Which of the following is an example of commoditylike merchandise?

Management Information Systems for The Information Age

Haag, S., & Cummings, M. (2013). Management information systems for the information age.

New York: McGraw-Hill.

MANAGEMENT INFORMATION - - - - -

l S~STEMS FOR THE IN_FORMATION AGE

> > Ninth Edition Stephen HAAG I Maeve CUMMINGS 1

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Define and describe the nine major· e-commerce business models .

. Identify the differences and similarities among customers and their perceived value of products and services in the 828 and B2C e-commerce business models.

Compare and contrast the development of a marketing mix for customers in the 828 and B2C e-commerce business models.

Summarize the various ways of moving money in the world of e-commerce and related issues.

Discuss some major trends that are impacting both the e-commerce business world and society in general.

Global Perspective Can You Name The Top 20 Web Sites? • Exploring Google Earth Industry Perspective • Learning about investing The World of Facebook Now Includes a • Gathering competitive intelligence Full Economy • Researching storefront software Industry Perspective • Finding hosting services Google Ups the Ante in the Mobile • Gold, silver, interest rates, and money Payments Market • Free and rentable storage space Industry Perspective • Small Business Administration Crowds Create "Value" through • Global statistics and resources Funding

XLM/B The World Wide Web and the Internet Extended Learning Module B is a fast-paced tour of the Web and the Internet. The first focus is on learning just enough about the Web to be an effective surfer. Then, explore the technology infrastructure behind the Web that makes it all possible. Finally, conclude with an overview of the options for connecting to the Web and the emerging life of Web 2.0.

XLM/E Network Basics Extended Learning Module E provides an introduction to the vast, exciting, and dynamic field of information technology networks. The module includes discussions of what is needed to set up a small network at home, the components used to build large business networks, Internet connection possibilities, types of communications media, and network security.

ectronic Commerce ategies for the New Economy

TRAGEOUS INDUSTRY NSFORMATION: ADVERTISING

OLLARS GO WHERE THE EYES ARE

- :he world of commerce, which is now to a great ~ ent electronic commerce or e-commerce, you

=ed to spend your advertising dollars well. That eans developing effective campaigns, creating

-,,morable advertising assets, using the appro-

: at e media mix, and placing your ads where --e eyes are. "Eyes" in this case refers to viewer- - ·p, where people will see your advertising.

n the past, most advertising dollars were _ -.ont on paper-based-media such as newspapers

:::- magazines and on TV and radio advertising.

-= e a look at the accompanying graph . Where :::-e people now spending a large portion of --eir time? Right, on the Internet. Adults spend

:~ percent of their time on the Internet. If you

:::::d in young adults and teenagers, that number - reases to 38 percent.

So, where are advertisers spending their dol-

=rs t oday? Interestingly enough, not always ere people spend a lot of their time. Adults

_::end 37 percent of their time on TV. Nearly _-e-t hird (32 percent) of all advert ising dollars

:::-e spent on TV, so the correlation there is fairly

= d. But look at newspapers. Adults spend only .: ercent of their time with their eyes on a news- _.:: er, but advertisers spend 20 percent of their

::::: 1erti sing dollars there. You have to question --e effectiveness of that decision .

dults spend 29 percent of their time on the -:ern et, but advertisers spend only 8 percent of - eir advert ising dollars there. That's a signifi- - ad-dollar-to-viewership ratio. The ratio for

- is almost 1-to-1 (1 percent of viewership time

is reached by 1 percent of advertising dollars). For the Internet, on the other hand, the ratio is 3.5-to-1 . That is, 3.5 percent of viewefship time is reached by only 1 percent of advertising dollars.

So, where do you think this outrageous indus-

try transformation is going? In the advertising

industry, you can expect to see an increasing shift

of advertising dollars from TV and newspaper to the Internet. This certainly makes sense. If people are spending more time on the Internet, then businesses will focus more of their advertising dolla rs there. 1

40%

35%

30%

25%

20%

15%

10%

5%

0%

Questions

• Time Spent

• Ad Spend

1. In a typical week, what is the ratio of t he time

you spend watching TV as compared to the time you spend on the Internet?

2. When watching TV, what do you do when a commercial comes on? Do you channel surf?

Get up and get something to eat or drink? Something else?

3. When advertisers start spending fewer dollars in newspapers, what will happen to the cost of a newspaper? Will newspapers be able to

survive?

127

128 Chapter 5 • Electronic Commerce

f ....._

j Introduction The past 15 years of the new economy introduced by the World Wide Web have cer- tainly been interesting. There has been an entrepreneurial frenzy unlike anything the world has ever seen. Fortunes have been made and lost. Dot-com millionaires and bil- lionaires were literally created overnight- many became dot-bomb paupers in about the same amount of time.

What fueled this frenzy and is still doing so today? It's electronic commerce enabled by information technology. Electronic commerce (e-commerce) is commerce, but i is commerce accelerated and enhanced by IT, in particular the Internet. E-commerce enables customers, consumers, and companies to form powerful new relationships tha would not be possible without the enabling technologies. E-commerce breaks down business barriers such as time, geography, language, currency, and culture. In a few shon hours, you can set up shop on the Internet and be instantly accessible to millions of con- sumers worldwide.

Is there a catch? The answer is both no and yes. It's "no" because it doesn't take much effort to create your own e-commerce Web site. It's "yes" because you still haYe to follow sound business fundamentals and principles to be successful. Let's not forge that fundamentally it's still all about commerce, businesses and people buying and sell- ing products and services. E-commerce is no "silver bullet,'' as some entrepreneurs haYe found out to their chagrin.

In short, you must have a clear path-to-profitability. A path-to-profitability (P2Pj is a formal business plan that outlines key business issues such as customer targets (b~­ demographic, industry, etc.), marketing strategies, operations strategies (e.g., produc- tion, transportation, and logistics), and projected targets for income statement and bal- ance sheet items. That is to say, running an e-commerce operation is no different from running a traditional brick-and-mortar business. You must identify your customerJ. determine how to reach them with a compelling story, and so on. The major error tha most dot-com businesses made in the late 1990s- and they are no longer in existence today- is that they never developed a clear path-to-profitability.

I £-Commerce Business Models

c LEARNING O UTCOME 1 As illustrated in Figure 5.1, there are nine major e-commerce business models. We'J.: start by defining and briefly describing some of lesser known and used e-commerce models and then move on to the more prominent e-commerce models.

• Business to Government (B2G) e-commerce-occurs when a business sells products and services to a government entity. Lockheed Martin, for example, generates almost 80 percent of its revenue by providing products and services to the U.S. Department of Defense (DoD). 2

• Consumer to Government (C2G) e-commerce- occurs when an individual sells products and services to a government entity. To sell products and services to the U.S. federal government, you must register yourself as a formal business, so you're not really an individual anymore but rather an individual "doing busines as" (DBA) some organization or business.

• Government to Business (G2B) e-commerce- occurs when a government entity sells products and services to businesses. The Small Business Administration (SBA), for example, offers services such as loans, surety guarantees, disaster assistance, ombudsman, and so on.

E-Commerce Business Models 129

SUPPLY Business originating from ...

B2B C2B G2B

B2C C2C G2C

B2G C2G G2G

• Government to Consumer (G2C} e-commerce-refers to the electronic commerce activities performed between a government and its citizens or consumers including paying taxes, registering vehicles, providing information and services, and so on.

• Government to Government (G2G) e-commerce-refers to the electronic commerce activities performed within a nation's government or between two more nations' governments including providing foreign aid and the sharing of border patrol activities.

U SINESS TO BUSINESS (B2B) E-COMMERCE

-usiness to Business (B2B} e-commerce occurs when a business sells products and .=n-ices to customers who are primarily other businesses. So, for example, when ares Rubber Company sells belts , hoses , and other rubber and synthetic products to

-:- rd Motor Company or any other manufacturer that needs those parts, this is B2B -commerce. B2B e-~ommerce is where all the money is right now in the e-commerce

rld. It's not the flashy consumer-oriented businesses you read about and see everyday ch as eBay, Facebook, and so on. It's the many behind-the-scenes interactions that

inesses engage in ultimately to support interacting with you as a customer, such as res selling a hose to Ford for a car that you eventually buy. Another example is First

aca Corporation. First Data Corporation is a payments infrastructure provider that y businesses use. When you pay with a credit card at most major stores, your credit

..:rrd authorization and verification is handled by First Data for the store. You may not ·e even heard of First Data, but it is one of America's top-250 largest corporations. As you can see in Figure 5.2 on the next page, businesses are taking full advantage of

:-commerce by creating and using B2B e-marketplaces. B2B e-marketplaces are virtual mar- ~;places in which businesses buy from and sell products to each other, share information - in information partnerships from Chapter 2), and perform other important activities. :.B e-marketplaces represent one of the fastest growing trends in the B2B e-commerce

el. Businesses are increasingly aware that they must create supply chain management _ ems, drive out costs, create information partnerships with other businesses, and even Tuborate with other businesses on new product and service offerings. B2B e-marketplaces

- er tremendous efficiencies to businesses for performinrr all of these tasks.

Figure 5.1 Nine Major E-commerce Business Models

130 Chapter 5 • Electronic Commerce

Business to Business E-Commerce Model vvith an Electronic Marketplace

Business to Consumer E-Commerce Model

~ IT~

828 Electronic

Marketplace ~. ! :• .. ·· Figure 5.2 Business to Business and Business to Consumer E-commerce Business Models

.-

.-.-.·. ··. '. . 'jl ~· · . . . . I , . ~: J . • ~

BUSINESS TO CONSUMER (B2C) E-COMMERCE Business to Consumer (B2C) e-commerce occurs when a business sell products services to customers who are primarily individuals. You are no doubt familiar with th!.: model of e-commerce. If you've ever ordered a book on Amazon (www.amazon.co purchased a CD from Circuit City online (www.circuitcity.com), or ordered a mm. from Netflix (www.netflix.com), you've participated in B2C e-commerce.

B2C e-commerce garners most of the attention these days in the popular me~ B2C e-commerce is the model that fueled the early growth of e-commerce in ch=c 1990s. B2C e-commerce is very much a cutthroat environment, no matter what product and service. Amazon, one of the most well-known B2C businesses, daily face. stiff competition from hundreds of other e-commerce businesses selling books, mo~­ ies, music, clothing, computers, consumer electronics, health and beauty produc-- and home and garden products .

As you can see in Figure 5.2, the B2C e-commerce business model is very diffe- ent from the B2B e-commerce business model. Consumers interact directly with bus:- nesses via the Web. Consumers surf around the Web evaluating products and service numerous separate e-commerce sites until they eventually choose one site from which - make a purchase. And while businesses prefer to enter into long-term partnerships wi- other businesses in B2B e-commerce, consumers are fickle and purchase the same type: of products and services from many different sites.

CONSUMER TO BUSINESS (C2B) E-COMMERCE

Consumer to Business (C2B) e-commerce occurs when an individual sells products services to a business. The C2B e-commerce business model is a true inversion of~ B2C e-commerce business model. In the B2C e-commerce business model, demand

E-Commerce Business Models 131

driven by the consumer and supply is driven by the business. In C2B it is inverted; the consumer drives supply and the business drives demand.3 Many people have mistak- enly lumped such sites as Priceline.com (www.priceline.com) into the C2B category. At

:iceline.com you, as a consumer, can set your price for items such as airlines tickets and otel rooms, but you (as a consumer) still provide the demand and the airline or hotel

-cill provides the supply. A good example of a true C2B e-commerce business model is offered by Fotolia nv.fotolia .com). There, as an individual, you can post your photos and videos for

sale to businesses. Businesses search through the photo and video archives, and, if they hoose yours, will pay you a royalty fee to use the photo or video.

Affiliate programs are another good example of the C2B e-commerce business model. Through an affiliate program relationship with Amazon, for example, you can post links on your personal Web site to Amazon for products and services it sells. If

,-Jsitor to your site clicks on one of those links and eventually buys the product or -ervice from Amazon, Amazon will pay you a commission fee, which is usually some small percentage of the sale. With this arrangement, you are selling advertising space -o Amazon on your Web site; hence, it is an example of the C2B e-commerce business model.

Currently, the C2B e-commerce business model represents only a fraction of the :otal revenues in the e-commerce space, but it is expected to grow as businesses real- ::ze that individuals are more than just consumers of products and services. Blogging, :or example, can easily become a C2B e-commerce business model, if you know what ;-ou're doing.

CONSUMER TO CONSUMER {C2C) E-COMMERCE

Consumer to Consumer (C2C) e-commerce occurs when an individual sells products and services to another individual. C2C e-commerce usually takes place through an mtermediary organization, such as eBay. eBay is a hybrid of both a B2C e-commerce site and a C2C e-commerce site. It is a B2C e-commerce site because it sells a service to you, illat of giving you the ability to interact in the auctioning of items. (You pay eBay only if """OU 're the seller, not the buyer.) And it is really an intermediary supporting your engage- ment in a C2C e-commerce business model. That is, you use eBay to sell products and services to other consumers, and you use eBay to buy products and services from other consumers.

Many C2C Web sites don't really support any sort of e-commerce (i.e., money exchanging hands for products and services). Rather, they facilitate the gathering of people with common interests and something to share. Kazaa (www.kazaa.com) is an ex:ample of such a site because it brings together people who want to share mainly MP3 ::nusic files. Blogs might also fall into the category of C2C, as they support people shar- 1Ilg and discussing common interests. Many of these types of sites are ad-supported, meaning that they derive their revenue by selling advertising space, much like the con- ~ept of an affiliate program.

That ends our overview of the nine e-commerce business models. Although con- ceptually distinct, in practice each overlaps with one or more of the other models. The question for you now is how to execute on the e-commerce model in which your busi-

ess operates. We'll focus specifically on B2B and B2C e-commerce, since that is where ~ou'll most likely be working. We will explore three e-commerce critical success factors: 1) Understand your business and your customers; (2) Find and establish relationships 'th customers; (3) Move money easily and securely.

132 Chapter 5 • Electronic Commerce

= LEARNING OUTCOME 2

<""

r Understand Your Business, Products, Services, and Customers

To gain a competitive advantage and be successful in any business, you must clearly define the nature of your products and services, know who your target customers are, and understand how your customers perceive the use of your products and services in their business activities (for the B2B model) or in their personal lives (for the B2C model). To create sound business strategies you have to understand the value that your customers place on your products and services.

There are many worthwhile business activities. But as important as writing a mission statement and producing glitzy marketing brochures may be, what must come first is an objective, very down-to-earth understanding of what your business does. The reality is you can't be all things to all customers. You must answer two qqestions: (1) Who are your target customers? and (2) What is the value of your products and services as per- ceived by your customers? Let's look at each in turn.

WHO ARE YOUR CUSTOMERS?

Just as in a brick-and-mortar business, in the e-commerce world you focus your efforts on selling to other businesses, to individual end consumers, or to some combination of the two. If you were in a business like Gates Rubber Company, which produces mostly rubber and synthetic products primarily for sale to the automotive industry and manu- facturers of such products as boats and bicycles, you would focus almost exclusively on the B2B e-commerce model, with other businesses as your target customers. If, however, you were selling resume writing and job placement services to individuals looking fo r careers, your customers would be B2C individual end consumers. Finally, you might be like Monster.com (www.monster.com), which provides an electronic marketplace cater- ing to both individuals looking for careers and businesses looking for employees. If you were in a business like Monster's, your customer mix would include both end consum- ers and businesses and you'd need to carefully consider both groups of customers, their needs, and the value to them of the products and services you sell.

Many businesses in the travel industry, American Express , for example, cater to both businesses and end consumers. As an individual consumer, you might work with American Express to plan and pay for a vacation. At the same time, many businesses use the services of American Express to handle all their business travel needs.

Whatever the nature of your business, you must know who your customers are. In the world of e-commerce, that means clearly distinguishing between end consumers (B2C) and other businesses (B2B), even if you target both. As you will see throughout this chap- ter, individual end consumers and other businesses have dramatically different needs.

WHAT IS THE VALUE OF YOUR PRODUCTS AND SERVICES AS PERCEIVED BY YOUR CUSTOMERS?

If a customer orders a product or service from your organization, it is because that customer perceives some value in what you provide- the customer either wants or needs your prod- uct or service. When we examine wants and needs, the distinctions between end consumers and businesses as customers become increasingly important and clearly evident. Let's look at product/service categories needed by each customer group in turn. (See Figure 5.3.)

Understand Your Business, Products, Services, and Customers 133

Business to Consumer (B2C)

• Convenience-low-priced but something needed on a frequent basis

• Specialty-higher-priced, ordered on a less frequent basis, and often requiring customization

• Commodityl ike-the same no matter where you buy it

• Digital-the best of all because of low cost of inventory and shipping

Business to Business (B2B)

• Maintenance, repair, and operations (M RO) materials-necessary items that do not relate directly to the company's primary business activities

• Direct materials-materials used in production in a manufacturing company or placed on the shelf for sale in a retail environment

82C: CONVENIENCE VERSUS SPECIALTY In many respects, you can differenti- ce between convenience and specialty merchandise (or services) on the basis of price

:md consumers' frequency of purchase. To end consumers , convenience merchandise is :;-pically lower priced but something they often need, usually frequently. Non perishable :ood items such as breakfast cereals are a good example. From organizations such as ?eapod (www.peapod.com), you can easily order food items and have them delivered to our home within 24 hours of making the order or at p redetermined time intervals such

weekly. Consumers might pay more for these low-priced items in order to have them -conveniently."

Specialty merchandise might be such things as home stereo systems, computers, !Jaille-brand clothing, furni ture, and the like. For consumers, these are higher-priced ilian convenience merchandise) items, are typically ordered on a less-frequent basis,

:md often require some sort of customization or feature specification. For specialty mer- chandise, consumers will spend more time "shopping around,'' not only to find the best deal in terms of price but also because value for these items is perceived in terms of cus- :omization, warranty, service, and other after-sales features.

32C: COMMODITYLIKE AND DIGITAL In B2C e-commerce, as a general rule, the .:>est merchandise to sell is either commoditylike, digital, or a combination of the two . -:nis enables you to minimize your internal costs, but requires that you be innovative in - ow you offer your merchandise and attract consumers to your site.

Commoditylike merchandise, to your customers, is the same regardless of where -- ey purchase it, and it is similar to convenience items in that respect. Books are a good =sample. No matter where you buy a particular book, it is the same. As a business, you :ompete in a commoditylike environment on the basis of:

• Price • Ease of ordering

• Ease and speed of delivery • Your return policy

f course, commoditylike business environments are typically easy to enter (i.e., they .'.:aYe low barriers to entry) and thus buyer power is high (from Porter's Five Forces

Figure 5.3 82C and 828 Products and Services

134 Chapter 5 • Electronic Commerce

...

Model in Chapter 1). Your organization's goals in this type of environment would have to include (1) minimizing price to the end consumer and (2) minimizing your internal costs by creating a tight supply chain management system (from Chapter 2). You also want to create a "sticky" Web site that not only attracts consumers but also encourage them to return to your site again and again.

Digital merchandise offerings are also important in the B2C e-commerce model. T he goal here is to eliminate shipping costs by delivering the digital product over the Internet once a consumer has made a purchase. Music is a good example. Apple's iTunes Web site (www.apple.com/itunes/store/) allows you to select exactly the song you want, pay for it, and then download it from the Internet. Apple can offer each song for just 99 cents (or a little more or a little less depending on the song) because it has no physical deliY- ery costs and no physical inventory. As this example illustrates, digital products are also advantageous (to the business and to the consumer) because they are customizable. That is , customers don't have to purchase an entire music CD-they can pick only the song or songs they want.

82C: MASS CUSTOMIZATION End consumers are often interested in customizing their purchases. In the B2C e-commerce model this need gives rise to the concept of mass customization-the ability of an organization to give its customers the opportu- nity to tailor its product or service to the customer's specifications. Customization can be appropriate and is a key competitive advantage regardless of other customer value perceptions. For example, Dell Computer (www.dell.com) is well regarded in its market especially for being the best at allowing consumers to customize a computer purchase. Music sites, such as Apple, now allow you to pick the songs you want instead of an entire CD. Clothing sites allow you to select from among various styles, colors, and sizes of clothing to fit your needs.

In a B2C environment, you're potentially dealing with millions of different consumers. each with unique tastes and needs. You must support the concept of mass customization.

828: MRO VERSUS DIRECT Maintenance, repair, and operations (MRO) materials (also called indirectmateria/,s) are materials that are necessary for running a modern corpo- ration, but do not relate to the company's primary business activities. MRO materials include everything from ballpoint pens to three-ring binders, repair parts for equipment, and lubri- cating oils. Thus, B2B MRO materials are similar to convenience and commoditylike items in the B2C e-commerce model.

In their purchases of these materials, however, business customers (B2B) are very different from end consumers (B2C) in many ways. For example, a business because of its volume of MRO materials purchases can bargain with suppliers for a discount (end consumers in the B2C e-commerce model usually don't have this ability). Many busi- nesses may band together to create even more volume and thus demand an even higher discount from a supplier. This practice is known as demand aggregation- the combin- ing of purchase requests from multiple buyers into a single large order, which justifies a discount from the business. If your organization is a supplier of MRO materials in the B2B e-commerce model, you will compete mostly on price (including discounts), deli.-- ery, and ease of ordering.

Direct materials are materials that are used in production in a manufacturing com- pany or are placed on the shelf for sale in a retail environment. So, as opposed to MRO materials, direct materials relate to a company's primary business activities. It is critically

Understand Your Business, Products, Services, and Customers 135

portant that the customer business receives exactly what is needed in terms of quality, city, and the timing of delivery of direct materials.

for direct materials acquisition, some businesses participate in a reverse auction ough an electronic marketplace). A reverse auction is the process in which a buyer

-ts its interest in buying a certain quantity of items with notations concerning quality, :;x:cification, and delivery timing, and sellers compete for the business by submitting sue- -- ively lower bids until there is only one seller left. Reverse auctions create tremendous

wer" for the buyer because multiple sellers are competing for the same business.

328: HORIZONTAL VERSUS VERTICAL As a supplier to other businesses, you also ~ed to understand whether you are selling in a horizontal or vertical e-marketplace •ee Figure 5.4). An electronic marketplace (e-marketplace) is an interactive busi- :- providing a central market space where multiple buyers and suppliers can engage

e-commerce and/or other e-commerce business activities. E-marketplaces feature -ariety of implementations including value-added network providers (which we'll -cuss later in the chapter), horizontal e-marketplaces, and vertical e-marketplaces.

~ horizontal e-marketplace is an electronic marketplace that connects buyers and - ers across many industries, primarily for MRO materials commerce. Again, MRO

rerials include a broad of range of both products and services including office sup- es, travel, shipping, and some financial services. Because horizontal e-marketplaces

Office supplies

orizontal Travel rketplaces services

Financial services

Vertical Marketplaces

Oil and gas Retail

Figure 5.4 Horizontal and Vertical B2B Electronic Marketplace

CAN YOU NAME THE TOP 20 WEB SITES?

This is always an interesting exercise. What do you

think are the top 20 Web sites in terms of number of

visitors and page views? Take a moment and prepare

your list before reading the list below of the top 20

Web sites for July 2011 .

You may not recogn ize a few of the sites on the above

list . Baidu is the Chinese-equivalent to Google. (When we

wrote th is text, it was est imated that 10.7 percent of globa

Internet users visited Baidu in a month.) Tencent QQ is a free instant messaging (IM) service in China with about 700

million registered users. TaoBao is the Chinese equivalen·

to eBay. Sina is China's largest infotainment portal w itr

upwards of 200 million users. The rest you probably know.

1. Google

2. Facebook

3. YouTube'

4. Yahoo!

5. Blogger

6. Baidu

7. Wikipedia

8. Windows Live

9. Twitter

10. Tencent QQ

.-

136

11. MSN

12. Yahoo! Japan

13. Linkedln

14. Goog le, Ind ia

15. Taobao

16. Sina

17. Amazon

18. WordPress

19. Google, Hong Kong

20. Goog le, Germany

So, what business intelligence can you derive from

that list? In a word, China. It has the highest population

in the world and the world's second largest economy.

How much are you preparing in you r academic stud-

ies to do business in China? What's the next great and

emerging economic frontier? Did you say Africa? How

much are you preparing in your academic studies to do

business in Africa?4

support MRO materials commerce, much of our previous discussion on B2B e-com- merce for MRO materials holds true here.

A vertical e-marketplace is an electronic marketplace that connects buyers and sell- ers in a given industry (e.g., oil and gas, textiles , and retail). Covisint (www.covisint.com) is a good example. Covisint provides a B2B e-marketplace in the automotive industr;· where buyers and sellers specific to that industry conduct commerce in products and services, share mission-critical information for the development of products and parts. collaborate on new ideas, and deploy infrastructure applications that enable the seamles communication of each other's proprietary IT systems.

To summarize, we have offered you some ideas to think about regarding the following aspects of e-commerce that will help you in understanding the nature of your business. products, services, and customers.

• Business to Consumer

• Greatly varying customer demographics, lifes tyles, wants, and needs

• Distinctions of products and services by convenience versus specialty

• E-commerce works best for commoditylike and digital products and services

• Mass customization adds value in some instances

• Business to Business

• Distinctions of products and services by maintenance, repair, and operations (MRO) materials versus direct materials

• Demand aggregation and negotiation capabilities enhanced for businesses as customers (buyer power)

• £ -marketplaces connect buyers and sellers-horizontal e-marketplaces (primarily for MRO materials) and vertical e-marketplaces (specific to a given industry)

Find Customers and Establish Relationships 137

Find Customers and Establish Relationships

You can't make a sale until you find and reach customers and establish a relationship mth them. This is marketing. There are special features of and technical considerations about marketing and creating customer relationships in e-commerce to keep in mind :hat can create a competitive advantage for you.

BUSINESS TO CONSUMER

Yith well over 1 billion people on the Internet, you'd think it would be easy to find and attract customers to your B2C e-commerce site. But that's not necessarily true because all your competition is trying to do the same thing-drive customers to their Web site 3Ild encourage them to make a purchase.

First, you need to determine your appropriate marketing mix- the set of marketing tools :hat your organization will use to pursue its marketing objectives in reaching and attracting potential customers. In B2C e-commerce, your marketing mix will probably include some or all of the following: registering with search engines, online ads, viral marketing, and affili-

ce programs (and most definitely social media, which we've discussed at gTeat length). Many Web surfers use search engines to find information and products and services.

'\hi.le some search engines will include your site for free (FreeSearch.com at www .eesearch.com is an example) , almost all the popular search engines such as Yahoo! and

Google require you to pay a fee. Most of these sites will guarantee that your site appears ~ the top portion of a search list for an additional fee.

Online ads (often called banner ads) are small advertisements that appear on other sires (see Figure 5.5). Variations of online ads include pop-up and pop-under ads. A

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= LEARNING OUTCOME 3

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Figure 5.5 Banner ads at MSN Money.com

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• Markman: 9 great investments fortoday'S markel

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RECEtH QUOTES WATCHLIST

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138 Chapter 5 • Electronic Commerce

Figure 5.6 Amazon.corn's Affiliate Program Is Called Associates

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pop-up ad is a small Web page containing an advertisement that appears on your screen outside the current Web site loaded into your browser. A pop-under ad is a form of a pop-up ad that you do not see until you close your current browser window. A word of caution here: Most people don' t mind banner ads because they appear as a part of the site they're visiting. However, most people consider pop-up and pop-under ads to be very annoymg.

Viral marketing encourages users of a product or service supplied by a B2C e-commerce business to encourage friends to join in as well. Blue Mountain Arts (www.bluemountain.com) is a good example. When you use Blue Mountain to send an e-hirthday card (or some other type of card), the intended recipient will receive an e-mail directing him or her to Blue Mountain' s site. Once the recipient views the card, Blue Mountain provides a link so that person can send you a card in return. Of course, Blue Mountain charges for each card sent, so it makes money both ways.

An affiliate program is an arrangement made between two e-commerce sites that directs viewers from one site to the other. Amazon.com is the most well-known creator of an affiliate program. If you become an Amazon associate, your e-commerce Web site directs viewers to Amazon's site for certain purchases. If a sale results , Amazon pays you a fee, which is usually a percentage of the sale (see Figure 5.6) . Likewise, you can pay another site to direct traffic to yours , which may he through an online ad. In some instances, affiliate programs create relationships such that a payment is made for each click-through. A click-through is a count of the number of people who visit one site, click on an ad, and are taken to the site of the advertiser.

In general, you want your marketing mix to drive as many potential customers as possible to have a look at your B2C e-commerce offerings. From there, however, you need to focus on your conversion rate . A conversion rate is the percentage of poten- tial customers who visit your site who actually buy something. So, while total views or "hits" to your e-commerce Web site are important, obviously even more so is your conversion rate.

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HE WORLD OF FACEBOOK NOW INCLUDES A FULL ECONOMY

- ere is no doubt that Facebook, which started out as

=. seemingly simple project for sharing information at _.,e school, has had a significant and profound effect

:'1 our society. All you have to do is visit Facebook's

:-..atistics page at http://www.facebook.com/press/info

p?statistics and read about the depth and breadth

:"' Facebook and you will quickly come to understand

- e extent to which Facebook has permeated our lives.

And like any good innovative company, Facebook

ants more. It wants you to spend more time there; it

ants you to be connected to more communities; it wants

ou to have more friends. And now, it wants your money.

·o, Facebook has no plans to charges users. Facebook is

:reating a virtual economy with its own currency, called

=acebook credits.

Facebook began testing its currency in mid-2009 and

· lly rolled it out in 2010. Facebook now requires all

;;ame developers to accept payment using Facebook

:redits. However, that won't be the only way gam-

ers can pay; they can still use the likes of PayPal. But

=acebook is offering incentives for game developers

ho focus solely on accepting Facebook credits.

Facebook has also begun competing with Groupon

and Living Social. Through its daily deal offerings,

=acebook users can instantly purchase real goods with

BUSINESS TO BUSINESS

Facebook credits. Users will get the daily deals in their

news feeds and are just a few clicks away from spend-

ing money. How does Facebook make money? Several

ways actually. First, when a user buys merchandise-a

daily deal, a game, whatever-Facebook keeps 30 per-

cent of the revenue and passes 70 percent along to the

merchant or developer.

Second, Facebook makes money fr.om money. When

you buy Facebook credits, there's a good chance that

some of those credits will remain in your account, that

is, you will always have some sort of balance. All the

while, Facebook will be making interest from a bank

on your money. Social Times Pro, a research firm, esti-

mated that $600 million would be moving through

Facebook's virtual economy in a 12-month period. If 10

percent stays in users' accounts, then Facebook will be

accruing interest on $60 million.

And there's a future revenue stream that Facebook

is eyeing. As we move increasingly toward mobile com-

merce and thus mobile payments, Facebook is positioning

itself as a mobile payments provider. So someday soon (or

perhaps even now), you'll be able to make a purchase on

your mobile device using Facebook credits. And that pur-

chase could be for a Starbucks coffee, an app in Apple's

store, or perhaps even a computer from Dell.5

Finding and attracting customers to your B2B e-commerce site is much different. Businesses-customers in the B2B model- don't usually find products and services by illffing the Web or using search engines. Instead, business customers prefer to actively participate in e-marketplaces to find suppliers. Within an e-marketplace, an organization can participate in a reverse auction to find a supplier, as we discussed earlier.

Moreover, an organization can search an e-marketplace for suitable suppliers and tlien enter into negotiations outside the e-marketplace. This happens for organiza- rions needing to purchase millions of dollars in inventory, parts, or raw materials, and it occurs for organizations wanting to establish a long-term relationship with ·us t one supplier.

Relationships among businesses in B2B are very important. These relationships, characterized by trust and continuity, extend into the IT realm. In the B2B e-commerce business model, you must provide a level of integration of your IT systems with those of your business partners. Once a formal business relationship has been established, the rroal is to use IT to streamline the ordering and procurement processes to create tight supply chain management systems and drive out cost, so your IT systems have to work closely together.

139

140 Chapter 5 • Electronic Commerce

I LEARNING OUTCOME 4

~

To summarize, some ideas about marketing, or finding customers and creating relatio"- ships with them, in e-commerce are:

• Business to Consumer

• Design marketing mix to drive potential customers to a Web site

• Register with a search engine; use online ads, viral marketing, and affiliate programs

• Conversion rates measure success

• Business to Business

• Businesses participate in e-marketplaces- business customers don't surf the Web. so e-marketplaces need your attention, not a broad and generic marketing mix

• Formal establishment of business relationships based on trust and continuity required

• Some level ofIT system integration between you and your customer required

• Online negotiations for pricing, quality, specifications, artd delivery timing

Move Money Easily and Securely In the world of e-commerce, you must create IT systems that enable your customers (other businesses or end consumers) to pay electronically, easily, and securely for their purchases. Of course, you can still accept credit cards as the form of payment just like in the brick-and-mortar world, but credit card payments are really an electronic form o - payment.

BUSINESS TO CONSUMER PAYMENT SYSTEMS

Your customers in the Business to Consumer e-commerce model will most often pay for products and services using credit cards, financial cybermediaries, electronic checks. Electronic Bill Presentment and Payment (EBPP), or smart cards.

• Financial cybermediary-an Internet-based company that makes it easy for one person to pay another person or organization over the Internet. PayPal (www.paypal.com) is the best-known example of a financial cybermediary (see Figure 5.7 ). You create a PayPal account by logging on to the PayPal Web site and providing it with personal, credit card, and banking information. When you want to send money, you go to the Pay Pal site and enter the amount of money you want to send and provide information for either the person or organization you want to send the money to. You can also accumulate money in your personal Pay Pal account by accepting money from other people. You can transfer the money to one of your banking accounts, use it for other purposes, send the funds to someone else, or just leave it there for awhile.

• Electronic check-a mechanism for sending money from your checking or saving account to another person or organization. There are many implementations of electronic checks, with the most prominent being online banking.

• Electronic Bill Presentment and Payment (EBPP)-a system that sends bills (usually to end consumers) over the Internet and provides an easy-to-use mechanism (such as clicking on a button) to pay for them if the amount looks correct. EBPP systems are available through local banks or online services such as Checkfree (www .checkfree.com) and Quicken (www.quicken.com/banking_and_credit/).