAILING

Def: Organisations that use the web to trade goods or services

Examples: Amazon, kulula, kalahari.net

Restrictions of e-tailing in SA:• Limited internet access• Limited electronic payment options (only credit cards may be

used)Key drawback of e-tailing:• Consumers must wait for deliveryAdvantages:• Download (bypass time lag and cost of delivery)• Large product selections (options) – low cost structure,

customised products, liberation from time-consuming and unrewarding retail environments

• Permits trading across time and space• Many manufacturers are able to deal directly with end-users

(manufacturing model)

Critical success factors:• E-tailing rely on WOM• Well-known e-tailers e.g Amazon have benefited greatly from

their popularity• Positive purchase experience will produce repeat business and

new business

Types of e-tailers:• Aggregators: e.g amazon which offers a broad product

assortment• Category killers: e.g Toys R Us, which specialises in one category

CONSUMERS’ SHOPPING PROCEDURE ON THE INTERNET

CONSUMER DECISION-MAKING

Consumer decision making can be regarded in terms of the decision-making process (from need arousal to disposal) and types of consumer decision making (from routine to limited to extensive problem solving)

Consumers can use the Internet to help them with their decision-making, namely:• Communication• Surfing• Collect information and compare• Purchase• Make use of decision aids/shopping agents/shopping bots (software

or programmes that help consumers in the consumer decision-making process e.g infoseek, google

PLEASE NOTE: IT IS REQUIRED OF YOU TO STUDY THE INFLUENCE OF SHOPPING AGENTS ON EACH STAGE OF THE DECISION-MAKING PROCESS (Textbook p.75-84)

DECISION-MAKING PROCESSSTEP 1: Need identification/need arousal• Need identification occurs when the consumer recognises a need for a

particular product/service. Consumers will surf the net and get exposure• Agents should track consumer needs and notify consumers when a

desired product enters the market place (notification agents)STEP 2: Search and the consideration set• Online consumers tend to rely on one or two websites for their basic

needs. They choose a few favourite sites that they add to their list of ‘favourites’ or ‘bookmarks’ and repeatedly visit these sites

• The role of shopping agents and other decision aids focuses on search and recommendation agents (e.g ananzi, google)

STEP 3: Evaluation of alternatives• Evaluation of alternatives is based on the nature

of information provided and the perceived reliability of that information.

• Vast amount of information and options available on the Internet

• Consumers normally make use of well-known short cuts

• Decision aids/ shopping agents could consider the consumer’s criteria based on: price, delivery date, quality, brand, expert opinion, etc. and then suggest a product

STEP 4: Product purchase• Once the decision has been made, the consumer can

then purchase either online or offline. • Considerations would be: characteristics of the

product/service, delivery options, consumer preferences, access to credit, trust, security concerns and country of residence

STEP 5: Consumption• Individual differences such as consumer resources,

motivation, lifestyle and personality generally influence the consumption process as well as the characteristics of the product/service.

• Some products can be consumed online e.g music

STEP 6: Post-consumption evaluation• Consumers can log compliments and complaints

directly with the companies concerned• Orders can be tracked online• Follow-up e-mails• Keeping track of consumer behaviour• Communication strategy can be adapted based

on consumer interest• Electronic database management• Consumer word of mouth e.g hellopeter

COMPARISON SHOPPING AIDSShopping bots and agents are tools that scrutinise the Web for specific search criteria requested by consumers e.g• Mysimom.com• AutoBytel.com• Zdnet.com• Office.com

NON-HUMAN CUSTOMERS: DEALING WITH SHOPBOTS(Textbook p. 265)• With the advent of agents and bots, many companies will be dealing with

the non-human agents of customers rather than with the customers themselves e.g. search engines, shopping bots, chatter bots, gossip bots, datasheet bots

• Marketers not only have to understand human behaviour in cyberspace, but the behaviour of their agent

Ice activity

You received an invitation to your best friends wedding in Port Elizabeth. Your mother said she would pay for your flight, but that it shouldn’t be more than R1500. Apply the consumer decision making process this scenario by discussing what you would do in the 6 steps.

Step 1: Need identification: _______________Step 2: Information search: _______________Step 3: Evaluate information:______________Step 4: Product purchase: _________________Step 5: Product Consumption: _____________Step 6: Post Purchase evaluation: ___________