Chapter 4 Enagaging Business-to-Consumer Electronic Commerce
Agenda
-What eCommerce IS?
-it is IS
-Types of eCommerce business models
-Changes brought by eCommerce
-Long Tail
We will focus on “How we can execute that strategy”
Amazon is what?
Amazon is a thrift shop
This company is powered forward through eCommerce
Electronic Commerce Defined
-the exchange of goods, services, and money among firms, between firms and
their customers, and between customers, supported by communication
technologies and, in particular, the internet
What are the most common types of E-commerce?
Business to Consumer
-Transactions between businesses and their customers
Consumer to Consumer
-Transactions between consumer to consumer
(Most important)
Where is the money?
Business to Consumer
-This is where the media is
Business to Business
-This is where the big money is
Well, the presence of the internet gives rise to some interesting capabilities on the
part of firms
Such as?
-Information Dissemination
-Information Integration
-Mass customization
-Interactive Communication
-Transaction support
-Disintermediation(*Most important)
Information Dissemination
-is really important means that you do not have to target a single target
Information Integration
-Gives information about if a product is available
Mass Customization
-You have a restriction on the amount of people you can sell to if you can
customize a certain aspect like color you can hit a broad range of customers
you can sell to
-If you can’t change something small such as color you lose a sale
Interactive Communication
-If you make something as simple as possible
-Web enables firms to build customer loyalty providing immediate
communication and feedback to and from customers
Transaction Support
-Providing ways for clients and firms to conduct business online without
human assistance
-the Internet and Web having greatly reduced transaction costs while
enhancing operational efficiency
Disintermediation (*Most Important)
-Cutting out the “middleman” and reaching customers more directly and
efficiently
-Reduces costs and maximizes profits
-direct way to connect to the consumer
These opportunities give rise to newly possible business strategies
-Brick and Mortar
-Click and Mortar
-Click Only
The Internet… A network of networks
-Computers and other devices capable of communicating
-digital signals sent to someone else to receive packets of information
-Servers, desktops and laptops
-The infrastructure that connects them (Fiber optics, copper, modems,
routers, microwave, etc)
-The software tools and protocols that make communication possible
-TCPID the way the internet communications (language)
Electronic Data Interchange (EDI)
-Where you exchange data information through the internet where the EDI
mediate the exchange
-Banking and Stock markets really utilize this information
Web Services
The client sends information to Big store
It communicates with the bank
The bank communicates back with Big store
The Big store sends information to the store
The Big store then asks if the store has it in stock
Stages of B2C e-Commerce
-Range from passive to active
-Not every firm is incentive to an e-commerce
-Mercedes just give information
-Amazon actively look for other items you might like with that purchased
item
Three Stages of Evolution
-e-Information
Dissemination of marketing material and product info
-e-Integration
Dynamic access to customized information
-e-Transaction
Real time access to trading and markets for exchange
This leads to naturally to electronic retail
-Benefits?
Product: unlimited number of products
Place: Virtual Storefronts are unconstrained geographically
Price: Frictionless pricing
Can instantaneously sell the product for a less
-Drawbacks
Delivery: Delayed
Direct product Experience: None
The Long Tail
-Recall that in information goods our MC->0
-Producing the product might cost a lot but digital replication might
cost nothing to reproduce (i.e. making a song)
-The other benefit is that shelf space becomes infinite
-Before Digitization
-Only Selling the Green
-After Digitization
-We can offer all products (limitless)
Physical Economy
-Two Primary Limitations
-We need to find local audiences
-People need to be nearby to purchase our goods
-We are also constrained by the physics of the world
-The radio spectrum is not infinite
-The size of our shelves is not infinite
-People have varying tastes- how can we offer them everything they want
In a Digital World
-Because MC-> 0 we can offer as much of any good as we want
-We can offer it to anyone with a modem
-We can offer as many goods as we want
How to Harness the Long Tail
Three Rules
-Make everything available
Increase variety to account for varying tastes
-Reduce the price by half and lower it
Incentivize purchase
-Help me find it
reduce search costs
Critical Thinking
Is there value in the long tail?
-The Cello Suites: Johan Sebastian Bach
-More than 200 versions on iTunes
-Does this variety actually grow the market?
What we find in the Long Tail we find that we do make a profit but in
the long run
Reducing Search Costs
Does it actually matter if consumers don’t know the item exits?
Consolidating the market
If the blockbuster is all people want why go through the effort and
spend the money to get everything else?
It might send you to the same category
If you like the Avengers which was a blockbuster it will send
you back to what everyone likes right now