Chapter 3: Selling on the Web: Revenue Models and Building a Web Presence

Chapter 3:Chapter 3:Selling on the Web: Revenue Selling on the Web: Revenue Models and Building a Web Models and Building a Web

PresencePresence

Electronic Electronic Commerce, Sixth Commerce, Sixth

EditionEdition

Electronic Commerce, Sixth EditionElectronic Commerce, Sixth Edition 22

ObjectivesObjectives

In this chapter, you will learn about:In this chapter, you will learn about:

Revenue modelsRevenue models

How some companies move from one How some companies move from one revenue model to another to achieve successrevenue model to another to achieve success

Revenue strategy issues that companies face Revenue strategy issues that companies face when selling on the Webwhen selling on the Web


Objectives (continued)Objectives (continued)

Creating an effective business presence Creating an effective business presence on the Webon the Web

Web site usabilityWeb site usability

Communicating effectively with customers Communicating effectively with customers on the Webon the Web


Revenue ModelsRevenue Models

Mail order or catalog modelMail order or catalog model Proven to be successful for a wide variety of Proven to be successful for a wide variety of

consumer itemsconsumer items

Web catalog revenue modelWeb catalog revenue model Taking the catalog model to the WebTaking the catalog model to the Web


Computers and Consumer Computers and Consumer ElectronicsElectronics

Apple, Dell, Gateway, and Sun Apple, Dell, Gateway, and Sun Microsystems have had great success Microsystems have had great success selling on the Webselling on the Web

Dell created value by designing its Dell created value by designing its entire business around offering a high entire business around offering a high degree of configuration flexibility to its degree of configuration flexibility to its customerscustomers


Books, Music, and VideosBooks, Music, and Videos

Retailers use the Web catalog model to sell Retailers use the Web catalog model to sell books, music, and videos books, music, and videos Among the most visible examples of electronic Among the most visible examples of electronic

commercecommerce

Jeff BezosJeff Bezos Formed Amazon.comFormed Amazon.com

Jason and Matthew Olim Jason and Matthew Olim Formed an online music store they called CDnowFormed an online music store they called CDnow Used the Web catalog revenue modelUsed the Web catalog revenue model


Luxury GoodsLuxury Goods

People are still reluctant to buy luxury goods People are still reluctant to buy luxury goods through a Web sitethrough a Web site

Web sites of Vera Wang and VersaceWeb sites of Vera Wang and Versace

Constructed to provide information to shoppers, Constructed to provide information to shoppers, not to generate revenuenot to generate revenue

Web site of Evian

Designed for a select, affluent group of Designed for a select, affluent group of customerscustomers


Clothing RetailersClothing Retailers

Lands’ End Pioneered the idea of online Web shopping Pioneered the idea of online Web shopping

assistance with its Lands’ End Live feature in 1999assistance with its Lands’ End Live feature in 1999

Personal shopperPersonal shopper Intelligent agent program that learns customer’s Intelligent agent program that learns customer’s

preferences and makes suggestionspreferences and makes suggestions

Virtual model Virtual model Graphic image built from customer measurements Graphic image built from customer measurements


Flowers and GiftsFlowers and Gifts

1-800-Flowers

Created an online extension to its telephone Created an online extension to its telephone order businessorder business

Chocolatier Godiva

Offers business gift plans on its siteOffers business gift plans on its site


Digital Content Revenue ModelsDigital Content Revenue Models

Firms that own intellectual property have Firms that own intellectual property have embraced the Web as a new and highly embraced the Web as a new and highly efficient distribution mechanismefficient distribution mechanism

Lexis.com Lexis.com

Provides full-text search of court cases, laws, Provides full-text search of court cases, laws, patent databases, and tax regulationspatent databases, and tax regulations

ProQuestProQuest

Sells digital copies of published documentsSells digital copies of published documents


Advertising-Supported Advertising-Supported Revenue ModelsRevenue Models

Broadcasters provide free programming to an Broadcasters provide free programming to an audience along with advertising messagesaudience along with advertising messages

Success of Web advertising is hampered bySuccess of Web advertising is hampered by No consensus on how to measure and charge No consensus on how to measure and charge

for site visitor viewsfor site visitor views Stickiness of a Web site: the ability to keep visitors Stickiness of a Web site: the ability to keep visitors

and attract repeat visitorsand attract repeat visitors

Very few Web sites have sufficient visitors to Very few Web sites have sufficient visitors to interest large advertisersinterest large advertisers


Web PortalsWeb Portals

Web directory Web directory

A listing of hyperlinks to Web pagesA listing of hyperlinks to Web pages

Portal or Web portalPortal or Web portal

Site used as a launching point to enter the WebSite used as a launching point to enter the Web

Almost always includes a Web directory and Almost always includes a Web directory and search enginesearch engine

Examples: Yahoo!, AOL, AltaVistaExamples: Yahoo!, AOL, AltaVista


Advertising-Subscription Mixed Advertising-Subscription Mixed Revenue ModelsRevenue Models

Subscribers Subscribers

Pay a fee and accept some level of advertisingPay a fee and accept some level of advertising

Typically are subjected to much less advertisingTypically are subjected to much less advertising

Used byUsed by

The New York TimesThe New York Times and and The Wall Street The Wall Street JournalJournal


Advertising-Subscription Mixed Advertising-Subscription Mixed Revenue Models (continued)Revenue Models (continued)

Business Week Business Week

Offers some free content at its Business Offers some free content at its Business Week onlineWeek online sitesite

Requires visitors to buy a subscription to Requires visitors to buy a subscription to the the Business Week Business Week print magazineprint magazine


Fee-for-Transaction Revenue Fee-for-Transaction Revenue ModelsModels

Businesses offer services and charge a Businesses offer services and charge a fee based on the number or size of fee based on the number or size of transactions processedtransactions processed

DisintermediationDisintermediation

Removal of an intermediary from a value Removal of an intermediary from a value chainchain

ReintermediationReintermediation

Introduction of a new intermediaryIntroduction of a new intermediary


Fee-for-Service Revenue Fee-for-Service Revenue ModelsModels

Fee based on the value of a service Fee based on the value of a service providedprovided

Services range from games and Services range from games and entertainment to financial adviceentertainment to financial advice

Online gamesOnline games Growing number of sites include premium Growing number of sites include premium

games in their offeringsgames in their offerings

Site visitors must pay to play these premium Site visitors must pay to play these premium gamesgames


Fee-for-Service Revenue Fee-for-Service Revenue Models (continued)Models (continued)

Concerts and filmsConcerts and films As more households obtain broadband As more households obtain broadband

access to the Internet, companies are access to the Internet, companies are providing streaming video of concerts and providing streaming video of concerts and films to paying subscribersfilms to paying subscribers

Professional ServicesProfessional Services State laws are one of the main forces State laws are one of the main forces

preventing U.S. professionals from preventing U.S. professionals from extending their practices to the Webextending their practices to the Web


Revenue Models in TransitionRevenue Models in Transition

Subscription to advertising-supported modelSubscription to advertising-supported model

Microsoft founded its Microsoft founded its Slate Slate magazinemagazine Web siteWeb site

An upscale news and current events publicationAn upscale news and current events publication

Charged an annual subscription fee after a limited Charged an annual subscription fee after a limited free introductory periodfree introductory period

Was unable to draw sufficient number of paid Was unable to draw sufficient number of paid subscriberssubscribers

Now operated as an advertising-supported siteNow operated as an advertising-supported site


Advertising-Supported to Advertising-Supported to Advertising-Subscription Mixed Advertising-Subscription Mixed

ModelModel Salon.comSalon.com

Operated for several years as an Operated for several years as an advertising-supported siteadvertising-supported site

Now offers an optional subscription version Now offers an optional subscription version of its siteof its site

Subscription offering was motivated by the Subscription offering was motivated by the company’s inability to raise additional company’s inability to raise additional money from investors money from investors


Advertising-Supported to Fee-Advertising-Supported to Fee-for-Services Modelfor-Services Model

Xdrive TechnologiesXdrive Technologies Opened its original advertising-supported Web Opened its original advertising-supported Web

site in 1999site in 1999 Offered free disk storage space online to usersOffered free disk storage space online to users After two years, it was unable to pay the costs After two years, it was unable to pay the costs

of providing the service with the advertising of providing the service with the advertising revenue generatedrevenue generated

Later switched to a subscription-supported Later switched to a subscription-supported modelmodel


Advertising-Supported to Advertising-Supported to Subscription ModelSubscription Model

Northern LightNorthern Light Founded in August 1997 as a search engine Founded in August 1997 as a search engine

with a twistwith a twist

Revenue model Revenue model Combination of advertising-supported model plus a Combination of advertising-supported model plus a

fee-based information access servicefee-based information access service

January 2002January 2002 Converted to a new revenue model that was Converted to a new revenue model that was

primarily subscription supportedprimarily subscription supported


Multiple TransitionsMultiple Transitions

Encyclopædia BritannicaEncyclopædia Britannica Original offeringsOriginal offerings

The Britannica Internet Guide The Britannica Internet Guide Free Web navigation aidFree Web navigation aid

Encyclopædia Britannica Online Encyclopædia Britannica Online Available for a subscription fee or as part of a CD Available for a subscription fee or as part of a CD

packagepackage

19991999 Converted to a free, advertiser-supported siteConverted to a free, advertiser-supported site

20012001 Returned to a mixed modelReturned to a mixed model


Revenue Strategy IssuesRevenue Strategy Issues

Channel conflictChannel conflict

Occurs whenever sales activities on a Occurs whenever sales activities on a company’s Web site interfere with existing company’s Web site interfere with existing sales outletssales outlets

Also called cannibalizationAlso called cannibalization

Channel cooperationChannel cooperation

Giving customers access to the company’s Giving customers access to the company’s products through a coordinated presence in all products through a coordinated presence in all distribution channelsdistribution channels


Strategic Alliances and Channel Strategic Alliances and Channel Distribution ManagementDistribution Management

Strategic allianceStrategic alliance When two or more companies join forces to When two or more companies join forces to

undertake an activity over a long period of timeundertake an activity over a long period of time

Account aggregation servicesAccount aggregation services Increase the propensity of customers to return Increase the propensity of customers to return

to the siteto the site

Channel distribution managersChannel distribution managers Companies that take over the responsibility for Companies that take over the responsibility for

a particular product line within a retail storea particular product line within a retail store


Creating an Effective Web Creating an Effective Web PresencePresence

An organization’s presence An organization’s presence

The public image it conveys to its The public image it conveys to its stakeholdersstakeholders

Stakeholders of a firmStakeholders of a firm

Include its customers, suppliers, employees, Include its customers, suppliers, employees, stockholders, neighbors, and the general stockholders, neighbors, and the general publicpublic


Achieving Web Presence GoalsAchieving Web Presence Goals

Objectives of the businessObjectives of the business

Attracting visitors to the Web siteAttracting visitors to the Web site

Making the site interesting enough that Making the site interesting enough that visitors stay and explorevisitors stay and explore

Convincing visitors to follow the site’s links Convincing visitors to follow the site’s links to obtain information to obtain information


Achieving Web Presence Goals Achieving Web Presence Goals (continued)(continued)

Objectives of the businessObjectives of the business

Creating an impression consistent with the Creating an impression consistent with the organization’s desired imageorganization’s desired image

Building a trusting relationship with visitorsBuilding a trusting relationship with visitors

Reinforcing positive images that the visitor might Reinforcing positive images that the visitor might already have about the organizationalready have about the organization

Encouraging visitors to return to the siteEncouraging visitors to return to the site


Profit-Driven OrganizationsProfit-Driven Organizations

Toyota site

A good example of an effective Web presenceA good example of an effective Web presence

Provides links toProvides links to

Detailed information about each vehicle modelDetailed information about each vehicle model

A dealer locator pageA dealer locator page

Information about the company and the financing Information about the company and the financing services it offersservices it offers


Toyota U.S. Home pageToyota U.S. Home page


Profit-Driven Organizations Profit-Driven Organizations (continued)(continued)

Quaker Oats

Web site does not offer a particularly strong Web site does not offer a particularly strong sense of corporate presencesense of corporate presence

Site is a straightforward presentation of links Site is a straightforward presentation of links to information about the firmto information about the firm

Redesigned site is essentially the same as Redesigned site is essentially the same as the previous versionthe previous version


Quaker Oats Old Home PageQuaker Oats Old Home Page


Quaker Oats Home Page: 1999 Quaker Oats Home Page: 1999 RedesignRedesign


Not-for-Profit OrganizationsNot-for-Profit Organizations

Key goal for the Web sites Key goal for the Web sites

Information disseminationInformation dissemination

Key element on any successful electronic Key element on any successful electronic commerce Web sitecommerce Web site

Combination of information dissemination and Combination of information dissemination and a two-way contact channela two-way contact channel


Web Site UsabilityWeb Site Usability

Motivations of Web site visitorsMotivations of Web site visitors Learning about products or services that the Learning about products or services that the

company offerscompany offers

Buying products or services that the company Buying products or services that the company offersoffers

Obtaining information about warranty, service, Obtaining information about warranty, service, or repair policies for products they purchasedor repair policies for products they purchased

Obtaining general information about the Obtaining general information about the company or organizationcompany or organization


Web Site Usability (continued)Web Site Usability (continued)

Motivations of Web site visitorsMotivations of Web site visitors

Obtaining financial information for making an Obtaining financial information for making an investment or credit granting decisioninvestment or credit granting decision

Identifying the people who manage the Identifying the people who manage the company or organizationcompany or organization

Obtaining contact information for a person or Obtaining contact information for a person or department in the organizationdepartment in the organization


Making Web Sites AccessibleMaking Web Sites Accessible

One of the best ways to accommodate One of the best ways to accommodate a broad range of visitor needs is to build a broad range of visitor needs is to build flexibility into the Web site’s interfaceflexibility into the Web site’s interface

Good site design lets visitors choose Good site design lets visitors choose among information attributesamong information attributes

Web sites can offer visitors multiple Web sites can offer visitors multiple information formats by including links to information formats by including links to files in those formatsfiles in those formats


Making Web Sites Accessible Making Web Sites Accessible (continued)(continued)

Goals that should be met when Goals that should be met when constructing Web sitesconstructing Web sites Offer easily accessible facts about the Offer easily accessible facts about the

organizationorganization

Allow visitors to experience the site in different Allow visitors to experience the site in different ways and at different levelsways and at different levels

Sustain visitor attention and encourage return Sustain visitor attention and encourage return visitsvisits

Offer easily accessible information Offer easily accessible information


Trust and LoyaltyTrust and Loyalty

A 5 percent increase in customer loyalty A 5 percent increase in customer loyalty can yield profit increases between 25% can yield profit increases between 25% and 80%and 80%

Repetition of satisfactory service can build Repetition of satisfactory service can build customer loyaltycustomer loyalty

Customer service is a problem for many Customer service is a problem for many electronic commerce siteselectronic commerce sites


Usability TestingUsability Testing

Companies that have done usability testsCompanies that have done usability tests

Conduct focus groups Conduct focus groups

Watch how different customers navigate Watch how different customers navigate through a series of Web site test designsthrough a series of Web site test designs

Cost of usability testing is low compared to Cost of usability testing is low compared to the total cost of a Web site design or the total cost of a Web site design or overhaul overhaul


Customer-Centric Web Site Customer-Centric Web Site DesignDesign

Putting the customer at the center of all Putting the customer at the center of all site designs site designs

Guidelines Guidelines

Design the site around how visitors will Design the site around how visitors will navigate the links navigate the links

Allow visitors to access information quickly Allow visitors to access information quickly

Avoid using inflated marketing statementsAvoid using inflated marketing statements


Customer-Centric Web Site Customer-Centric Web Site Design (continued)Design (continued)

GuidelinesGuidelines Avoid using business jargon and terms that Avoid using business jargon and terms that

visitors might not understandvisitors might not understand

Be consistent in use of design features and colorsBe consistent in use of design features and colors

Make sure navigation controls are clearly labeledMake sure navigation controls are clearly labeled

Test text visibility on smaller monitorsTest text visibility on smaller monitors

Conduct usability testsConduct usability tests


Connecting With CustomersConnecting With Customers

Personal contact modelPersonal contact model Firm’s employees individually search for, Firm’s employees individually search for,

qualify, and contact potential customersqualify, and contact potential customers

ProspectingProspecting Personal contact approach to identifying and Personal contact approach to identifying and

reaching customersreaching customers

Mass mediaMass media approachapproach Firms prepare advertising and promotional Firms prepare advertising and promotional

materials about the firm and its products materials about the firm and its products


Connecting With Customers Connecting With Customers (continued)(continued)

Addressable media Addressable media Advertising efforts directed to a known addressee Advertising efforts directed to a known addressee Also called mass media Also called mass media

One-to-many communication modelOne-to-many communication model Communication flows from one advertiser to Communication flows from one advertiser to

many potential buyersmany potential buyers

One-to-one communication modelOne-to-one communication model Both buyer and seller participate in information Both buyer and seller participate in information

exchangeexchange


Business Communication Business Communication ModesModes


SummarySummary

Models used to generate revenue on the WebModels used to generate revenue on the Web Web catalogWeb catalog Digital content salesDigital content sales Advertising-supportedAdvertising-supported Advertising-subscription mixedAdvertising-subscription mixed Fee-for-transaction and fee-for-service Fee-for-transaction and fee-for-service

Companies undertaking electronic commerce Companies undertaking electronic commerce initiatives sometimesinitiatives sometimes Form strategic alliances Form strategic alliances Contract with channel distribution managersContract with channel distribution managers


Summary (continued)Summary (continued)

Firms must understand how the Web Firms must understand how the Web differs from other mediadiffers from other media

Enlisting the help of users when Enlisting the help of users when building test versions of the Web site is building test versions of the Web site is a good way to create a site that a good way to create a site that represents the organization wellrepresents the organization well

Firms must also understand the nature Firms must also understand the nature of communication on the Webof communication on the Web

Chapter 3: Selling on the Web: Revenue Models and Building a Web Presence

Documents

Transcript of Chapter 3: Selling on the Web: Revenue Models and Building a Web Presence