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BSAD 113 ELECTRONIC COMMERCE Lars Perner, Instructor 1
ELECTRONIC COMMERCE
Potential roles of e-commerceObstacles to growthLegal issuesWeb site design and problemsConsumer cyber behavior
BSAD 113 ELECTRONIC COMMERCE Lars Perner, Instructor 2
Potential Roles of e-commerce
Trade:– B2C [business to consumer]– B2B– C2C (e.g., eBay)– C2B
Advertising/promotionCustomer service/supportMarket research
BSAD 113 ELECTRONIC COMMERCE Lars Perner, Instructor 3
Types of Trade
Object of sale– Goods– Services
• Traditional• Information• Entertainment
Distribution– Shipping by operator– Shipping from manufacturer/client– Download
Methods of sale– Direct to customer– Online retailer– Auction facilitator– Referral
Business model– Retail sale margin– Commission– Subscription/content– Advertising/market research
revenue– Support of brands/other channels– Mixed
BSAD 113 ELECTRONIC COMMERCE Lars Perner, Instructor 4
Considerations in Evaluating E-Commerce Potential
Value-to-bulk ratioAbility of consumer to evaluate quality and fit through online descriptionExtent of customization neededGeographic dispersal of consumers
BSAD 113 ELECTRONIC COMMERCE Lars Perner, Instructor 5
How Suitable For Internet Commerce? Are There Differences Among Segments?
BSAD 113 ELECTRONIC COMMERCE Lars Perner, Instructor 6
Internet User/Shopper SegmentsSegment % active
users% online time spent
Simplifiers—50%+ of online transactions but difficult to satisfy; main benefit sought is convenience.
29 23
Surfers—move around quickly; main challenge is to keep these people long enough to shop
8 32
Bargainers—mainly interested in price; heavy users of Ebay 8 7
Connectors—use Internet mostly for e-mail communication with others; typically have not used internet for long
38 23
Routiners—mostly looking for updated information 15 12
Sportsters—like routiners but focusing on sports and entertainment 4 3
Source: Krishnamurthy 2003 (from Media Metrix and McKinsey)
BSAD 113 ELECTRONIC COMMERCE Lars Perner, Instructor 7
Bursting the Internet Bubble
Internet sales may not actually save money– Still very labor intensive– High costs of packaging and
shipping
Even if online sales do save money, e-merchants are likely to compete with other e-merchants– Very easy entry
BSAD 113 ELECTRONIC COMMERCE Lars Perner, Instructor 8
Reality of Online Competition
Intense competition for large demand products (large quantity demanded attracts many sellers)Use of large demand products as loss leaders (e.g., Amazon.com bestsellers)Competition will force reduced costs—if any—to be passed on to customersCompetition makes charging for shipping and handling difficult. This is often more expensive than traditional distribution.Less competition on specialty productsEstablished “brick-and-mortar” firms have large cash reserves
BSAD 113 ELECTRONIC COMMERCE Lars Perner, Instructor 9
Reasons Many Internet Businesses Failed
Focusing on market share rather than profitsOverestimating the value of databasesUnderestimating power of established, “entrenched” traditional competitorsUnderestimating the time required to change managerial and consumer behavior.
Source: Krishnamurthy 2003
BSAD 113 ELECTRONIC COMMERCE Lars Perner, Instructor 10
Obstacles to Growth of Electronic Commerce
Limited reach– U.S. (access vs. use)– Foreign (per minute access
charges)
Concerns about– privacy– security
Reputational issuesSlow entry of firms into actual order processingTransshipment across countries
Technical – Limitations and “glitches”– Slow access
Costs– Efficiency– Absolute margins
Language– Non-English– U.S. vs. British English
Government regulationsCultural
BSAD 113 ELECTRONIC COMMERCE Lars Perner, Instructor 11
Cultural Obstacles
Preference for face-to-face transactionsPreference for secrecyReluctance to use credit cards--80% of Chinese consumers completed the transaction off-line
BSAD 113 ELECTRONIC COMMERCE Lars Perner, Instructor 12
Web Site Problems
Incompatibility of browsersManaging the site– Updating– Response (it is much easier
to complain online!)– Implementing electronic
shopping
Getting traffic to your firm (and not to someone else)– Ownership of domain
name – Indexing in search
engines• listing of site• deliberate “false positives”
for competitors (misleading meta tags)
BSAD 113 ELECTRONIC COMMERCE Lars Perner, Instructor 13
Legal Issues
Jurisdiction--applying local laws to a global mediumInter-country sales tax/duty collectionReach of the Internet: whose laws apply?– Advertising messages– Product assortment
Privacy laws--restrictions on data that can be collected on customersTax collection: is the sender or recipient liable? (High shipment volumes allow only for random customs searches)
BSAD 113 ELECTRONIC COMMERCE Lars Perner, Instructor 14
Language Issues
Increasing proportion of non-English speaking Net users“Drawing” of Asian pictorals--download timeLanguage variations– Taiwanese vs. mainland Chinese– British vs. American English--is the word “color”
an Americanization or misspelling?
Regional variations in word meanings--less opportunity for tuning advertising to local meanings
At least pronoun-ciation is not so much of an issue on the Web!
BSAD 113 ELECTRONIC COMMERCE Lars Perner, Instructor 15
Optimal Web Site Design
Speed vs. aesthetics (may be temporary problem)Keeping customers on your site--beware of linksCookies--advantages and disadvantages
BSAD 113 ELECTRONIC COMMERCE Lars Perner, Instructor 16
Consumer Cyber Behavior
Easy comparison shopping—but do consumers actually compare?– Between merchants– Between countries
Online purchases vs. information gatheringPremature departure from site
BSAD 113 ELECTRONIC COMMERCE Lars Perner, Instructor 17
Perceived Risks
FinancialProduct performancePsychologicalTime/convenience loss
BSAD 113 ELECTRONIC COMMERCE Lars Perner, Instructor 18
Consumer Privacy Concerns
Risks of fraud– Identity theft
Dynamic pricing– Appeal to potential “switchers” rather than loyal ones
Disclosure of private information (emotional and philosophical concern)
BSAD 113 ELECTRONIC COMMERCE Lars Perner, Instructor 19
Search Engine Optimization
“Cat and mouse game” between webmasters and search enginesSome placement strategies– Paid rankings– Massive amounts of text– Reciprocal or paid links
BSAD 113 ELECTRONIC COMMERCE Lars Perner, Instructor 20
E-Mail Marketing
Opt-in vs. spammingSpamming– Intensely disliked by the vast majority of customers
• Potential state and Federal bans• Filtering software and attempts to circumvent it
– Only small response rates are needed for success
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