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E Commerce

E Commerce

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Published by Dibyendu Ray
E Comm
E Comm

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Published by: Dibyendu Ray on Apr 17, 2012
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ELECTRONIC COMMERCE

Potential roles of e-commerce ● Economics of online sales ● Collaborative Filtering ● Search Engine Optimization ● Micro Payments ● “Bricks-and-Clicks” ● Social Media

Learning Objectives
• Understanding – Opportunities to use ecommerce – Circumstances when ecommerce is more appropriate – Influences on a site’s rank on major search engines

BUAD 307

ELECTRONIC COMMERCE

Lars Perner, Instructor

2

Some Potential Ways to Make Money Online
• Sales of tangible and/or electronic products (including services) • Advertising revenue—message can be targeted to
– Demographics/characteristics of web visitors to this site – Individual web surfer

• Subscription revenue (difficult to collect in practice due to the prevalence of free online content) • Referral fees/commissions – Links to sites selling product – ―Affiliate‖ marketing • Online research data collected and sold to clients
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ELECTRONIC COMMERCE

Lars Perner, Instructor

3

Basic Internet Economics
• In most markets, online merchants tend to have HIGHER costs than do conventional retailers – Much more of the work is done by the merchant rather than by the customer. • Intermediaries usually add value through specialization of labor and consolidation of tasks. Eliminating intermediaries usually results in higher costs. • Customers do a lot of the work when they select, aggregate, bring for checkout, and carry away their products. Employees of e-commerce companies and their transportation services have to be paid to do this work!
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ELECTRONIC COMMERCE

Lars Perner, Instructor

4

Considerations in Evaluating E-Commerce Potential
• Value-to-bulk ratio. High value, low weight/volume items can be more readily handled and shipped. Absolute margin. Even if the percentage margin on a high price item is low (e.g., 15%), the absolute margin can cover considerable expenses (e.g., 0.15x$1,000=$150) Ability of consumer to evaluate quality and fit through online description. Standard branded items from a trusted source can be more easily evaluated than items that need to be examined up close. Convenience to the customer and willingness to pay for this convenience. Some consumers may be willing to pay more for door-to-door delivery. It is usually more expensive to buy groceries online.
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• •

Customer sensitivity to delayed delivery. Extent of customization needed—highly customized items—e.g., insurance, plane tickets, personalization—allow the customer to do much of the work (i.e., data entry). Geographic dispersal of consumers—even if direct-toconsumer sales are not efficient, this may be the only cost effective way to reach customers who are widely dispersed (e.g., bee keepers, Civil War buffs, tall people). Extent of inventory value decline over time. A computer can be distributed to consumers at a lower price through retailers, but the process takes longer and computer parts lose value fast.
Lars Perner, Instructor

ELECTRONIC COMMERCE

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The Case of Dell Computer
• Customizing computers for each customer probably does NOT save money. It is probably cheaper to provide a limited number of computers that offer each consumer a little bit MORE than what he or she would have wanted in a customized unit. Prices for “upgrades” to default models tend to be very high—e.g., additional RAM often costs more than twice as much as the ―street‖ price for the components. ―Base‖ models usually have low prices, but the final prices paid tend to be high. Although the percentage margins on computers tends to be low due to competition (e.g., 10-25%), absolute margins can be significant—e.g., 10% of $1,500=$150. That margin can pay for a lot of work. It would probably be cheaper to ship directly to an efficient retailer—e.g., Wal-Mart may take in hundreds of computers and a number of other materials at one time. These items are put out on floors using fork lifts and other efficient transportation methods. The customer does much of the work. However, because computer parts may lose as much as 1.5% in value per week. Thus, reducing distribution lag time by five weeks may “rescue” 7.5%. If Dell claims to have an inventory turnover time of 48 hours, someone else—probably a supplier—has to carry the needed “buffer” inventory to accommodate fluctuations in demand.
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ELECTRONIC COMMERCE

Lars Perner, Instructor

6

How Suitable For Internet Commerce? Are There Differences Among Segments?

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ELECTRONIC COMMERCE

Lars Perner, Instructor

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ELECTRONIC COMMERCE

Lars Perner, Instructor

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Estimated Margins—Costco Pearl Earrings

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ELECTRONIC COMMERCE

Lars Perner, Instructor

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Books

40%+ discount required to be competitive in this market

Discount NOT needed to be competitive in this market BUAD 307

ELECTRONIC COMMERCE

Lars Perner, Instructor

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“Collaborative Filtering”
• • • Comparing purchases by a customer to others who have made “similar” purchases to identify additional products of potential interest Largely a matter of “brute force” computer analysis Often a more effective way to identify additional items of interest if it is difficult to conceptually compare items to identify others like them
– – E.g., favorite songs: What drives the preference? Sound, lyrics, singer characteristics? E.g., books: Which authors are “similar?”

“Win-win” deal: Merchant has the opportunity to sell more items; the customer finds value that he or she would otherwise have been less likely to find

BUAD 307

ELECTRONIC COMMERCE

Lars Perner, Instructor

11

How Suitable For Internet Commerce? Are There Differences Among Segments?

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ELECTRONIC COMMERCE

Lars Perner, Instructor

12

Reality of Online Competition
• • Intense competition for large market products (large quantity demanded attracts many sellers) Use of large demand products as loss leaders (e.g., Amazon.com bestsellers) Competition will force reduced costs—if any—to be passed on to customers. Even if there is a cost advantage to selling online in a particular market, you will NOT be competing just against “brickand-mortar” stores but also against those who have the same cost advantage in selling to customers. In the long run, you can probably make NORMAL profits but not above market level profits. Competition makes charging for shipping and handling difficult. This is often more expensive than traditional distribution. Less competition on specialty products  greater margins
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• •

ELECTRONIC COMMERCE

Lars Perner, Instructor

13

“Bricks-and-Clicks”
• Traditional retail chains and online presence tend to have synergy
– Online access to store information—hours, locations, directions – Checking on ―in stock‖ status on local stores – Online orders with store pickup – Online orders with delivery; store return option

• Brand equity • Volume purchasing power • Inventory assortment warranted by combined store and online sales
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ELECTRONIC COMMERCE

Lars Perner, Instructor

14

Micro-payments: Opportunities and costs
• Considerable online content and services could be made profitably available for a small charge (e.g., 1¢$2.00) • However, collecting small amounts of money can be – Costly—credit card firms or debit processing firms may charge a significant per transaction fee – Inconvenient—the customer may not be willing to enter much information • Mobile technology—with active login— may be helpful for the higher end (e.g., 50¢+)
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ELECTRONIC COMMERCE

Lars Perner, Instructor

15

SEARCH ENGINE OPTIMIZATION
• Search engines • Search engine rankings • Optimizing for rankings – Content – Reciprocal linking

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ELECTRONIC COMMERCE

Lars Perner, Instructor

16

Search Engines
• Search engine market dominated by Google • Microsoft’s new BING search engine—the “decision engine”
– Reported to match search results to user IP address  local results possible – Deals with Facebook and Twitter for better “real time” access

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ELECTRONIC COMMERCE

Lars Perner, Instructor

17

Search engines
• Use an algorithm to identify the most optimal links • Algorithms may involve
– – – – Usage of keywords ―Popularity‖ (number of links pointing inward) Other criteria—often proprietary ―Click-through‖ rates from the respective search engine (NOT overall traffic volume on the site)

• Historically, key word repetition was the most important factor. Today, on Google, quality links appear to be more important than key words. • Internet consultants will make recommendations for a fee. Many have strong opinions on ―what works.‖ Most are short on evidence that they are correct.
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ELECTRONIC COMMERCE

Lars Perner, Instructor

18

Search Engine Optimization: Reciprocal Linking
• Linking from highly rated web sites greatly increases the ranking of a site • Linking from low rated sites does not appear to help much • The weight of a link may be determined by the number of links at that page—one link among many is worth less • Linking to ―spamming‖ sites may be penalized
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ELECTRONIC COMMERCE

Lars Perner, Instructor

19

Search Engine Optimization: Text
• Credible repetition of key words – Frequently greater credit for • Bolded words • Words early in the document • Identification of desirable key words – Analysis of competing sites – Customer interviews • Misspellings
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ELECTRONIC COMMERCE

Lars Perner, Instructor

20

Search Engine Optimization: Other
• Domain names
– If the domain name features the keyword, more weight is given – Google considers the underscore a space—e.g., Marketing_Tips.com .

• Listing in the Open Directory Project (http://www.DMOZ.org) . • Most search engines no longer rely significantly on meta tags—‖invisible‖ information from webmasters about the site— since these can be manipulated. Using meta tags, however, tells your competitors what you are trying to accomplish.

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ELECTRONIC COMMERCE

Lars Perner, Instructor

21

M-commerce: Mobile phone/PDA/ “gadget” access and sales
• High growth in mobile technology with Internet access • .mobi domain is intended for web sites optimized for small screens • Google Android project is intended to increase uniformity of display across cell phone models • Many countries are running ahead of the U.S. • Useful in making ―micro-payments‖— buying a soda or other low cost item • Current advertisements for mobile phone banking

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ELECTRONIC COMMERCE

Lars Perner, Instructor

22

Social Media
• “Word-of-mouth” or “word-of-click campaigns” • Targeting of specific demographics  efficiency • Exposure through online games • Credibility of known individuals and their friends
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ELECTRONIC COMMERCE

Lars Perner, Instructor

23

Facebook
• Targeting by demographics • Online presences through – Applications – “Managed” (“Fan”) pages • “Viral” potential

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ELECTRONIC COMMERCE

Lars Perner, Instructor

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