Chapter 5
ELECTRONIC COMMERCE
Strategies for the New
Economy
STUDENT LEARNING OUTCOMES
1. Define/describe the 2 major e-commerce
business models
2. Summarize Porter’s Five Forces model and
how business people use it
3. Describe the emerging role of emarketplaces in B2B e-commerce
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STUDENT LEARNING OUTCOMES
4. Identify differences/similarities among
customers and their perceived value of
products and services
5. Compare/contrast marketing mixes for the
B2B and B2C business models
6. Summarize ways of moving money in ecommerce and related issues
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INTRODUCTION
• E-commerce is changing everything
• Electronic commerce (e-commerce) –
commerce, but it is commerce accelerated
and enhanced by IT
– Build powerful relationships with customers
– Build powerful relationships with suppliers
– Build powerful relationships with partners
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INTRODUCTION
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E-COMMERCE BUSINESS MODELS
• There are 2 that are most prominent
• Business to Business (B2B) – when a
business sells products and services to
customers who are primarily other
businesses
• Business to Consumer (B2C) – when a
business sells products and services to
individuals
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E-COMMERCE BUSINESS MODELS
• B2B is where most of the money is
– About 97%
• B2C is the most well-known
– Amazon, eBay, etc.
• B2B and B2C differences require that you
know your customers well, develop the right
marketing mix, and move money easily
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PORTER’S FIVE FORCE MODEL
• Five Forces Model – helps business people
understand the relative attractiveness of an
industry
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The Five Forces
1.
2.
3.
4.
5.
Buyer power
Supplier power
Threat of substitute products and services
Threat of new entrants
Rivalry among existing competitors
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Buyer Power
• Buyer power – high when buyers have many
choices from whom to buy, and low when
their choices are few
– If you’re a buyer, you want buyer power to be
high
– If you’re a supplier, you want buyer power to be
low
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Buyer Power
• Loyalty programs can help you as a supplier
• Loyalty program – rewards customers
based on the amount of business they do
with a particular organization
– Airline frequent flyer programs
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Supplier Power
• Supplier power – high when buyers have
few choices from whom to buy, and low when
their choices are few
– The converse of buyer power
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Threat of Substitute Products or
Services
• Threat of substitute products or services
– high when there are many alternatives to a
product or service, and low when there are
few alternatives
– If you’re a buyer, you want this to be high
– If you’re a supplier, you want this to be low
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Threat of Substitute Products or
Services
• As a supplier, you can use switching costs
• Switching costs – costs that make
customers reluctant to switch to another
supplier
– Can be monetary penalties for early termination
– Can be like Amazon, which tracks information
about you and tailors offerings
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Threat of New Entrants
• Threat of new entrants – high when it is
easy for new competitors to enter, and low
when there are significant entry barriers
– If you’re a buyer, you want this to be high
– If you’re a supplier, you want this to be low
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Threat of New Entrants
• Entry barrier – product or service feature
that customers have come to expect and all
new competition must offer
– Banking – online banking
– Grocery stores – savings cards
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Rivalry Among Existing Competition
• Rivalry among existing competition – high
when competition is fierce, and low when it is
more complacent
– If you’re a buyer, you want this to be high
– If you’re a supplier, you want this to be low
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Five Forces Model and E-Commerce
• Because of IT, in most industries…
– Buyer power has increased
– Entry barriers have lessened
– Threat of substitute products or services has
increased
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BUSINESS RULES TO LIVE BY
1. Understand your business, products,
services, and customers
2. Find customers and establish relationships
3. Move money easily and securely
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B2C: Mass Customization
• Mass customization – the ability of an
organization to give its customers the
opportunity to tailor its products or services
– Dell – customized computer purchases
– Apple iTunes – only the music you want (not
necessarily the whole album)
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Direct Materials
• Buyers can participate in reverse auctions for
direct materials
• Reverse auction – process in which a buyer
posts its interests in buying items and sellers
compete by submitting successively lower
bids
– The lowest bidder wins
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B2B: Horizontal Versus Vertical
• B2B e-commerce takes advantage of emarketplaces
• Electronic marketplace (e-marketplace) –
interactive business providing a central
market where multiple buyers and sellers can
engage in e-commerce
– Horizontal e-marketplaces
– Vertical e-marketplaces
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E-Marketplaces
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Business to Consumer
• Need to determine your marketing mix
• Marketing mix – set of marketing tools your
organization will use to pursue its marketing
objectives in reaching and attracting potential
customers
– There are many such tools for B2C
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B2C Marketing Mix Tools
•
•
•
•
Registering with search engines
Online ads
Viral marketing
Affiliate programs
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Registering with Search Engines
• Some search engines will list your site for
free
• Others charge a fee
• For an additional fee, your site can appear at
top of a search list (every time)
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Online Ads
• Online ads (banner ads) – small
advertisements that appear on other sites
• Two variations are:
– Pop-up ad – small Web page advertisement that
appears on your screen outside the current Web
site
– Pop-under ad – pop-up ad you do not see until
you close your current browser window
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Viral Marketing
• Viral marketing – encourages users of a
product or service supplied by a B2C
business to encourage friends to join in as
well
– Blue Mountain Arts (www.bluemountain.com)
– Send a card
– Card has link so the other person can send you a
card back
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Affiliate Programs
• Affiliate program – arrangement between
two e-commerce sites that directs viewers
from one site to another
– If viewers buy at the second site, the second site
pays a small fee to the first site
– Usually a percentage of the sale
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Affiliate Programs
• Click-throughs and conversion rates are
important
• Click-through – count of the number of
people who visit one site and use an ad to
get to another
• Conversion rate – percentage of potential
customers who actually buy something
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Affiliate Programs
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Business to Business Marketing
• Much more personal
• Not usually done with generic ads designed
for mass distribution
• Often take place in e-marketplaces
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Business to Business Marketing
• Once a contact is made, the relationship
must be established
• This often requires face-to-face meetings
• Must also integrate the IT systems to the
supplier business and customer business
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B2B Payment Systems
• Business customers…
– Make large purchases
– Will not pay with credit card or financial
cybermediary
– Use financial EDI
– Pay for many purchases at once (perhaps the
end of the month)
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EDI
• Electronic data interchange (EDI) – direct
computer-to-computer transfer of transaction
information in standard business documents,
such as invoices and purchase orders, in a
standard format
– How businesses communicate with each other
– Used in e-marketplaces and VANs
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Financial EDI
• Financial EDI – an electronic process used
primarily within B2B for the payment of
purchases
– This is electronic money in B2B
– Often occurs through an automated clearing
house
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Encryption
• Encryption – scrambles the contents of a file
so that you can’t read it without having the
right decryption key
• Often through public key encryption (PKE)
– uses two keys: a public key for everyone
and private key for only the recipient of the
encrypted information
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CAN YOU…
1. Define/describe the 2 major e-commerce
business models
2. Summarize Porter’s Five Forces model and
how business people use it
3. Describe the emerging role of emarketplaces in B2B e-commerce
5-38
CAN YOU…
4. Identify differences/similarities among
customers and their perceived value of
products and services
5. Compare/contrast marketing mixes for the
B2B and B2C business models
6. Summarize ways of moving money in ecommerce and related issues
5-39
CHAPTER 5
End of Chapter 5