E-Business Value Strategies.ppt

For use with Strategic Electronic Marketing: Managing E-Business

Copyright 2000 South-Western College Publishing

Chapter 5 Slide: 1

Chapter 5: E-Business Value Strategies



Chapter 5 Slide: 2

LEARNING OBJECTIVES(1):• Be able to explain the seven strategies e-businesses are

using to create value for customers.

• Understand how e-commerce is being used as a strategic tool by e-retailers as well as traditional retailers.

• Be able to perform a benefit analysis of alternative sales channels.

• Explain how digital communication adds value to a business.

• Describe how the delivery of services are changing because of new technologies.



Chapter 5 Slide: 3

LEARNING OBJECTIVES(2):• Be able to explain how the business process is changing

through the use of the Internet, Extranets, and EDI systems.

• Be able to describe how a market-of-one strategy will impact businesses.

• Explain how auctions are used to facilitate commerce.

• Be able to describe the impact of e-business strategies on pricing.

• Gain an understanding of the determinates of hosting the technology required to implement the e-business strategies.

• Understand the limitations to international e-commerce.



Chapter 5 Slide: 4

Vignette: What’s Old is New Again in Grocery Shopping

• Thinking Strategically– Evaluate your grocery shopping habits.

– Determine how often you purchase the same products.

– Consider if you would trust a grocer to pick out your meats, fruits, and vegetables.

– On your next visit to a brick and mortar grocer determine which aspect of grocery shopping could be automated.

– Evaluate the business model for a traditional grocer and determine where their competitive advantage lies.

– Estimate the expenses that a business can save by moving grocery shopping online.



Chapter 5 Slide: 5

Creating Value• Businesses create value for their customers by

providing quality goods and services at acceptable prices.

• A business model that provides more benefits to its customers and/or sells at a lower the price will take market share away from competitors. – A commerce or business model is the basic process by

which a business obtains its inventory, produces the good or service, and how they deliver that to the customer.



Chapter 5 Slide: 6

Six E-Business Value Creation Processes• An online purchasing perspective: allows for buying and selling of

products and information on the Internet and other online services.

• A digital communication perspective: allows for delivery of digital information, products, services, or payments online.

• A service perspective: allows for the cutting of costs, improving of the quality of goods, and increasing the speed of service.

• A business process perspective: allows automation of business transactions and work flows.

• A market-of-one perspective: allows for developing products for a single customer with close to the same costs as mass production.

• An auction based perspective: allows automation of bidding for products or customers online.

www.amazon.com

http://www.amazon.com/



Chapter 5 Slide: 7

Creating Value

Online Purchasing

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using UPS Ground (3-7 business days).

For your reference, the number you can use to track your packageis 1Z38EW250330006573. You can refer to our web site's customer service page or http://www.amazon.com/exec/obidos/subst/tracking.html

Digital Communication and Service

Business Process

Supplier Extranet

Market-of- One

Auctions



Chapter 5 Slide: 8

Online Sales Strategy

• E-commerce is the process of allowing Web based technologies to facilitate commerce or trade. – E-commerce can be retail, between an e-

business and an end user, or it can be used for business-to-business transactions.



Chapter 5 Slide: 9

E-Retailing• Retail sales are likely to shift between various

alternative sales channels. – Sales channels are the models that businesses use to

sell to their customers. These could include brick and mortar outlets, catalogs, direct marketing, or e-commerce.

– A destination site is a Web site that is designed to have the visitor return over and over. This requires including extras such as games, chats, contents, new information, or any other content that the targeted audience may desire.



Chapter 5 Slide: 10

Pure-Play Internet Businesses• The 1999 top ten retail e-commerce sites were:

– eBay, Amazon, Dell, Buy.com, Onsale.com, Gateway.com, Egghead.com, Barnesnadnoble.com, CDNow, and AOL.

• Of the top 100 e-commerce sites:– 50 used the Internet as their primary sales channel, 21

were traditional retailers, 21 were catalog/mail order retailers.

– The most successful sites had established off-line brands and had proven ability to provide customer service www.nrf.com

http://www.nrf.com/

http://www.nrf.com/

http://www.nrf.com/



Chapter 5 Slide: 11

Benefits Amazon.com MallBookstore:

Superstores:

Number ofBooks

2.5 million + 70,000 175.000 +

Discounts onbooks.

Percent off on all titles(customer paysshipping)

Discounts on selectedtitles.

Ability tobrowse bytopics

Online databases allowlinks to topic areas.

Books placed in topicsections.

Consumer'saccess to books

Average 2-3 days Immediate

Access toinformationabout the book.

Immediate - online Consumer must browse orask for help.

Table 5.1: Benefit Analysis for Amazon.com (1)



Chapter 5 Slide: 12

Table 5.1: Benefit Analysis for Amazon.com (2)

Benefits Amazon.com Mall Bookstore: Superstores:Ability toconverse withthe author.

Online throughdiscussion groups oremail.

Rarely except for signing.

Shipping ofgift books.

Handled online. Customer must ship.

Otherrelationshipdevelopmenttools

PersonalizationDatabaserecommendationsbased on pastpurchases.Email comments

Other storesfor customersto visit.

Coffee shops

Interactionwithcustomers

Email links toservice personnel.Chat rooms withother customers.

Face-to-facesalesrepresentatives.

Face-to-facesalesrepresentatives.



Chapter 5 Slide: 13

Niche E-Retailers

• Niche e-retailers typically target narrow market segments with clearly differentiated offerings.

• Successful niche e-retailers can offer a deep product line and add expertise and advice that cannot be found in traditional stores.

• They do need to develop brand names and establish credibility with their customers if they are to succeed



Chapter 5 Slide: 14

Table 5.2: Niche E-Retailers

Business Target Market Product OfferingTavolowww.tavolo.com

Individuals who desiregourmet and specialtycooking items andinformation.

This site offers an extensiveline of specialty cookingitem, gourmet chef advice,and recipes.

Violetwww.violet.com

Busy, professionalwomen and men ages25 to 55.

Offers six categories ofgifts: house, office, identity,thanks, kids, and bath. Theitems are considered to be“authentic chic”.



Chapter 5 Slide: 15

Case 5.1: A Prescription for Success? (1)

• Thinking Strategically– Consider the types of products that individuals usually

purchase at a pharmacy.

– Determine if it is important to receive that product immediately, or can an individual wait until the next day for the product.

– Decide how important it is to talk to a pharmacist about products purchased at a pharmacy.

– Compare the services they offer to what can be found at a brick and mortar store.



Chapter 5 Slide: 16

Case 5.1: A Prescription for Success? (2)

• Thinking Strategically– Determine if the consumer’s purchase patters would

differ if they were purchasing products on a continuing basis.

• For example, if an individual was permanently on a heart medicine, would that individual be likely to order that online and have it delivered to his or her home?

– Speculate on the future of online pharmacies.



Chapter 5 Slide: 17

Digital Communication Strategy• Digital products are information-based products,

such as multimedia entertainment, programs, online information services, published information, music, video, or any other digital content can be transferred over the Internet. – Pay content sites are generally targeted toward

individuals who have a high need for information.

– Some sites follow radio and broadcast television models and obtain revenue through advertising. They also play a role in supporting and enhancing the associated traditional media.



Chapter 5 Slide: 18

Digital Communication Strategy

• Advantages of Digital Products – Online content is the lower cost involved in transfer

and delivery.

– Electronic content allows for a publish-once, read many time environment.

– Existing content developers can reach a wider audience.

– Smaller firms that are able to provide content at low startup costs.

– If sold, digital content is usually purchased on a per-time-period subscription basis or per-use basis.



Chapter 5 Slide: 19

Case 5.2: The Market Wants Its MP3.

• Thinking Strategically– Determine the advantages and disadvantages of using

MP3 for the consumer.

– Consider the advantages and disadvantages of this format for the music industry.

– Compare and contrast those advantages and disadvantages and speculate on the future of MP3.

– It is projected that within the next five years an entire movie will be downloadable in 20 minutes or less.

– Speculate on how this will effect the movie and video rental industries. www.mp3.com

http://www.mp3.com/



Chapter 5 Slide: 20

Service Strategy• The service strategy impacts two areas:

– Supporting businesses that specialize in providing services to the customer.

• Includes educational institutions, physicians, banks, realtors, insurance agents, and many others.

– Enhancing the service component of a businesses by meeting customer service needs before, during, and after the sale.

• Answering questions about a product, how it is used, or how it fits a specific purpose, and handling any problems that may occur after the sale.



Chapter 5 Slide: 21

Table 5.3: Technology’s Impact on Service (1)

• Intangibility: The Internet is allowing buyers to directly compare products and services offered online allowing them to search for the greatest value.

• HSH Associates (www.hsh.com) offers information on mortgage rates. Quotesmith (www.quotesmith.com) allows individuals to obtain quotes from multiple carriers.

• Perishability: Digital information can be stored and delivered as needed. Online services need not perish, they can be created as needed by the user. Online sales systems also can fill unused capacity for transport companies such as airlines.

• National Public Radio (www.npr.org) stores its radio programs for individuals to download and play at their leisure.

http://www.hsh.com:/

http://www.quotesmith.com/

http://www.npr.org/



Chapter 5 Slide: 22

Table 5.3: Technology’s Impact on Service (2)

• Inseparability: Real estate buyers can use the Web to view homes and take virtual walkthroughs. The medical industry is using the Web to deliver services directly to the user’s home computer. Retailers are providing shopping services online.

• WebMD (www.webmd.com) provides information on medical issues. Nordstrom (www.nordstrom.com) has a personal shopper that suggests products for customers.

• Variability: Databases and standardized procedures can remove the variability of service delivery.

• Amazon, Dell, and many other companies use email, FAQs, and other technology to standardize services.

http://www.webmd.com/



http://www.nordstrom.com/





Chapter 5 Slide: 23

Customer Relationship Management

• Customer Relationship Management systems combine software and management practices to serve the customer from order, through delivery, and after sales service. – Enhancing customer service is rated by IT managers as

the number one method to gain competitive advantages followed by improving internal business processes.



Chapter 5 Slide: 24

Table 5.4: Providing Service Online (1)

Best Practice Site Technology LeverageRespondQuickly

Be able to respond tocustomers within 6 hours ifpossible, but defiantlywithin 24 hours.

Knowledge bases andintelligence agents can provideinstant feedback.

Link toInventory

Be sure products areavailable for delivery.

Use Extranets and inventorydatabases linked to e-commercesoftware.

AutomaticOrderConfirmation

Automatically sendconfirmations through emailto customers givingconfirmation numbers androuting numbers.

This can be sent from databasesthrough automated emailsystems.

ProvideInformation

Provide product, security,and shipping information.

This can be designed into theWeb site. The use of FAQs orfrequently asked questionsallows for self-service.



Chapter 5 Slide: 25

Table 5.4: Providing Service Online (1)

Best Practice Site Technology LeverageProvidealternativemeans ofcontact

800 number phone linesallow customers to placeorders, inquire about orders,or receive serviceinformation as an alternativeto Internet use.

Chat systems can be a lowercost alternative to phonesystems. IP telephony can alsobe used is the customerpossesses the technology.

Avoid extrafees

If off-line businesses do notcharge for service support orgift wrapping, these shouldnot by charged online.

Lower costs available throughthe Internet should allow forservices to be delivered at lowor no costs.

Customerresponsespecialists

Use “live” individuals tosupport automated servicetransactions.

This can be facilitated with chator through the use ofintelligence agents or wizards.



Chapter 5 Slide: 26

Business Process Strategy

• Businesses engage in transactions with other businesses using the same techniques as business-to-consumer e-businesses. – Business-to-Business E-Commerce– Supply Chain Management and Extranets

• The supply chain is the network of suppliers and customers for goods, services, or information used from the point of origin to final consumption.



Chapter 5 Slide: 27

Market-Of-One Strategy

• Digital factory use digital manufacturing process is combined with the human worker resulting in a "soft manufacturing process" brings flexibility to production and allows manufacturers to produce individualized products at mass production speeds.– This “mass customization” and a “market-of-

one” process allows marketers to develop tight customer relationships.



Chapter 5 Slide: 28

Auction Strategy• Sales auction sites allow individuals and

businesses to sell products online and have potential customers bid for the price of the product.

• Buyer-driven commerce sites allow the customer to specify how much they are willing to pay for a product or service and then let the providers bid for the customer.

• Reverse auctions allow individuals and companies to have sellers bid for the purchase.



Chapter 5 Slide: 29

Pricing Strategies

• Greater efficiency allows for selling at a lower overall costs.

• Cost saving can be found in lower fixed costs because of minimized use of brick and mortar assets and lower variable costs in reduced staffing requirements.



Chapter 5 Slide: 30

Table 5.6: Transaction Cost Comparisons

Traditional Method AverageAmount

Internet AverageAmount

Telephone transactioncost plus relatedcustomer servicecharges

$ 5.00 AutomatedInternettransaction cost

$ 0.01

Bank transaction cost $ 1.07 Bank transactionon the web

$ 0.01

Airline ticket cost forprocessing

$ 8.00 Airline tickettransaction on theweb

$ 1.00



Chapter 5 Slide: 31

Obtaining Product Pricing Information

• Intelligent shopping agents are software based search systems that return product and pricing information from multiple vendors. – The customer specifies the product or they use

other criteria, such as a price range for a product category.

– The agent then returns information on sales outlets, prices, and availability.



Chapter 5 Slide: 32

Pricing Strategies• Skimming pricing sets high initial prices to

“skim” off payments from individuals who are willing to purchase products when they first come to market.

• Penetration pricing sets prices lower in an attempt to capture market share for a product. – E-businesses may attempt to capture market share by

selling at very low prices or even below costs.

– If a firm has an overriding goal of attaining market share, they may even give products away for free.



Chapter 5 Slide: 33

An Example of Changing Business Models: Stock Brokerage (1)

Figure 5.2: Traditional Brokerage System

Issuing Company

Issuing Company

Underwriting Company

Underwriting Company

Stock ExchangeStock Exchange

Stock Investor

Stock Investor

Stock Broker

Stock Broker



Chapter 5 Slide: 34

An Example of Changing Business Models: Stock Brokerage (2)

Online Systems

Issuing Company

Issuing Company

Web Stock Exchange

Web Stock Exchange

Stock Investor

Stock InvestorAlternative:

Direct Issue

Alternative: Direct Issue



Chapter 5 Slide: 35

Table 5.7: Benefit Analysis for OnlineBenefits Traditional Brokers Online BrokersCost ForTransaction

Depends upon broker andamount of stock.

One-third to one-tenth oftraditional brokers.

Informationon Companiesand quotes.

Broker acts as agatekeeper betweencorporate information andcustomer.Broker required toreceive quotes.

Customer can use onlineinformation to obtaininformation immediately.Stock quotes availableimmediately.

Speed andConvenience

Customer needs interfaceof broker for informationand trades.

Customer can obtain immediateinformation at their convenienceand place trades immediately.

Expertise ofAdvice.

Depends on broker. Depends on the buyer.



Chapter 5 Slide: 36

Figure 5.3: Online Brokerage Prices and Volume

Prices VolumePer Trade 90 mill. a dayFull Service Average $116.90 Growth rate 44%Discount Average $66.09

DLJ Direct $20 Fidelity $28.95

Ameritrade $8 Suretrade $7.95

Lowest profit limit $5

Web Street $0 Jan. 1997 July Aug. Sept. Oct. Nov. Dec. 1997Number of Online Brokers: 15 60Schwab % of trades online: 15 40



Chapter 5 Slide: 37

Hosting The Technology• Commerce service providers (CSPs) are

companies that facilitate commerce for other businesses. – Businesses can form an alliance with hosting sites such

as ISPs, banks, distributors, or online malls.

• The low cost entry of using a CPS is very attractive to merchants. – The merchant must still market their site as they would

any other business, but they do not have the brick and mortar costs and can reach the entire world with the e-commerce site.



Chapter 5 Slide: 38

Table 5.8: Advantages of Selling With Standalone Vs CSP Sites

Issue Standalone System Using a CSP

Costs No fees paid to the CSP.Higher costs in personnel,hardware, software, anddevelopment.

Lower cost for maintainingtechnology to support the site.

Control Business can control all of itspolicies related to selling.If mall closes, business may losepast customers.

Seller may need to complywith mall's sales, credit, andreturn polices.

PullingCustomers

Business must get customers totheir site by themselves throughpromotion.

Retail trade concentration canpull in a larger number ofshoppers.

Quality ofTraffic

A standalone site may have higherquality traffic that is more likely tobuy.

Individuals who browse oneday may turn into shoppers atanother time.



Chapter 5 Slide: 39

International E-Commerce (1)

• Implementing new business models: – First, the technical infrastructure must allow for

the flow of information. – Second, flexibility of channel relationships is

required. • In countries like Japan where long distribution

channels are maintained through personal relationships, disintermediation and restructuring will be much more difficult.



Chapter 5 Slide: 40

International E-Commerce (2)

• Implementing new business models: – Third, the political and legal structure must

allow E-commerce to be undertaken. • The ability to ship products without tariff

restrictions and the free flow of capital is a requirement.

– Fourth, Businesses and customers must be willing to change their business and purchasing habits.



Chapter 5 Slide: 41

Table 5.9: Political and Legal Problems (1)

• Advertising and Competition– France: By law all Web sites aimed at French customers

must be in French.

– Germany: Some promotions, such as two-for-one or promotional tie-ins may be illegal.

– Sweden: Toy advertising may not be directed at children.

• Payments– Due to differing currencies customers may not know the

exact price until the currency exchange is made. (The development of the Euro should allow for smoother payments.)



Chapter 5 Slide: 42

• Delivery– The cost of shipping a product 30 miles across a border

can be more expensive than 300 miles within the borders of a country.

• Legal– Return policies may not be the same for all countries.

– Setting liability for faulty products may be unclear.

– It may be difficult to determine how value added taxes are assessed.

– Privacy laws in Europe are more stringent than in the U.S.

Table 5.9: Political and Legal Problems (2)



Chapter 5 Slide: 43

Active Learning Exercise #5.1: Business Model Strategies

• Use the Web to evaluate different business models.

• Determine how many of the strategies outlined in this chapter are used at the Web sites you visit.

• Explain how those strategies are used to create value for the business.



Chapter 5 Slide: 44

Active Learning Exercise #5.2: Evaluating Business Models

• Use the following matrix to compare an e-business against traditional business models.

• Determine the benefits the business provides to its customers.

• Decide how these benefits compare to traditional models.

• Explain what the online business would need to do to get you to purchase online.

• Explain what the traditional model will need to do to keep you buying at their site.

Benefits Online Model Traditional Model



Chapter 5 Slide: 45

Active Learning Exercise #5.3: Niche Retailers

• Use the Web to find narrowly targeted niche retailers.

• Determine the target market for the e-retailer. • Describe how these e-retailers target their market. • Explain how they are differentiated from other

competitors.

Business Site Target Market Product Offering



Chapter 5 Slide: 46

Active Learning Exercise #5.4: Business Model Building

• Pick a business-to-consumer or business-to-business industry that you would be interested in working in.

• Determine the best business model for meeting you customer’s needs.

• Decide on which of the strategies outlined in this chapter would be beneficial in providing value to customers.

• Use the following matrix to determine if a business should host the technology or if it should use a commerce service provider.



Chapter 5 Slide: 47

Active Learning Exercise #5.4: Business Model Building

Issue StandaloneCommerce System

Commerce ServiceProvider

CostsControlPullingCustomersQuality ofTraffic

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