Role of the Internet : technological development,development of e-Commerce, different commercial models, diverse roles of websites. Internet strategy : virtual value chain dis-intermediation, cybermediaries
Business to Business : Intranets and Extranets; communication , recruitment and procurement , exchanges. Consumer behavior : flow theory; Hoffman’s Many – to- Many model; Internet branding and loyalty ; Internet communities ; how the Internet is changing consumer behavior. Internet market research : secondary research, online focus groups, MEGS , web surveys , Email surveys. Internet retailing : reducing role of location , online shopping.
7. Internet promotion : advertising : types , measurement, effectiveness , integration ; affiliation marketing , PR ; word-on-line ; direct marketing.
Website design : website design guidelines , best practice , building traffic. Convergence and future development : interactive TV , mobile internet , PDA , groupware , SMS , interactive appliances.
Role Of Internet
Role of Internet
With the use of internet, it is possible to transmit/receive information containing images, graphics, sound and videos. ISP industry can offer services as:
•Linking consumers and businesses via internet.
•Monitoring/maintaining customer's Web sites. •Network management/systems integration. •Backbone access services for other ISP's. •Managing online purchase and payment systems.
The internet is designed to be indefinitely extendible and the reliability of internet primarily depends on the quality of the service providers' equipments.
Benefits of Internet:
•Doing fast business.
•Trying out new ideas. •Gathering opinions. •Allowing the business to appear alongside other established businesses. •Improving the standards of customer service/support resource. •Supporting managerial functions. Limitations:
•Privacy Threats: Hackers, viruses etc.
Managing in the Virtual World - Market Space
What is Market Place Physical World of Resources to create products/ services What is Marketspace
Virtual World of Info. that complements/ substitutes the physical world
Business have been looking for ways to increase their profits and market share . The search for more efficient ways of doing business has been driving another revolution in the conduct of business .This revolution is known as electronic commerce which is any purchasing or selling through an electronic communications medium. Business planners in institutions and organizations now see technology not only as a supportive cofactor, but as a key strategic tool. They see electronic commerce as a “wave of future”. Information technology has revolutionized and digitalized economic activity , and made it a truly global phenomenon .One of the most visible icons of the IT Revolution is the internet – the world wise web. Which is a gigantic anarchic network of computers world wide , which is essentially used for communicating , interaction , interactive long distance computing and exchange of information giving rise to a host of applications from military and government to business , education and entertainment.
E-commerce exists because of internet. It has been born on the net and is growing with the net . It involves carrying business on and through the net . E-commerce is a product of the digital economy. It is a source of a paradigm shift , in redefining technology, individual and global societies , as well as national and global economies. Electronic commerce is a symbolic integration of communications , data management , and security capabilities to allow business applications within different organizations to automatically exchange information related to the sale if goods and services . Communication services support the transfer of information from the originator to the recipient. Data management services define the exchange format of the information.Security mechanisms authenticate the source of information, guarantee the integrity of the information received , prevent disclosure of information to inappropriate users , and document that the information was received by the intended recipient.
Prior to the development of e-commerce, the process of marketing and selling goods was a mass-marketing and sales-force driven process . Customers were viewed as passive targets of advertising “campaigns” .Selling was conducted in well-insulated “channels” .Consumers were trapped by geographical and social boundaries, unable to search widely for the best price and quality . E-commerce has challenged much of this traditional business thinking.
E-Commerce Defined :
“The use of internet and the WEB to transact business . More formally , digitally enabled commercial transactions between and among organizations and individuals.” “Electronic commerce is commerce via any electronic media , such as TV,fax, and online networks.Internetbased commerce makes use of any Internet facility and service. Web-based commerce focuses on the opportunity of the World Wide Web apparatus , in particular , its ubiquity and its ease of use .”
Benefits/Features of E-Commerce : Electronic commerce increases the speed,accuracy, and efficiency of business and personal transactions. The benefits of E-commerce include the following :
•Ubiquity : E-commerce is ubiquitous, meaning that it is available just about everywhere , at all times.It liberates the market from being restricted to a physical space and makes it possible to shop from your desktop, at home, at work , or even from your car using mobile commerce .From customer point of view , ubiquity reduces transaction costs – the costs of participating in a market.To transact it is no longer necessary to spend time and money traveling to market.At a broader level, the ubiquity of e-commerce lowers the cognitive energy required to transact in a marketplace . Cognitive energy refers to the mental effort required to complete a task.
•Global Reach : E-commerce technology permits commercial transactions to cross cultural and national boundaries far more conveniently and cost effectively than is true in traditional commerce.As a result, the potential market size for e-commerce merchants is roughly equal to the size of the world’s online population.The total number of users or customers an e-commerce business can obtain is a measure of its reach. •Universal Standards : The technical standards for conducting ecommerce , are universal standards – they are shared by all nations around the world. The universal technical standards of e-commerce greatly lower the market entry costs - the cost merchants must pay just to bring their goods to market. At the same time , for consumers , universal standards , reduce search cost – the effort required to find a suitable products.
•Richness : Information richness refers to the complexity and content of a message. •Interactivity : E-commerce technologies are interactive , meaning they allow for two-way communication between merchant and consumer .It allows an online merchant to engage a consumer in ways similar to a face-to face experience , but on a much more massive , global scale. •Information Density : the internet and the Web vastly increase information density –the total amount and quality of information available to all market participants , consumers, and merchants alike.E-commerce technologies reduce information collection, storage , processing , and communication costs .At the sale time, these technologies increase greatly, the accuracy and timeliness of information-making information more useful and important than ever.As a result information becomes more plentiful,cheaper and of higher quality.
•Personalization/Customization : E-commerce technologies permit personalization – merchants can target their marketing messages to specific individuals by adjusting the message to a person’s name,interests , and past purchases.The technology also permits customization –changing the delivered product or service based on a users preference or prior behavior.Given the interactive nature of ecommerce technology, a great deal of information about the consumer can be gathered in the marketplace at the moment of purchase.With the increase in information density , a great deal of information about the consumer’s past purchases and behavior can be stored and used by online merchants.The result is increase in the level of personalization and customization.
Types of E-Commerce :
There are different types of e-commerce and many different ways to characterize these types . The five major types of e-commerce are : 1. B2C 2. B2B
4. P2P 5. M-Commerce
B2C : (Business-to-Consumer) The most commonly discussed type of e-commerce is Business-toConsumer (B2C) e-commerce, in which online business attempt to reach individual consumers is done .It has grown exponentially since 1995, and is the type of e-commerce that most consumers are likely to encounter . Within the B2C category there are many different types of business models: portals , online retailers , content providers , transaction brokers , market creators , service providers , and community providers.
B2B : (Business-to-Business) In this type of e-commerce , one business focuses on selling to other business .It is the largest form of e-commerce.The ultimate size of B2B e-commerce could be huge . At first, B2B e-commerce primarily involved inter-business exchanges , but a number of other B2B business models have developed, including e-distribution , B2B service providers , matchmakers , and info-mediaries that are widening the use of e-commerce.
C2C : Consumer-to-Consumer C2C e-commerce provides a way for consumers to sell to each other , with the help of an online market maker such as the auction site .In C2C e-commerce , the consumer prepares the product for market , places the product for auction or sale, and relies on the market maker to provide catalog , search engine ,and transaction clearing capabilities so that products can be easily displayed , discovered , and paid for.
P2P : (Peer-to-Peer)
Peer-to-Peer technology enables Internet users to share files and computer resources directly without having to go through a central Web server. In peer-to-peer’s purest form, no intermediary is required . Entrepreneurs and venture capitalists have attempted to adapt various aspects of peer-to-peer (P2P) ecommerce. E.g. Napster.com established to aid internet users in finding and sharing music files (mp3 files). It is partially peer-to-peer because it relies on a central database to show which users are sharing music files.
Mobile commerce or m-commerce , refers to the use of wireless digital devices to enable transactions on the Web . These devices utilize wireless networks to connect cell phones and handheld devices to the Web. Once connected , mobile consumers can conduct many types of transactions , including stock trades, banking, travel reservations , and more.
***B2G : Business to Government
E-Commerce Business Models : A business model is a set of planned activities (sometimes referred to as business process) designed to result in a profit in a marketplace. The business model is at the center of the business plan. A business plan is a document that describes a firm’s business model . An e-commerce business model aims to use and leverage the unique qualities of the internet and the World Wide Web.
There are Eight Key Ingredients of a Business Model : 1. Value proposition : It defines how a company’s product or service fulfils the needs of the customers.To develop and/or analyze a proposition, the following questions need to be answered : - Why will customers choose to business with your firm instead of another company ? - What will your firm provide that other firms do not and cannot ? From the consumer point of view , successful e-commerce value propositions include : personalization and customization of product offerings, reduction of product search costs, reduction of price discovery costs, and facilitation of transactions by managing product delivery.
2. Revenue model : The firms revenue model describes how the firm will earn revenue , generate profits,and produce a superior return on invested capital.The function of business organizations is both to generate profits and to produce returns on invested capital that exceed alternative investments. * The advertising model : A website that offers its users content, services , and/or products also provides a forum for advertisements and receives fees from advertisers. Those websites that are able to attract the greatest viewer ship and are able to retain user attention are able to charge higher advertising rates.
* Subscription Revenue Model :
In the subscription revenue model , a Web site that offers its users content or services charges a subscription fee for access to some or all of its offerings . * Transaction fee revenue model :
In this model a company receives a fee for enabling or executing a transaction. (e.g. Online auction websites taking some commission from buyer as well as the seller). * Sales Revenue Model : In the sales revenue model , a companies derive revenue by selling goods, information , or services to customers . E.g. amazon.com
* Affiliate Revenue model :
In the affiliate revenue model , sites that steer business to an “affiliate” receive a referral fee or percentage of the revenue from any resulting sales.
3.Market Opportunity : The term market opportunity refers to the company’s intended marketplace and the overall potential financial opportunities available to the firm in that marketplace . The market opportunity is usually divided into smaller market niches. The realistic market opportunity is defined by the revenue potential in each of the market niches . 4. Competitive Environment : The firms competitive environment refers to the other companies operating in the same marketplace selling similar products . The competitive environment for a company is influenced by several factors : how many competitors are active, how large their operations are , what the market share of each competitor is , how profitable these firms are , and how they price their products.
5.Competitive Advantage : Firms achieve a competitive advantage when they can produce a superior product a superior product and/or bring the product to market at lower than most, or all, of their competitors . Firms also compete on scope .Some firms can develop global markets while other firms can only develop a national or regional market .Firms that can provide superior products at lowest cost on global basis are truly advantaged.
6. Market strategy :
Market strategy is the plan the company put together that details exactly how the company intend to enter the market and attract new customers.
7.Organizational Development : Describes how the company will organize the work that needs to be accomplished. 8. Management Team : Employees of the company responsible for making the business model work.
Categorizing E-Commerce Business Models
Major B2C business models :
There are a number of different models being used in the B2C ecommerce arena . The major models include the following : •Portal :-Offers powerful search tools plus an integrated package of content services ;typically utilizes a combined subscription/advertising revenue/transaction fee model ;may be general or specialized.
•E-tailer :- Online version of traditional retailer; includes virtual merchants (online retail stores) , clicks and mortar e-tailers (online distribution channel for a company that also has a physical store);catalog merchants (online version of direct mail catalog); online malls (online version of mall);manufacturers selling directly over the Web.
•Content Provider :- Information and entertainment companies that provide digital content over the Web; typically utilizes an advertising , subscription ,or affiliate referral fee revenue model. •Transaction broker :- Process online sales transactions; typically utilizes a transaction fee revenue model. •Market creator :- Uses Internet technology to create markets that bring buyers and sellers together ; typically utilizes a transaction fee revenue model. •Service provider :- Offers services online. •Community provider :- Provides an online community of likeminded individuals for networking and information sharing ; revenue is generated by referral fees , advertising , and subscription.
Major B2B business models :
The major business models used to date in B2B arena include :
•Hub, also known as marketplace/exchange – electronic market place where suppliers and commercial purchasers can conduct transactions ; may be general (a horizontal marketplace ) or specialized (a vertical marketplace) . •E-distributor :- Supplies products directly to individual businesses.
•B2B service provider :- Sells business services to other firms.
•Matchmaker :- Link business together , changes transaction on usage fees.
•Infomediary :- Gathers information and sells it to business .
Major C2C business models : A variety of business models can be found in the customer-tocustomer e-commerce , peer-to-peer e-commerce, and mcommerce areas : •C2C business models connect consumers with other consumers .The most successful has been the market creator business model used by eBay.com . •P2P business models enable consumers to share files and services via Web without common servers. A challenge has been finding a revenue model that works.
•M-commerce business models take traditional e-commerce models and leverage emerging wireless technologies to permit mobile access to the Web.
•E-commerce enablers business models focus on providing the infrastructure necessary for e-commerce companies to exist, grow, and prosper.
Key business concepts and strategies applicable to e-commerce :
•Industry structure : The nature of players in an industry and their relative bargaining power – by changing the basis of competition among rivals , the barriers to entry , the threat of new substitute products , the strength of suppliers , and the bargaining power of buyers.
•Industry value chains : The set of activities performed in an industry by suppliers , manufacturers , transporters , distributors and retailers that transforms raw inputs into final products and services – by reducing the cost of information and other transaction costs. •Firm value chains : The set of activities performed within an individual firm to create final products from raw inputs – by increasing operational efficiency .
•Business strategy : A set of plans for achieving superior long-term returns on the capital invested in a firm – by offering unique ways to differentiate products , obtain cost advantages , compete globally , or compete in a narrow market or product segment.
Technology Infrastructure for E-Commerce
The Internet and World Wide Web ECommerce Infrastructure
The Internet : Technology Background The Internet is an interconnected network of thousands of networks and millions of computers (sometimes called as host computers or just hosts) linking business , educational institutions , government agencies , and individuals together .The internet provides services such as e-mail, news-groups, shopping, research , instant messaging , music videos and news . No one organization controls the Internet or how it functions , nor it is owned by anybody , yet it has provided the infrastructure for a transformation in commerce, scientific research, and culture .The word internet is derived from the word internetwork or the connecting together of two or more computer networks.The World Wide Web is one of the internet’s most popular services, providing access to over one billion Web pages , which are documents created in a programming language called HTML and which can contain text , graphics , audio, video, and other objects, as well as “hyperlinks” that permit a user to jump from one page to another.
The Internet : Key Technology Concepts; Based in the definition , the internet means a network that uses the IP (Internet Protocol) addressing scheme, supports the Transmission Control Protocol (TCP), and ,makes services available to users much like a telephone system makes voice and data services available to the public. Behind this formal definition are three extremely important concepts that are the basis for understanding the Internet : packet switching , the TCP/IP communications protocol , and client/server computing .Although the Internet has evolved and changed dramatically, these three concepts are at the core of how the Internet functions today and are the foundation for Internet.
Packet Switching : It is a method of slicing digital messages into parcels called “packets” sending the packets along different communication paths as they become available , and then reassembling the packets once they arrive at their destination .Prior to the development of packet switching , early computer networks used leased , dedicated telephone circuits to communicate with terminals and other computers.
In packet-switched networks , messages are first broken down into packets.Appended to each packet are digital codes that indicate a source address(the origination point) and the destination address, as well as sequencing information and error-control information for the packet.Rather than being sent directly to the destination , in a packet network , the packets travel from computer to computer until they reach their destination. The computers are called Routers . Routers are special purpose computers that interconnect thousands of different computer networks that make up the internet and route packets along to their ultimate destination as they travel.To ensure that packets take the best available path towards their destination, the routers use computer programs called routing algorithms.
Packet switching makes full use of almost all available communication lines and capacity.If some lines are disabled or too busy , the packets can be sent on any available line that eventually leads to the destination point.
TCP refers to the Transmission Control Protocol . IP refers to the Internet Protocol. A protocol is a set of rules for formatting , ordering , compressing , and error checking messages.It may also specify the speed of transmission and means by which devices on the network will indicate they have stopped sending and/or receiving messages. Protocols can be implemented in either hardware or software .TCP/IP is implemented in Web software called server software .It is the agreed upon protocol for transmitting data packets over the Web.TCP establishes connections among sending and receiving Web computers , handles the assembly of packets at the point of transmission , and their reassembly at the receiving end.
IP addresses :TCP handles the packetizing and routing of Internet messages . IP provides the Internet’s addressing scheme .Every computer connected to the Internet must be assigned an address – otherwise it cannot send or receive TCP packets .When a user sign’s onto the Internet using a dial-up telephone modem, the computer is assigned a temporary address by the Internet service provider.
Internet addresses known as IP addresses , are 32-bit numbers that appear as a series of four separate numbers marked off by periods such as 184.108.40.206. Each of the four numbers can range from 0-255. This “dotted quad” addressing scheme contains up to 4 billion addresses of the computer ( 2 to the 32nd power).The leftmost number typically indicates the network address of the computer , while remaining numbers help to identify the specific computer within the group that is sending (or receiving) messages.
Domain Names and URLs : Most people cannot remember 32-bit numbers .IP addresses can be represented by a natural language convention called domain names.The domain name system (DNS) allows expressions to stand for numeric IP addresses. Uniform Resource Locators (URLs ) are addresses used by Web browsers to identify the location of content on the web, also use domain names as a part of the URL.A typical URL contains the protocol to be used when accessing the address, followed by its location. The protocol used is HTTP (Hypertext Transfer Protocol).A URL can have more than one paths.
Client/Server computing : It is a model of computing in which very powerful personal computers called Clients are connected together in a network together with one or more server computers.These clients are sufficiently powerful to accomplish complex tasks such as displaying rich graphics , storing large files, and processing graphics and sound files , all on a local desktop or hand held device. Servers are networked computers dedicated to common functions that their client machines on the network need. Such as storing files , software applications, utility programs such as Web connections , and printers.
Other Internet Protocols :
SMTP :Simple mail transfer protocol POP : Post Office Protocol For Sending Email
IMAP : Internet message access protocol
FTP : File Transfer Protocol for transferring files SSL : Secure Socket Layers for Security
E-Commerce Security Environment
It is difficult to estimate the actual amount of e-commerce crime for a variety of reasons . In many instances , e-commerce crimes are not reported because companies ear of losing the trust of legitimate customers. And even when crimes are reported , it may be hard to quantify the losses incurred .The most serious losses involved theft of proprietary information and financial fraud.Online credit card fraud is perhaps the most high profile form of e-commerce crime. In some cases , the criminals aim to just deface , vandalize and/or disrupt a Web site, rather than steal goods or services . The cost of such an attack includes not only the time and effort to make repairs to the site but also damage done to the site’s reputation and image as well as revenues lost as a result of the attack. Estimates of the overall cost of the various forms of cyber vandalism range into billions.
What is Good E-Commerce Security ?
What is a secure commercial transaction ?
Anytime a user goes into a market place , he/she takes risks, including the loss of privacy (information about what you purchased).The prime risk as a customer is that you do not get what you paid for.As a merchant in the market , you don’t get paid for what you sell,.Thieves take merchandise and then either walk off without paying anything , or pay you with a fraudulent instrument , stolen credit card , or forged currency. Burglary, breaking and entering , embezzlement , trespass , malicious destruction, vandalism – all crimes in traditional commercial environment – are also present in ecommerce.However , reducing risks in e-commerce is a complex process that involves new technologies, organizational policies and procedures, and new laws and industry standards that empower law enforcement officials to investigate and prosecute offenders.
Security Threats in the E-Commerce Environment :
From the technology perspective , there are three key points of vulnerability when dealing with e-commerce : the client, the server and the communication pipeline. •Malicious Code It includes a variety of threats such as viruses , worms , Trojan horses , and “bad applets” . A virus is a computer program that has the ability to replicate or make copies of itself , and spread to other files. In addition to the ability to replicate , most computer viruses deliver a “payload”(destroying files,reformatting the computers hard drive or causing programs to rum improperly.
A Trojan horse does something other than expected . The Trojan horse is not itself a virus because it does not replicate , but is often a way for viruses or other malicious code to be introduced into a computer system. Bad applets also referred to as malicious mobile code , are expected to become an increasing problem as java and Active X controls become more commonplace.
Malicious code is a threat to the system’s integrity and continued operation, often changing how a system functions or altering documents created on the system . In many cases the user is unaware of the attack until it affects the system and the data on the system.
•Hacking and Cyber vandalism :
A hacker is an individual who intends to gain unauthorized access to a computer system . Within the hacking community , the term cracker is typically used to denote a hacker with criminal intent although in the public press , the terms hacker and cracker are used interchangeably. Hackers and crackers get unauthorized access by finding weaknesses in the security procedures of Web sites and computer system , often taking advantages of various features of internet that make it an open system that is easy to use. Cyber vandalism is intentionally disrupting,defacing , or even destroying the site.
Group of hackers called as “tiger teams” are used by corporate security departments to test their own security measures.By hiring hackers to break into the system from outside , the company can identify weaknesses in the computer systems.
•Credit Card Frauds
The fear that the credit card information will be stolen frequently prevents the users from making online purchases . In e-commerce the greatest threat to the consumer is that the merchant’s server with which the customer is transacting will “lose” the credit information to permit it to be diverted for a criminal purpose.Credit card files are the major targets of Web site hackers.
Dimensions of E-Commerce security :
There are six dimensions to e-commerce security : 1. Integrity
2. No repudiation
3. Authenticity 4. Confidentiality 5. Privacy 6. Availabilty
Integrity refers to the ability to ensure that information being displayed on a Web site , or transmitted or received over the internet , has not been altered in any way by an unauthorized party.e.g. an unauthorized person intercepts and changes the contents of an online communication , such as by redirecting a blank wire transfer into a different account , the integrity of the message has been compromised because the communication no longer represents what the original sender intended .
Non repudiation refers to the ability to ensure that e-commerce participants do not deny (I.e. repudiate) their online actions.
Authenticity refers to the ability to identify the identity of a person or entity with whom you are dealing on the internet. How does the customer know that the Web site operator is who it claims to be ? How can the merchant be assured that the customer is really who he/she say he/she is ? Someone who claims to be someone they are not is “spoofing” or misinterpreting themselves. Confidentiality refers to the ability to ensure that messages and data are available only to those who are to view them . Confidentiality is something confused with privacy , which refers to the ability to control the use of information a customer provides about himself or herself to an e-commerce merchant.
Availability refers to the ability to ensure that an e-commerce site continues to function as intended .
E-Commerce security is designed to protect these six dimensions.When any one of them is compromised , it is a security issue.
Security of Data During Transmission :
Business with computers containing confidential data connected to the Internet do not want the public to have unauthorized access to specific parts of their files; at the same time they might want the public to have access to specific parts of their information base.Business that offer services that require payment by methods including credit card transactions need to be cautious .If these transactions are not secured, hackers can access the users account information.
What is Value Chain?
Value chain is a high-level model of how businesses receive raw materials as input, add value to the raw materials through various processes, and sell finished products to customers. Today's Challenges Old-fashioned command-and-control companies were merely trying to manage the "white space" in their organizational charts. Today's companies must manage the white space in entire value chains. A critical pre-requisite for success in digital economy is the implementation of an integrated value chain that extends across - and beyond - the enterprise.
In an information society the value of information has become significant. Every business has an information component in its product/services and operations. For example, a firm may have an information product (eg: newspaper) or an information intensive operations (eg: insurance). The proportion of information content varies from industry to industry. In some industries information plays a core role while in others it plays a peripheral role. Significant transformations can be expected in industries where information plays a core role. For example, industries such as publishing, music,financial services, entertainment, etc., where information plays a core role are undergoing significant transformation while in other industries such as manufacturing the transformation is more limited.
New information technologies and the ubiquitous internet have enabled cheap and easy methods for data storage, analysis, and distribution of information. They have created new opportunities to generate value from the organization's information. Some firms tend to exploit the information content more than the other. The concept of marketspace is to examine the opportunities for extracting value from the information assets of organization.
Traditionally there has been a trade off between reach and richness. Reach refers to breadth of audience and richness refers to the quality of information in terms of delivery mode, media choice, information content and amount, relevance etc. New technologies are changing the tradeoffs causing changes in industry structure. For example, we have always used standard information in a broadcast mode (eg: TV) for reaching a broad audience. However, with the internet we have the possibility of providing customized information in an interactive mode to a broad audience.
Some companies operate in marketplace, some in marketspace, and others in both. Managers have to create value in both physical and virtual world to sustain the competitive advantage. Value is created by gathering, organizing, selecting, synthesizing, and distributing information. The ability to create value with information may bring in competitors from outside the industry who have expertise with handling information. A few examples are online travel agents, stock brokers, online auto dealers, online retailers etc.
What is physical Value chain • • • • Series of value adding activities that link the supply side to demand side Supply side - inbound logistics, production, design etc Demand side - outbound logistics, marketing, sales, service etc. Information is a supporting element to control and monitor the processes in chain
Virtual Value Chain
• • • • • • Create value with information in the Marketspace It may mirror the physical value chain or have totally new products It will require a change in way of thinking Senior managers need to understand about virtual value chain and how to exploit it Marketing managers have to learn to market in marketspace Value created by gathering, organzing, selecting, synthesizing, and distributing info
Stages of Transformation from Marketplace to Marketspace Firms go through various stages of transformation in the use of IT. They start using IT as a control system to monitor performance (visibility stage) and progress into exploiting the information in the value chain. Finally, they tend to find new value in the information to create new products/services or add value to existing product.
Visibility •Info. Systems are considered as control systems •Improve efficiency thro' better monitoring •Reduce cost
•substitute virtual activities for physical activities •create parallel value in market space
New Customer Relationships
add value to products/ services draw on info. in virtual value chain to deliver value to customers Exploit the value matrix •gather
•select •synthesize •Distribute
Value for a product is dependent on:
•Context - the way it is presented •Infrastructure - to distribute the information.
Disintermediation is giving the user or the consumer direct access to information that otherwise would require a mediator, such as a salesperson, a librarian, or a lawyer. Observers of the Internet and the World Wide Web note that these new technologies give users the power to look up medical, legal information, travel, or comparative product data directly, in some cases removing the need for the mediator (doctor, lawyer, salesperson) or at the very least changing the relationship between the user and the product or service provider.
In economics, disintermediation is the removal of intermediaries in a supply chain: “cutting out the middlemen". Instead of going through traditional distribution channels, which had some type of intermediate (such as a distributor, wholesaler, broker, or agent), companies may now deal with every customer directly, for example via the Internet. One important factor is a drop in the cost of servicing customers directly.
Disintermediation initiated by consumers is often the result of high market transparency, in that buyers are aware of supply prices direct from the manufacturer. Buyers bypass the middlemen (wholesalers and retailers) in order to buy directly from the manufacturer and thereby pay less. Buyers can alternatively elect to purchase from wholesalers. Often, a B2C intermediary functions as the bridge between buyer and manufacturer.
To illustrate, a typical B2C supply chain is composed of four or five entities (in order):
• • •
Supplier Manufacturer Wholesaler
In the past, traditional channels of distribution have always had a place for the middleman. It was through these third party channel partners that many companies could bring their products or services to market in the most economical manner possible. Middlemen have handled not only the sale of product, but also a number of other functions including, lead generation, specification of equipment, assistance with credit approval, warehousing and aftermarket support.
A middleman can take a number of different forms. He or she could be a wholesaler, distributor, retailer, sales agent or a manufacturer's representative. Their sole purpose is to unite the producer with the customer. Their value is in the ability to find the customer, define the customer's needs, close the sale and support the manufacturer.
However, as a result of advancing technologies and the proper application of Internet strategies, it is no longer business as usual for the middleman. The Internet changes all the rules. For some established businesses these changes, such as reverse auctions, marketplaces, industry portals and virtual buying groups, represent a clear threat to the status quo enjoyed by many performing middleman functions. This threat is continuing to lend credence to the feared concept of dis-intermediation.
New methods and new technologies are being developed everyday that make it possible to drop the third party middlemen and reduce transactional costs. When the middleman is deleted from the process or dis-intermediated, he or she is not party to the profits previously generated in the transaction. The end result is their ultimate demise.
But has the middleman been eliminated and replaced with the World Wide Web? Or has their role been morphed into a greater opportunity as a result of the Internet? By re-examining their business models many of these entrepreneurs have reestablished themselves in the business cycle and elevated their value in the eyes of both their customers and the manufacturers they represent.
The Destruction of the Middleman
The Internet has changed all the rules and has posed a threat for many established distribution channels. At risk are the agents and distributors that man these channels. New business models such as reverse auctions, industry portals and virtual buying groups have emerged lending credence to the feared concept of disintermediation.
e-Commerce pundits have long predicted the demise of these middlemen as a result of going direct. In some cases these predictions have become realities. Travel agents have already experienced the shortening of supply chains as airlines encourage their customers to purchase tickets directly from their web site. Many airlines have provided lucrative incentives for customers that book on-line rather than through travel agents. The reason for this online push is simple: Airlines save an estimated $15 - $25 per transaction when travelers use their Web sites.
The manufacturers own web site can pose a threat to the middleman as well. Leads generated here can be handled directly by the principal and eliminate the need for the middleman. Aftermarket parts are especially vulnerable to this occurrence. Most consumers refer to the nameplate on equipment they are dealing with then contact the web site of the manufacturer when they have a need for service or parts replacement. The middleman is completely circumvented in this instance and that dramatically affects his revenue.
This may also be the case when a purchaser has the need for either a replacement unit or an exact match to sit beside an existing piece of equipment. The middleman could have sold the original equipment and be completely bypassed when the customer refers to a manufacturer's web site.
Online Market Research
Market research involves gathering information that will help a firm identify potential products and customers .There are two general types of market research .
Primary research involves gathering first-hand information using techniques such as surveys , personal interviews and focus groups.This type of research is typically used to gain feedback on brands, products , or new marketing campaigns where no previous study has been done.
Secondary research relies on existing , published information as the basis for analyzing the market .
Both primary and secondary research can be completed online more efficiently , less expensively , and more accurately than offline.In addition to two different approaches to market research , there are two types of data to be studied . Quantitative data is data that can be expressed as a number , such as percentage . Quantitative data can be analyzed using statistical programs that identify relationship between certain variables , or factors that affect how someone responds. Qualitative data is data that cannot be easily quantified , such as opinions , survey questions that yield qualitative responses are analyzed by grouping responses into similar sub segments based on the answer given . One type of analysis is content analysis , which tries to identify the major categories of responses given.
Primary Research : Surveys and questionnaires are the most popular and frequently used market research tools.Using a survey instrument , which is a list of questions , researchers can approach groups of people to ask their views on virtually any imaginable topic.
Online surveys can be typically be administered more quickly and less expensively than traditional mail or telephone surveys.Companies can hire an outside market research firm to conduct the survey or create and administer their own . Online surveys also make it possible to track respondents and follow up with those who haven’t yet completed survey, which help to improve response rates , the percentage of people who complete a survey. A low response rate can damage the validity , or believability , of a survey’s results.
Feedback forms, which ask users to provide input regarding a site’s operations in a set format , are another type of inline survey. Requesting regular input from site visitors may provide more qualitative data , which is more difficult to analyze , but the resulting information can assist in improving and enhancing site performance.
Personal interviews are another primary research tool . The interview is generally guided by a set of questions very similar to survey instrument. Although it is more difficult to incorporate personal interviews within Web sites , it is possible to conduct research online via live chat or e-mail , with trained researcher interacting with the study participants .Personal interviews offer an opportunity to gather more in-depth information on a topic.In some cases , personal interviews are used as second phase of a research project , following initial information gathering by survey.
Secondary Research : It involves gathering information using WEB sites as the information source.
The Key to being efficient and effective as a researcher is identifying the WEB sites most likely to provide answers to the questions posed in the research .By establishing and agreeing on the key question to be answered through market research , as well as why that information will be useful , researchers can zero in on their information needs. Understanding how the information will impact other decisions also helps to further refine information collection.
Some popular secondary research tools ( Web Sites) 1. Factiva.com 2. Businesswire.com 3. Hoovers.com 4. Localeyes.com 5. Thomasregister.com
7. sec.gov 8. Aol.com (America Online)
Technologies that support Online Marketing :
•Web transaction logs : Records that document user activity at the Web site . •Transaction logs : Coupled with data from the registration forms and shopping cart database , these represent a treasure trove of marketing information for both individual sites and the online industry as a whole.
•Cookies : A small text file that Web sites place on visitors /client computers every time they visit , and during the visit , as specific pages visited . Cookies provide Web marketers with a very quick means of identifying the customer and understanding his or her prior behavior at the site.
•Web bugs : Tiny graphic files hidden in marketing e-mail messages and on Web sites . Web bugs are used to automatically transmit information about the user and the page being viewed to a monitoring server. •Databases , data warehouses, data mining , and “profiling “ :Technologies that allow marketers to identify exactly who the online customer is and what they want , and then to present the customer with exactly what they want, when they want it, for the right price.
•Advertising networks : best known for their ability to present users with banner advertisements based on a database of user behavioral data . Specialized ad servers are used to store and send users the appropriate banner ad.
CRM systems : A repository of customer information that records all of the contacts that a customer has with a firm and generates a customer profile available to everyone in the firm who has a need to “know the customer”.
IT enabled marketing and branding strategies :
•Online marketing techniques to online customers include permission marketing , affiliate marketing , viral marketing , and brand leveraging. •Online techniques for strengthening customer relationships include one-to-one marketing ; customization , transactive content ; and customer service (CRMs,FAQs,live chat , intelligent agents , and automated response system). •Online pricing strategies include offering products and services for free ,versioning , bundling , and dynamic pricing. •Strategies to handle the possibility of channel conflict.
Direct E-mail marketing : E-mail marketing messages sent directly to interested users (direct e-mail marketing) has proven to be one of the most effective forms of marketing communications. The key to effective direct e-mail marketing is “interested users”. Direct e-mail marketing is not spam . SPAM involves sending unsolicited e-mail to a mass audience of Internet users who have expressed no interest in the product . Instead , direct e-mail marketing messages are sent to an “opt in” audience of Internet users who have expressed at one time or another an interest in receiving messages from the advertiser. By sending e-mail to an opt-in audience , advertisers are targeting interested customers. Because of the comparatively high response rates and low cost, direct e-mail marketing is the fastest growing form of online marketing.
The primary cost of e-mail marketing is for the purchase of the list of names to which the e-mail will be sent . Due to the cost savings possible with e-mail , the short time to market , and high response rates , companies are expected to increasingly use e-mail to communicate directly with customers.
Online Catalogs :
Online Catalogs are the equivalent of paper-based catalog. The basic function of a catalog is to display the merchant’s wares. The electronic version typically contains a color image of each available product , a description of the item , as well as size , color, material composition , and pricing information . While simple catalogs are , technically , hard coded HTML pages and graphics displaying softwares , most sites with more than 15-20 products generate catalog pages from a product and price database that be easily changed . Simply by clicking on an order button at the site , customers can make a purchase instantly.
Public Relations :
Another marketing communications tool used to increase awareness of a site , and potentially boost traffic , is public relations. Public Relations (PR) involves communicating with target audiences, pr publics , using methods other than advertising . Some of these methods include publicity (media coverage), special events , such as a grand opening celebration or press conference ; and publications , such as newsletters and customer bulletins.
Public Relations firms can also support a Web site by creating promotional strategies , developing relationships with reporters and producers of interest to the client company , proposing articles and TV program subjects , and generally keeping the press aware of any good news regarding an online company. Some firms specialize in dot-coms or have an online media specialty .The major advantage of public relations is the low cost relative to other media exposure.
Online Marketing Metrics : 1. Impression 2. Clickthrough Rate (CTR) 3. Hits 4. Page Views 5. Stickness (Duration)
6. Unique visitors
7. Loyalty 8. Reach Continued …
10. Acquisition rate 11. Conversion rate
12. Attrition rate
13. Abandonment rate 14. Retention rate
1. Impressions are the number of times an ad is served .
2. Clickthrough rate (CTR) measures the percentage of people exposed to an online advertisement who actually click on the advertisment.
3. Hits are the number of http requests received by a firm’s server .Hits can be misleading as a measure of site activity because a “hit” does not equal a page : a single page may account for several hits if the page contains multiple images or graphics.A single site visitor can generate hundreds of hits .
4. Page views are the number of pages requested by visitors. A single page that has three frames will generate three page views.
5. Stickiness (Duration) is the average length of time visitors remain at a site .The longer amount of time a visitor spends at a site , the greater the probability of purchase.
6. Unique visitors counts the number of distinct, unique visitors to a site , regardless of how many pages they view. 7. Loyalty measures the percentage of users who return in a year. This can be good indicator of the trust shoppers place in site.
8. Reach is typically a percentage of the total number of consumers in market who visit a site.
9. Recency like loyalty, measures the power of site to produce repeat visits and is generally measured as the average number of days elapsed between shopper or customer visits. 10.Acquisition rate measures of the percentage of visitors who register or visit product pages (indicating interest in the product) 11.Conversion rate measures the percentage of visitors who actually purchase something.
12. Attrition rate measures the percentage of customers who purchase once , but never return within a year. 13.Abandonment rate measures the percentage of shoppers who begin a shopping cart form but then fail to complete the form and leave the site. 14.Retention rate indicates the percentage of existing customers who continue to buy on a regular basis.
Online Advertisement : It is the most common and familiar marketing communications tool .The advantages of online marketing are the ability to target ads to narrow segments and to track performance of advertisements in almost real time. Online advertisements also provide greater opportunities for interactivity – two – way communication between advertiser and the potential customer .
Different forms of online advertisements include : •Banner and rich media ads •Paid search engine illusion and placement •Sponsorships , and •Affiliate relationships •Direct E-mail marketing
click-through Definition click-through The process of clicking through an online advertisement to the advertiser's destination. Information While the click-through is often the most immediate response to an advertisement, it is not the only interaction. Visitors may choose to type a company's URL directly into the browser bar, or type the company's name into a search engine box. This assumes, of course, that the company's name and/or URL appears in its advertisements. Accurate counting of click-throughs involves excluding "robot clicks" and duplicate clicks. This takes on added importance when clickthroughs are used as the measurement on which payment is based.
click-through rate (CTR)
click-through rate (CTR) The average number of click-throughs per hundred ad impressions, expressed as a percentage. Information It is important to distinguish what a click-through rate does and does not measure. The CTR measures what percentage of people clicked on the ad to arrive at the destination site; it does not include the people who failed to click, yet arrived at the site later as a result of seeing the ad. As such, the CTR may be seen as a measure of the immediate response to an ad, but not the overall response to an ad. The exception involves ads that display no identifiable information about the destination site; in these cases the click rate equals the overall rate.
Merely getting visitors to a site had value when Web site traffic was generally accepted as a measure of success. The trend towards profitability, along with better tracking tools, has resulted in less interest in click-through rates and more interest in conversion rates. A high click-through rate does not assure a good conversion rate, and the two rates may even share an inverse relationship. An advertisement geared towards curiosity clicks will result in fewer sales, percentage-wise, than an advertisement geared towards qualified clicks.
conversion rate Definition conversion rate The percentage of visitors who take a desired action.
The desired action can take many forms, varying from site to site. Examples include sales of products, membership registrations, newsletter subscriptions, software downloads, or just about any activity beyond simple page browsing. A high conversion rate depends on several factors, all of which must be satisfactory to yield the desired results -- the interest level of the visitor, the attractiveness of the offer, and the ease of the process.
The interest level of the visitor is maximized by matching the right visitor, the right place, and the right time.
The attractiveness of the offer includes the value proposition and how well it is presented. It is worth noting that small, impulse items typically have a higher conversion rate than large, shopping items. The visitor's ease of completing the desired action is dependent on site usability which includes intuitive navigation and fast loading pages.
Online advertising payment model in which payment is based solely on qualifying actions such as sales or registrations. Information
The actions defined in a cost-per-action agreement relate directly to some type of conversion, with sales and registrations among the most common. This does not include deals based solely on solely clicks, which are referred to specifically as cost-per-click or CPC.
The cost-per-action (CPA) model is at the other end of the spectrum from the cost-per-impressions model (CPM), with the cost-perclick (CPC) model somewhere in the middle. In a CPA model, the publisher is taking most of the advertising risk, as their commissions are dependant on good conversion rates from the advertiser's creative units and Web site.
Marketers looking for cost-per-action deals have several options. Publishers with considerable excess inventory may be willing to consider nonstandard offers. Sites specializing in incentive programs are in a position to offer CPA pricing on various types of leads, although the usual caveats concerning incentivized traffic still apply. Perhaps the most widespread use of performance-based pricing is affiliate marketing, whereby merchants/advertisers determine what actions they want to reward and how much they are willing to pay.
CPM Definition CPM
Cost per thousand impressions.
Information The CPM model refers to advertising bought on the basis of impression. This is in contrast to the various types of pay-forperformance advertising, whereby payment is only triggered by a mutually agreed upon activity (i.e. click-through, registration, sale).
The total price paid in a CPM deal is calculated by multiplying the CPM rate by the number of CPM units. For example, one million impressions at $10 CPM equals a $10,000 total price.
1,000,000 / 1,000 = 1,000 units 1,000 units X $10 CPM = $10,000 total price
The amount paid per impression is calculated by dividing the CPM by 1000. For example, a $10 CPM equals $.01 per impression.
$10 CPM / 1000 impressions = $.01 per impression
cost-per-click (CPC) The cost or cost-equivalent paid per click-through. Information The terms pay-per-click (PPC) and cost-per-click (CPC) are sometimes used interchangeably, sometimes as distinct terms. When used as distinct terms, PPC indicates payment based on click-throughs, while CPC indicates measurement of cost on a per-click basis for contracts not based on click-throughs. For example, consider a campaign where payment is based on impressions, not clicks. Impressions are sold for $10 CPM with a clickthrough rate (CTR) of 2%. 1000 impressions x 2% CTR = 20 click-throughs $10 CPM / 20 click-throughs = $.50 per click
customer acquisition cost
customer acquisition cost The cost associated with acquiring a new customer.
Customer acquisition cost is calculated by dividing total acquisition expenses by total new customers. However, there are different opinions as to what constitutes an acquisition expense. For example, rebates and special discounts do not represent an actual cash outlay, yet they have an impact on cash (and, presumably, on the customer). Acquisition costs vary across industries and mediums. When acquisition data is available, try to determine if you are comparing apples to apples, so to speak. This is not always easy, as customer acquisition data can be scarce, and the methodology is often sketchy.
Hit Request of a file from a Web server.
The term "hit" is perhaps the most misused term in online marketing, mistakenly used to mean unique visitors, visits, page views, or all of the above.
A hit is merely a request for a file from a Web server. A request for a Web page counts as a hit, but so does a request for a graphic on a Web page. Since the number of graphics per page can vary considerably, hits mean very little for comparison purposes.
hybrid model Definition hybrid model A combination of two or more online marketing payment models.
A hybrid campaign might be a mix of impression-based (CPM) and performance-based (CPC or CPA), or a mix of two performancebased models. Hybrid deals are sometimes seen as a way to further split the risk between publishers and advertisers. Advertising campaigns sometimes bundle CPM and CPC in a hybrid buy, and sometimes even CPA. Affiliate programs have been known to offer a few cents per-click in addition to paying for a sale, lead, download, or other conversion activity.
Definition impression A single instance of an online advertisement being displayed.* Information * This definition may be an over-simplification, as there is no standard way to count impressions. All of the differences can add up to very large discrepancies, yet people make purchases based on impression every day. So... what is the definition? Currently, whatever a buyer and seller agree on.
Definition page view Request to load a single HTML page. Information Page views are only important to the degree they play a part in a site's revenue model. If a site earns much of its revenue from advertising, then page views are important because of their contribution to ad inventory. If a site only earns revenue on sales, then page views are not a key statistic. Page views without corresponding sales may even be viewed as an expense.
pay per click Definition pay per click Online advertising payment model in which payment is based solely on qualifying click-throughs. Information In a PPC agreement, the advertiser only pays for qualifying clicks to the destination site based on a prearranged per-click rate. Popular PPC advertising options include per-click advertising networks, search engines, and affiliate programs.
Paying per click is sometimes seen by some as a middle ground between paying per impression and paying per action. When paying per impression, the advertiser assumes the risk of low-quality traffic generated by the publisher. When getting paid for actions, the publisher assumes the risk of low-converting offers by the advertiser. In the PPC model, the publisher does not have to worry about the sales conversion rate of the target site, and the advertiser does not have to worry about how many impressions it takes to attract the specified number of clicks.
pay per lead Definition pay per lead
Online advertising payment model in which payment is based solely based on qualifying leads.
Information In a pay per lead agreement, the advertiser only pays for leads generated at their destination site. No payment is made for visitors who don't sign up.
A lead is generally a signup involving contact information and perhaps some demographic information; it is typically a non-cash conversion event. A lead may consist of as little as an email address, or it may involve a detailed form covering multiple pages.
One risk to the advertiser is the potential for fraudulent activity by incentivized 3rd-parties or marketing partners. Some false leads are easy to spot. Nonetheless, it is advisable to make a regular audit of the results.
pay per sale
Definition pay per sale Online advertising payment model in which payment is based solely based on qualifying sales. Information In a pay per sale agreement, the advertiser only pays for sales generated by the destination site based on an agreed upon commission rate. Paying per sale is often seen as the payment model most favorable to advertisers and least favorable to publishers. In such an agreement, the publisher must not only be concerned with the quality and quantity of his or her audience, but also the quality of the advertiser's creative units and destination site.
If possible, many publishers avoid sales-based agreements, preferring to stick to the CPM model. However, some publishers, facing weak ad sales, have little choice but to accept sales-based agreements to utilize remnant space. For advertisers, pay per sale has some unique advantages compared to pay per click and pay per lead. There are fewer concerns about whether conversions are legitimate, and whether traffic is incentivized or of low quality.
stickiness Definition stickiness The amount of time spent at a site over a given time period.
Stickiness is often measured in the average minutes per month visitors spend at a site or network. Sometimes stickiness is measured in terms of page views. When defined as minutes per month, site stickiness is a function of number of visits (repeat usage) and time spent per visit (session stickiness).
unique visitors Individuals who have visited a Web site (or network) at least once in a fixed time frame, typically a 30 day period. Information Most measurements of unique visitors are estimates. Sites often calculate unique visitors based on the IP address information found in the log files, and sometimes through cookies. However, many factors may skew the results. Traffic rating companies typically calculate unique visitors by monitoring actual usage of a group of volunteers, then applying the results to to the Internet population. Results fluctuate considerably for small sites due to their small sample sizes.
Web site traffic Definition Web site traffic
The amount of visitors and visits a Web site receives.
Information Web site traffic was initially viewed as an all-important metric for gauging success on the Web. This assumption was due in part to the lack of other business metrics to explain the .com phenomenon. Now much of the focus has shifted back to profitability, and Web site traffic is only part of the equation. Web site traffic x conversion = results Web site traffic is still important, as you can't have conversions without visitors, but it is becoming less important as a standalone metric.