Prepared By: Professor Dr. Eng. Ismail A.

Taha

TABLE OF CONTENTS
Ch1: Overview of Electronic Commerce Ch2: E-Marketplaces: Structures, Mechanisms, Economics, and Impacts Ch3: Retailing in Electronic Commerce: Products and Services Ch4: Consumer Behavior, Market Research, and Advertisement Ch9: Electronic Payment Systems* Ch10: Dynamic Trading: E-Auctions, Bartering, and Negotiations Ch14: E-Commerce Strategy and Global EC Ch15: Economics and Justification of Electronic Commerce Ch16: Launching a Successful Online Business and EC Projects

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Chapter 1
Overview of Electronic Commerce

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7. 10. Describe the contribution of EC to organizations responding to Describe online social and business networks. Define electronic commerce (EC) and describe its various Describe and discuss the content and framework of EC. Describe the major types of EC transactions. environmental pressures. 5. 6. Describe the business environment as a driver of EC. 3. Describe some EC business models. 8. categories. 9. 2. society. Describe the digital revolution as a driver of EC. and Describe the limitations of EC. consumers.Learning Objectives 1. Describe the benefits of EC to organizations. 4 . 4.

or exchanging products. Pure versus Partial EC 5 . or information via computer networks . collaborating with business partners. selling.Electronic Commerce: Definitions and Concepts  Electronic Commerce (EC) The process of buying. and conducting electronic transactions within an organization. EC can be defined from these perspectives:      Business process Service Learning Collaboration Community   E-business A broader definition of EC that includes not just the buying and selling of goods and services. but also servicing customers. services.

2. 3. fulfillment) the delivery method digitization 1.g. 6 . EC can take several forms depending on the degree of the product (service) sold the process (e. payment. ordering..

 field. or on a single computerized machine. selling physical products by means of physical agents. Internet versus Non-Internet EC   Most EC is done over the Internet. Brick-and-Mortar (Old Economy) organizations Old-economy organizations (corporations) that perform their primary business off-line. local area networks. but EC also can be conducted on private networks. such as value-added networks.  Electronic Market (E-marketplace) Non-Internet EC includes the use of mobile handwritingrecognition computers used by field reps to write their notes in the 7 . Click-and-Mortar (Click-and-Brick) organizations  Organizations that conduct some e-commerce activities. Virtual (pure-play) Organizations  Organizations that conduct their business activities solely online. usually as an additional marketing channel.

money.An online marketplace where buyers and sellers meet to exchange goods. and Internet protocols  Extranet A network that uses the Internet to link multiple intranets 8 . or information. The EC Framework. services. and Content:  Intranet An internal corporate or government network that uses Internet tools. such as Web browsers. Classification.

usually B2C  E-commerce model in which a business provides some product or service to a client business that maintains its own customers 9 . EC applications are supported by infrastructure and by these five People Public policy Marketing and advertisement Support services Business partnerships support areas:       EC applications are supported by infrastructure and by these five People Public policy Marketing and advertisement Support services Business partnerships support areas:       Business-to-Consumer (B2C) E-tailing Business-to-Business-to-Consumer (B2B2C) E-commerce model in which businesses sell to individual shoppers  Online retailing.

 Consumer-to-Consumer (C2C) Peer-to-Peer (P2P) E-commerce model in which consumers sell directly to other consumers. or products to its individual employees. information. Consumer-to-Business (C2B) E-commerce model in which individuals use the Internet to sell products or services to organizations or individuals who seek sellers to bid on products or services they need  Mobile Commerce (m-commerce) E-commerce transactions and activities conducted in a wireless environment  Consumer-to-Business (C2B) E-commerce model in which individuals use the Internet to sell products or services to organizations or individuals who seek sellers to bid on products or services they need  Mobile Commerce (m-commerce) E-commerce transactions and activities conducted in a wireless environment  Business-to-Employees (B2E) E-commerce model in which an organization delivers services.  Collaborative Commerce (c-commerce) E-commerce model in which individuals or groups communicate or collaborate online.  10 .

wikis. can be used in C2C.0 The second-generation of Internet-based services that let people collaborate and share information online in perceived new ways—such as social networking sites. and folksonomies. 11 .  Exchange Exchange-to-Exchange (E2E) A public electronic market with many buyers and sellers.  E-commerce model in which electronic exchanges formally connect to one another for the purpose of exchanging information.  The Future of EC  Web 2. communication tools. B2B. services.Technology that enables networked peer computers to share data and processing with each other directly. E-government  E-commerce model in which a government entity buys or provides goods.  E-learning The online delivery of information for purposes of training or education. or information from or to businesses or individual citizens. and B2C e-commerce.

also called the Internet economy.Digital Revolution Drives EC  Digital Economy An economy that is based on digital technologies. and other related information technologies. or the Web economy. including digital communication networks. the new economy. computers. 12 . software.

Business Environment Drives EC 13 .

 The benefits a company can derive from using EC. The major revenue models are:   Sales Transaction fees 14  . anticipated costs. and which will need to be acquired. The organization’s supply chain. and estimated profitability (financial viability). 4.  Revenue Model Value Proposition Description of how the company or an EC project will earn revenue. 3. including suppliers and The revenues expected (revenue model). which will be developed in house. sources of financing. products and services. The business process required to make and deliver the The resources required and the identification of which ones these customers including customers’ value proposition.  Six elements of a business model include descriptions of: 1. 5. other business partners. 2. Customers to be served and the company’s relationships with All products and services the business will offer. 6. are available.EC Business Models  Business Model A method of doing business by which a company can generate revenue to sustain itself.

    Subscription fees Advertising fees Affiliate fees Other revenue sources  Functions of a Business Model:      Articulate a customer value proposition Identify a market segment Define the venture’s specific value chain structure Estimate the cost structure and profit potential Describe the venture’s positioning within the value network Formulate the venture’s competitive strategy linking suppliers and customers.  Name your own price  Find the best price  Affiliate marketing  Viral marketing  Group purchasing  Online auctions  Product and service customization  Electronic marketplaces and exchanges  Information brokers (informediaries)  Bartering  Deep discounting  Membership  Value-chain integrators  Value-chain service providers  Supply chain improvers  Social networks. communities. and blogging.  Direct sale by manufacturers 15 .  Typical EC Business Models  Online direct marketing  Electronic tendering systems.

 E-Co-Ops Customization Another name for online group purchasing organizations.  Viral marketing Word-of-mouth marketing in which customers promote a product or service to friends or other people. or even an individual) refers consumers to the selling company’s Web site. Tendering (bidding) system Model in which a buyer requests would-be sellers to submit bids. the lowest bidder wins  Name-your-own-price model Model in which a buyer sets the price he or she is willing to pay and invites sellers to supply the good or service at that price  Affiliate marketing An arrangement whereby a marketing partner (a business.  SMEs group purchasing Small-to-medium enterprises  Quantity (aggregated) purchasing that enables groups of purchasers to obtain a discount price on the products purchased. an organization.  Creation of a product or service according to the buyer’s specifications 16 .

business partners. Corporate Portal  A major gateway through which employees. boost employee productivity. It uses converged communication and computing technology in a way that improves business processes. 17 . and improve operating efficiency.  Business-oriented networks are social networks whose primary objective is to facilitate business. e-mail. and the public can enter a corporate Web site.Social and Business Networks:  Social Networks Web sites that connect people with specified interests by providing free services such as photo presentation. etc. The Digital Enterprise:  Digital Enterprise A new business model that uses IT in a fundamental way to accomplish one or more of three basic objectives: reach and engage customers more effectively. blogging.

Chapter 2 E-Marketplaces: Structures. and Impacts 18 . Economics. Mechanisms.

shopping carts. 9. 4. 8. 10. Describe the impact of e-marketplaces on organizations and industries.Learning Objectives 1. 7. List the major types of e-marketplaces and describe their features. Define e-marketplaces and list their components. limitations. Describe the various types of EC intermediaries and their roles. and search engines. Discuss the benefits. 5. 2. Discuss competition in the digital economy. and impacts of auctions. 6. Describe bartering and negotiating online. 3. 19 . Describe the major types of auctions and list their characteristics. Describe electronic catalogs. Define m-commerce and explain its role as a market mechanism.

public. the three types of e-marketplaces are private. usually B2B.E-Marketplaces  e-marketplace An online market. and consortia  marketspace A marketplace in which sellers and buyers exchange goods and services for money (or for other goods and services) but do so electronically 20 . in which buyers and sellers exchange goods or services.

including the seller’s portal. a shopping cart. and delivery 21 . electronic catalogs. packaging. a search engine.E-Marketplace Components and Participants Customers Sellers Products and services  digital products Goods that can be transformed to digital format and delivered over the Internet     Infrastructure  Front end  Back end  Intermediaries Third parties that operates between sellers and buyers  Other business partners  Support services  front end The portion of an e-seller’s business processes through which customers interact. purchasing from suppliers. payment processing. and a payment gateway  back end The activities that support online order fulfillment. inventory management.

Types of E-Marketplaces: From Storefronts to Portals  Electronic Storefronts  storefront e-mall (online mall) Visualization and virtual realty in shopping malls A single company’s Web site where products or services are sold  An online shopping center where many online stores are located   Types of Stores and Malls     General stores/malls Specialized stores/malls Regional versus global stores Pure-play online organizations versus click-and-mortar stores  Types of E-Marketplaces  private e-marketplaces Online markets owned by a single company. may be either sell-side and/or buy-side e-marketplaces  sell-side e-marketplace A private e-marketplace in which one company sells either standard and/or customized products to qualified companies  buy-side e-marketplace A private e-marketplace in which one company makes purchases from invited suppliers  Types of E-Marketplaces 22 .

Buyers. also known as exchanges  information portal A single point of access through a Web browser to business information inside and/or outside an organization  Types of Portals  Commercial (public)  Corporate  Publishing  Personal  Mobile  Voice  Knowledge Transactions. wholesaler. or manufacturer) sells to customers 23 . Intermediation. and Transactions  A seller (retailer. public e-marketplaces B2B marketplaces. that include many sellers and many buyers. and Process in E-Commerce:  Sellers. usually owned and/or managed by an independent third party.

 The seller buys from suppliers: either raw material (as a manufacturer) or finished goods (as a retailer)  The Roles and Value of Intermediaries in E-marketplaces  infomediaries Electronic intermediaries that provide and/or control information flow in cyberspace. often aggregating information and selling it to others.  A broker is a company that facilitates transactions between Types of brokers    Buy/sell fulfillment Virtual mall Metamediary 24 buyers and sellers  .

the .    Bounty Search agent Shopping facilitator Intermediaries can address the following five important limitations Search costs Lack of privacy Incomplete information Contract risk Pricing inefficiencies of direct interaction:       e-distributor buyers (customers) by aggregating the catalogs of many manufacturers in one place—the intermediary’s Web site disintermediation reinter mediation that have been disintermediated. or for newcomers An e-commerce intermediary that connects manufacturers with business  Elimination of intermediaries between sellers and buyers  Establishment of new intermediary roles for traditional intermediaries Electronic Catalogs and Other Market Mechanisms:  electronic catalogs backbone of most e-selling sites  Three dimensions of electronic catalogs: 25 The presentation of product information in an electronic form.

and report the results  software (intelligent) agent electronic shopping cart Software that can perform routine tasks that require intelligence  An order-processing technology that allows customers to accumulate items they wish to buy while they continue to shop Auctions as EC Market Mechanisms:  auction A competitive process in which a seller solicits consecutive bids from buyers (forward auctions) or a buyer solicits bids from sellers (backward auctions).1. search for specific information or keywords. 2. Prices are determined dynamically by the bids  Traditional Auctions versus Limitations of traditional offline auctions  rapid process gives potential buyers little time to make a decision  electronic auction (e-auction) Auctions conducted online  dynamic pricing E-Auctions  26 .  The dynamics of the information presentation The degree of customization Integration with business processes search engine A computer program that can access databases of Internet resources. 3.

Bidders increase price sequentially  One buyer.com 27 . with the price reducing sequentially. many potential buyers  forward auction An auction in which a seller entertains bids from buyers. potential suppliers bid on the job. many potential sellers  reverse auction (bidding or tendering system) Auction in which the buyer places an item for bid (tender) on a request for quote (RFQ) system. It is a C2B model that was pioneered by Priceline. and the lowest bid wins. one seller One seller.Prices that change based on supply and demand relationships at any given time  Types of Auctions   One buyer. primarily a B2B or G2B mechanism  “name-your-own-price” model Auction model in which a would-be buyer specifies the price (and other terms) he or she is willing to pay to any willing and able seller.

considering the quantities on both sides  Benefits of E-Auctions     Benefits to Sellers Benefits to Buyers Benefits to E-Auctioneers Limitations of E-Auctions    Minimal security Possibility of fraud Limited participation 28 . Many sellers. many buyers  double auction Auctions in which multiple buyers and their bidding prices are matched with multiple sellers and their asking prices.

Impacts of Auctions     Auctions as a coordination mechanism Auctions as a social mechanism to determine a price Auctions as a highly visible distribution mechanism Auctions as an EC component

Bartering and Negotiating Online:
 Online Bartering  bartering e-bartering (electronic bartering) bartering exchange

The exchange of goods or services  Bartering conducted online, usually in a bartering exchange  A marketplace in which an intermediary arranges barter transactions  Online Negotiating  Negotiated pricing commonly is used for expensive or Negotiated prices also are popular when large quantities are Much like auctions, negotiated prices result from interactions specialized products  purchased  and bargaining among sellers and buyers

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E-Commerce in the Wireless Environment:
 mobile computing Use of portable devices, including smart cell phones, usually in a wireless environment. It permits real-time access to information, applications, and tools that, until recently, were accessible only from a desktop computer  mobile commerce (m-commerce) m-business E-commerce conducted via wireless devices  The broadest definition of m-commerce, in which e-business is conducted in a wireless environment  The Mobility Revolution  Organizations are embracing mobilized computing Improved productivity of workers in the field Wireless telecom support for mobility is growing quickly More applications can run both online and offline The prices of notebook computers, wireless handhelds, and technologies for several reasons:    

smart phones continue to fall as their capabilities increase  The Promise of M-Commerce  location-based commerce (LBC)

An m-commerce application targeted to a customer whose location, preferences, and needs are known in real time  M-Commerce Adoption

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Although there are currently many hurdles to the

widespread adoption of m-commerce, many companies are already shifting their strategy to the mobile world

Competition in the Digital Economy and Its Impact on Industries:
 Internet ecosystem The business model of the Internet economy

Competitive Factors—Online Transactions Allow:
 Lower search costs for buyers  Speedy comparisons  Lower prices  Customer service  Barriers to entry are reduced  Virtual partnerships multiply  Market niches abound  Differentiation and personalization

differentiation personalization

Providing a product or service that is unique  The ability to tailor a product, service, or Web content to specific user preferences  Porter’s Competitive Analysis in an Industry  competitive forces model

Model devised by Porter that says that five major forces of competition determine industry structure and how economic value is divided among the industry players in an industry; analysis of these forces helps companies develop their competitive strategy
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Impacts of EC on Business Processes and Organizations:  Impacts of e-marketplaces on B2C direct marketing:        Product promotion New sales channel Direct savings Reduced cycle time Improved customer service Brand or corporate image Customization 32 .

    

Advertising Ordering systems Market operations Accessibility

Transforming Organizations   Technology and organizational learning The changing nature of work

   

Redefining Organizations New and improved product capabilities New industry order and business models Improving the supply chain  Impacts on manufacturing  Build-to-Order Manufacturing  build-to-order (pull system)

A manufacturing process that starts with an order (usually customized). Once the order is paid for, the vendor starts to fulfill it      Real-Time Demand-Driven Manufacturing Virtual Manufacturing Assembly Lines

Impacts on Finance and Accounting Impact on Human Resources Management and Training

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Chapter 3
Retailing in Electronic Commerce: Products and Services

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Learning Objectives:
1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. Describe electronic retailing (e-tailing) and its characteristics. Define and describe the primary e-tailing business models. Describe how online travel and tourism services operate and their Discuss the online employment market, including its participants, Describe online real estate services. Discuss online stock-trading services. Discuss cyberbanking and online personal finance. Describe on-demand delivery by e-grocers. Describe the delivery of digital products and online entertainment. Discuss various e-tail consumer aids, including comparisonIdentify the critical success factors and failure avoidance tactics for

impact on the industry. benefits, and limitations.

shopping aids. direct online marketing and e-tailing.
12.

Describe reinter mediation, channel conflict, and personalization in

e-tailing.

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over the Internet  Retailers who sell over the Internet What Sells Well on the Internet?  Travel  Computer Hardware and Software  Consumer Electronics  Office Supplies  Sport and Fitness Goods  Books and Music  Toys         Health and Beauty Entertainment Apparel and Clothing Jewelry Cars Services Pet Supplies Characteristics of Successful E-Tailing   High brand recognition A guarantee provided by highly reliable or well-known Digitized format Relatively inexpensive items Frequently purchased items 36 vendors    .Internet Marketing and Electronic Retailing:  electronic retailing (e-tailing) e-tailers Retailing conducted online.

  Commodities with standard specifications Well-known packaged items that cannot be opened even in a traditional store E-Tailing Business Models  Classification by Distribution Channel       Mail-order retailers that go online Direct marketing from manufacturers Pure-play e-tailers Click-and-mortar retailers Internet (online) malls direct marketing Broadly. marketing done online between any seller and buyer  virtual (pure-play) e-tailers Firms that sell directly to consumers over the Internet without maintaining a physical sales channel  click-and-mortar retailers Brick-and-mortar retailers that offer a transactional Web site from which to conduct business  brick-and-mortar retailers 37 . in the context of this book. marketing that takes place without intermediaries between manufacturers and buyers.

physical world in traditional brick-and-mortar stores  multichannel business model A business model where a company sells in multiple marketing channels simultaneously (e.g.Retailers who do business in the non-Internet. both physical and online stores)  Retailing in Online Malls   Referring directories Malls with shared services  Other B2C Models and Special Retailing  Representative special B2C services     Postal services Services and products for adults Wedding channels Gift registries Travel and Tourism Services Online:  Special Services     Wireless services Direct marketing Alliances and consortia Benefits of Online Travel Services  To travelers   Free information accessible at any time from any place Substantial discounts are available 38 ..

 To travel services providers  Airlines. companies can make arrangements that enable employees to plan and book their own 39 . and cruise lines sell otherwise-empty Direct selling saves the provider’s commission and its spaces  processing  Limitations of Online Travel Services   Many people do not use the Internet The amount of time and the difficulty of using virtual travel agencies may be significant. especially for complex trips and for inexperienced Internet surfers  Complex trips or those that require stopovers may not be available online because they require specialized knowledge and arrangements  Corporate Travel  trips  Impact of EC on the Travel Industry  The Internet may be contributing to a sharp reduction in the It has also driven the rise of intermediaries—third-party number of travel agents  online sellers and portals provide price comparisons and a range of other value-adding services for the consumer To reduce corporate travel costs. hotels.

and the Job Market Online:  THE INTERNET JOB MARKET     Job seekers Employers seeking employees Job agencies Government agencies and institutions  A consortium of large employers and college careers advisors 40 . Placement.Employment.

screening is a time-consuming and costly process   Security and privacy High turnover costs for employers by accelerating employees’ movement to better jobs  Intelligent Agents in the Electronic Job Market   Intelligent agents for job seekers Intelligent agents for employers 41 . Global online portals  Limitations of the Electronic Job Market  The gap between those with skills and access to the Internet Companies find that they are flooded with applicants when and those without  they advertise online.

and Stock Trading Online:  Real Estate  E-commerce and the Internet are slowly but surely having an ever increasing impact on the real estate industry  Real Estate Applications  Advice for consumers on buying or selling 42 .Real Estate. Insurance.

or Third-party aggregators offer free comparisons of available Several large insurance and risk-management companies health are offered at a substantial discount  policies  offer comprehensive insurance contracts online  Online Stock Trading    Investment information Related financial markets The risk of having an online stock account Banking and Personal Finance Online: 43 . life. such as auto. home.     Commercial real estate listings Links to house listings in all major cities Maps Information on current mortgage rates Real Estate Mortgages   Many sites offer loan calculators Mortgage brokers can pass loan applications over the Internet and receive bids from lenders that want to issue mortgages   “Name your own price” model Aggregation of loan seekers package placed for bid on the Internet  Insurance Online  Standard insurance policies.

also known as cyberbanking. and home banking  International and Multiple-Currency Banking  Some international retail purchasing can be done by providing a credit card number. electronic (online) banking (e-banking) Various banking activities conducted from home or the road using an Internet connection. virtual banking. online banking. other transactions may require international banking support Personal Finance Online  Online Billing and Bill Paying         Automatic transfer of mortgage payments Automatic transfer of funds to pay monthly utility bills Paying bills from online banking accounts. Merchant-to-customer direct billing Using an intermediary for bill consolidation Person-to-person direct payment Pay bills at bank kiosks  Taxes On-Demand Delivery Systems and E-Grocers:  e-grocer 44 .

A grocer that takes orders online and provides deliveries on a daily or other regular schedule or within a very short period of time  on-demand delivery service Express delivery made fairly quickly after an online order is received Online Delivery of Digital Products. Entertainment. and Media:  Online Entertainment  Examples of online entertainment      Web browsing Internet gaming Fantasy sports games Single and multiplayer games Adult entertainment 45 .

com 46 . may be comprehensive or niche oriented  shopping robots (shopping agents or shopbots) Tools that scout the Web on behalf of consumers who specify search criteria      “Spy” services Wireless Shopping comparisons Business Ratings Sites Trust Verification Sites Other Shopping Tools   Amazon.      Card games Social networking sites Participatory Web sites Reading Live events Entertainment-related services     Event ticketing Restaurants Information retrieval Retrieval of audio and video entertainment Online Purchase-Decision Aids:  shopping portals Gateways to e-storefronts and e-malls.com’s A9 Search Engine Answers.

Problems with E-Tailing and Lessons Learned:  The reasons that retailers give for not going online include:       Their product is not appropriate for Web sales Lack of significant opportunity High cost Technological immaturity Online sales conflict with core business Lessons Learned       Don’t ignore profitability Manage new risk exposure Watch the cost of branding Do not start with insufficient funds The web site must be effective Keep it interesting  Successful Click-and-Mortar Strategies    Speak with one voice Leverage the multichannels Empower the customer Issues in E-Tailing:  disintermediation The removal of organizations or business process layers responsible for certain intermediary steps in a given supply chain  reintermediation 47 .

The process whereby intermediaries (either new ones or those that had been disintermediated) take on new intermediary roles  cyber mediation (electronic intermediation) hyper mediation The use of software (intelligent) agents to facilitate intermediation  Extensive use of both human and electronic intermediation to provide assistance in all phases of an e-commerce venture   Unbundling channel conflict Situation in which an online marketing channel upsets the traditional channels due to real or perceived damage from competition 48 .

Chapter 4 Consumer Behavior. Market Research. and Advertisement 49 .

Understand the decision-making process of consumer purchasing Describe how companies are building one-to-one relationships Explain how personalization is accomplished online. 7. Describe the major advertising methods used on the Web. 10. 8. 6. advertising applications. 12. with customers. 2. 3. buyer behavior. 4. promotions. including organizational Describe the objectives of Web advertising and its characteristics. ad management. 9. Describe Internet marketing in B2B. Describe consumer market research in EC. Describe the factors that influence consumer behavior online. Discuss the issues of e-loyalty and e-trust in EC.Learning Objectives: 1. 5. other advertising-related issues. and Understand the role of intelligent agents in consumer issues and online. localization. 50 . 11. Describe various online advertising strategies and types of Describe permission marketing.

This process ends with the buyers’ decisions resulting from the decision-making process  The dependent variables describe types of decisions made by The independent variables      Personal characteristics Environmental variables Social variables Cultural/community variables Other environmental variables buyers  The  The intervening (moderating) variables  Roles people  A Generic Purchasingplay  theThe dependent variables: the buying decisions in Decision Model decision-making 1. They are divided into market stimuli and EC systems  The decision-making process is influenced by the independent and intervening variables.Learning about Consumer Behavior Online:  A Model of Consumer Behavior Online  Independent (or uncontrollable) variables can be categorized Intervening (or moderating) variables are variables within as personal characteristics and environmental characteristics  the vendors’ control. r 51 4. Evaluation of  Initiato alternatives. Information search 3. Purchase and  Influen delivery cer . Need identification Consumer Decision-Making Process: process 2.

Market Segmentation. A Customer Decision Model in Web Purchasing  Can be supported by both Consumer Decision Support System (CDSS) facilities and Internet and Web facilities Mass Marketing. and One-to-One Marketing:  one-to-one marketing Mass Marketing   Marketing that treats each customer in a unique way  Marketing efforts traditionally were targeted to everyone Targeted marketing—marketing and advertising efforts targeted to groups (market segmentation) or to individuals (one-toone)—is a better approach  market segmentation The process of dividing a consumer market into logical groups for conducting marketing research and analyzing personal information 52 .

Trust. preferences. behaviors. and Satisfaction in EC:  personalization The matching of services. and advertising content with individual consumers and their preferences  The major strategies used to compile user profiles include the Solicit information directly from the user Observe what people are doing online Build from previous purchase patterns Make inferences following:      user profile The requirements. and demographic traits of a particular customer  cookie 53 .Personalization. Loyalty. products.

that collects information about the user’s activities at a site  Customer Loyalty  e-loyalty Customer loyalty to an e-tailer or loyalty programs delivered online or supported electronically  trust 54 .A data file that is placed on a user’s hard drive by a remote Web server. frequently without disclosure or the user’s consent.

The psychological status of willingness to depend on another person or organization  How to increase trust in EC   Affiliate with an objective third party Establish trustworthiness Market Research for EC:  Methods for Conducting Market Research Online  Market research that uses the Internet frequently is faster and more efficient and allows the researcher to access a more geographically diverse audience  Web market researchers can conduct a very large study much What are marketers looking for in EC market research?  What are the purchase patterns for individuals and What factors encourage online purchasing? How can we identify those who are real buyers from How does an individual navigate—does the consumer groups (market segmentation)?   more cheaply than with other methods  those who are just browsing?  check information first or do they go directly to ordering? 55 .

 What is the optimal Web page design?  Market research for one-to-one approaches    Direct solicitation of information (surveys. focus groups) Observing what customers are doing on the Web Collaborative filtering 56 .

 Observing Customers  transaction log click stream behavior Web bugs A record of user activities at a company’s Web site  Customer movements on the Internet  Tiny graphics files embedded in e-mail messages and in Web sites that transmit information about users and their movements to a Web server  spyware 57 .

they provide a trail of the user’s activities (the user’s click stream behavior) in the Web site  collaborative filtering A market research and personalization method that uses customer data to predict. which is expensive and time consuming  using data warehousing and data mining known as business intelligence  Biometric Marketing  biometrics An individual’s unique physical or behavioral characteristics that can be used to identify an individual precisely (e. what other products or services a customer may enjoy. condense. The solution to this problem is to automate the process by Overcome Them  and summarize it. predictions can be extended to other customers with similar profiles  Limitations of Online Market Research and How to To use data properly. one needs to organize. edit. based on formulas derived from behavioral sciences..Software that gathers user information over an Internet connection without the user’s knowledge  click stream data Data that occur inside the Web environment.g. fingerprints)  Organizational Buyer Behavior  A Behavioral Model of Organizational Buyers  An organizational influences module is added to the B2B model 58 .

Internet Marketing in B2B:  Methods for B2B Online Marketing    Targeting customers Electronic wholesalers Other B2B marketing services       Digital cement National systems Business town Affiliate Programs Infomediaries Online Data Mining Services 59 .

Web Advertising:  interactive marketing Online marketing. facilitated by the Internet. known as impressions or page views  click (click-through or ad click) 60 . by which marketers and advertisers can interact directly with customers and consumers can interact with advertisers/vendors  Some Internet Advertising Terminology  ad views The number of times users call up a page that has a banner on it during a specific period.

regardless of how many pages are viewed per visit  a site stickiness Characteristic that influences the average length of time a visitor stays in 61 .A count made each time a visitor clicks on an advertising banner to access the advertiser’s Web site  CPM (cost per thousand impressions) The fee an advertiser pays for each 1.000 times a page with a banner ad is shown  conversion rate click-through rate (or ratio) click-through ratio The percentage of clickers who actually make a purchase  The percentage of visitors who are exposed to a banner ad and click on it  The ratio between the number of clicks on a banner ad and the number of times it is seen by viewers. measures the success of a banner in attracting visitors to click on the ad  hit visit A request for data from a Web page or file  A series of requests during one navigation of a Web site. a pause of a certain length of time ends a visit  unique visits A count of the number of visitors entering a site.

such as brokering ads and targeting ads to select groups of consumers Online Advertising Methods:  banner On a Web page. a graphic advertising display linked to the advertiser’s Web page  keyword banners Banner ads that appear when a predetermined word is queried from a search engine  random banners banner swapping Banner ads that appear at random. not as the result of the user’s action  An agreement between two companies to each display the other’s banner ad on its Web site  banner exchanges Markets in which companies can trade or exchange placement of banner ads on each other’s Web sites 62 .Why Internet Advertising?  Precise targeting  Interactivity  Rich media (grabs attention)  Cost reduction  advertising networks       Customer acquisition Personalization Timeliness Location-basis Linking Digital branding Specialized firms that offer customized Web advertising.

or during Internet surfing or when reading e-mail  pop-under ad An ad that appears underneath the current browser window. after. Blogs. and Social Networks Other Forms of Advertising  advertorial An advertisement “disguised” to look like editorial content or general information  Advertising in newsletters 63 . pop-up ad An ad that appears in a separate window before. so when the user closes the active window the ad is still on the screen  interstitial An initial Web page or a portion of it that is used to capture the user’s attention for a short time while other content is loading  E-Mail Advertising     E-mail advertising management E-mail advertising methods and successes Newspaper-Like and Classified Ads Search Engine Advertisement    Improving a company’s search-engine ranking (optimization) Paid search-engine inclusion associated ad display (text links) An advertising strategy that displays a banner ad related to a key term entered in a search engine    Google—The online advertising king Advertising in Chat Rooms.

Promotions. or a viewpoint Advertising Strategies and Promotions Online:  affiliate marketing A marketing arrangement by which an organization refers consumers to the selling company’s Web site  With the ads-as-a-commodity approach. people are paid for viral marketing time spent viewing an ad  Word-of-mouth marketing by which customers promote a product or service by telling others about it  Webcasting A free Internet news service that broadcasts personalized news and information. in categories selected by the user  Online Events. and Attractions   Live Web Events Admediation  admediaries Third-party vendors that conduct promotions. including seminars.  Posting press releases online advergaming The practice of using computer games to advertise a product. an organization. especially largescale ones  Selling space by pixels Special Advertising Topics: 64 .

from a variety of radio stations 65 . rotating ads)  localization The process of converting media products developed in one environment (e. PERMISSION ADVERTISING  spamming permission advertising (permission marketing) Using e-mail to send unwanted ads (sometimes floods of ads)  Advertising (marketing) strategy in which customers agree to accept advertising and marketing materials (known as “optin”)    Advertisement as a Revenue Model Measuring Online Advertising’s Effectiveness ad management Methodology and software that enable organizations to perform a variety of activities involved in Web advertising (e. and other entertainment.g. country) to a form culturally and linguistically acceptable in countries outside the original target market  Internet radio A Web site that provides music.. both live and stored. talk..g. tracking viewers.

Chapter 5 Electronic Payment Systems 66 .

When people pay their bills. namely cash. or paper check may be too slow. people usually pay with cash. If someone purchases an appliance at a discount store. most use checks   How Do People Pay Online? Unfortunately. and credit cards to make purchases. debit card. they are likely to use a credit card. credit card. where the use of credit cards is not as prevalent 67 . paying online with the same instruments that people use off-line. consumers use cash. the seller wants to make sure they will pay  E-payments: Payments made online  The overwhelming majority of Web purchases are made This may change in the future with credit cards  Deficiencies of Credit Card Payments:  Many people who will be on the Internet in 2004 Many of these users will come from countries outside have not even had their first Web experience  the United States. checks. When a buyer places an order. At a fast food restaurant.A Critical Element in EC Support Services:  In the off-line world. or expensive for online payments. inefficient.

claiming that the purchase was made by someone else Happens in Internet transactions:   Four times more frequently than catalog sales Nine times more frequently than in brick-and-mortar sales Electronic Payments . Many users are also likely to be younger and have Many purchases they make will be micropayments 95 percent of all e-commerce are B2B transactions  Electronic payments are more likely to involve Credit cards cannot be used for large sums of EFT’s or electronic checks  B2B transactions less access to credit and debit cards    A large amount of fraud with online credit card shopping occurs that results in chargeback's to the merchants  Chargeback Problem—a chargeback means that the customer refuses to pay.Best Practices:  “Best Practices” used by merchants when conducting credit card Implementing a firewall Using encryption and antivirus software Incorporating intercompany security practices 68 transactions:    .

debit. charge) Virtual credit cards E-wallets (or e-purses) Smart cards Electronic cash (several variations) Wireless payments Stored-value card payments 69 . e-tailers see credit card fraud as a Risk management techniques and fraud-prevention software The Merchant Fraud Squad provides education about fraud solvable problem  are widely available  prevention techniques and encourages businesses selling online to adopt best practices and antifraud technologies Electronic Payments :  nochargeback. and postal addresses used for purchases that resulted in a chargeback  Merchants check for “deadbeats” at this site and then refuse to accept charges from them Electronic Payment Methods:        Electronic payment cards (credit. eprotection services  mail addresses.com and combatfraud. However.org offer fraudMembers access the site’s database of credit card numbers. since 2002.

 that transfers money between bank accounts 70 . including e-lines of credit  Five parties involved in e-payments:  Customer/payer/buyer: The party is making the e-payment in Merchant/payee/seller: The party receiving the e-payment in Issuer: The banks or non-banking institutions that issue Regulator: Usually a government agency their regulations Automated Clearing House (ACH): An electronic network exchange for goods or services.   Loyalty cards Person-to-person payment methods Payments made electronically at kiosks  E-payments for B2B      Electronic checks Purchasing cards Electronic letters of credit Electronic funds transfer (EFT) Electronic benefits transfer (EBT) Other innovative methods.  exchange for goods and services  the e-payment instrument used to make the purchasing.  control the e-payment process.

 Automated Clearing House (ACH): Electronic network that connects all U.a credit card will not do.  with these existing systems and applications and be supported by standard computing platforms.  Critical mass: acceptance rate of various e-payment methods has been slow. which leave room for alternative forms of payment. the question is whether the online e-payment methods can replace the existing off-line methods of procurement  Transaction fees: merchant pays a transaction fee of up to about 3 % of the items purchase price (above a minimum fixed fee). financial institutions for the purpose of making funds transfers Characteristics of successful e-payment methods  Independence: forms of e-payment require the seller or merchant Interoperability and portability: e-payment method must engage to install specialized software to receive and authorize a payment. then the method is not likely to be accepted. Some areas online billing and presentment will see epayment make significant approach in the near future 71 . These fees make it prohibitive to support smaller purchases with credit cards.  Security: if the risk for the payer is higher than the risk for the Anonymity: Unlike credit cards and checks special payment Divisibility: accepting credit cards for purchases within a payee.  Ease of use: For B2B payments.  methods such as e-cash have to maintain anatomy  minimum and maximum range If the cost of the item is too small .S.

3. Standards for e-payments—it is necessary to have 1. Both the funds that are being transferred and the consumer 1. Security for e-payments: questions on the issues of trust 1. 2. Other security measures 1. receives a loan for 30 to 45 days equal to the balance of their statement. The actual transfer of funds takes place from the holder's account to the merchant's within 1 to 2 days 72 . intelligent agents biometrics data must be protected Electronic Cards and Smart Cards: 6. Payment card: Electronic card that contains information that can be 1. SSL Secure Socket Layer (TLS) Transport Layer SET generally accepted protocols Security 2.Security for Electronic Payments: 1. the holder of a charge card used for payment purposes by the card issuer 2. 2. Debit cards: (called a demand-deposit account). Credit cards: credit to make purchases up to a limited fixed Charge cards: Technically.

Electronic Wallets:  Electronic wallet (e-wallet): A software component in which a user stores credit card numbers and other personal information. when shopping online. 73 . Card gateway: An online connection that ties a merchant’s systems Virtual credit card: An e-payment system in which a credit card to the back-end processing systems of the credit card issuer  issuer gives a special transaction number that can be used online in place of regular credit card numbers  Debit checking accounts debiting their checking accounts to pay for items ordered over the Web. the user simply clicks the e-wallet to automatically fill in information needed to make a purchase.

using their private key. the user clicks the ewallet. When a user shops at a merchant who accepts the e-wallet. the e-wallet creates a message called a ticket that keys called session keys.  includes a second session key and the user's name.  The user decrypts the first session key. The authentication/registry part of the e-wallet generates a pair of It encrypts one key with the user's public key that resides in the eIn addition. E-Wallets (cont. The user then creates a new message. called the authenticator. which automatically fills in all the necessary information. When shopping online. 74 .com has done with its "One-Click" shopping feature. Amazon. The ticket is then encrypted with the merchant's public key. which contains the user's name.  wallet. the user simply clicks the e-wallet to automatically fill in information needed to make a purchase. Both the encrypted session key and the message are sent to the user.): Digital Identity (digital ID): A set of digital information that is associated with a particular individual and is used to identify that individual for security purposes E-wallet as an authenticator   The user contacts the merchant to place an order. and encrypts it with the first session key.

Using the second session key. retrieving  the user's name and the second session key. If the name matches with that in the ticket. the merchant knows that the buyer is actually who they declare to be. using its private key. The merchant decrypts the ticket.The user then sends the authenticator and the ticket to the merchant. 75 . the merchant unlocks the authenticator to find the user's name.

 Theft of card details stored on the merchant’s computer: The key to protecting this information is to isolate the computer or files storing this information so that it cannot be accessed directly from the Internet. the issuer will credit the cardholder's account and chargeback the merchant  Reneging by the customer: A customer can authorize a payment and later deny it.Security risks with credit cards  Stolen cards: someone steals a credit card and the valid cardholder contests any charges made by the thief. Merchants can avoid such situation by showing evidence that the cardholder confirmed the order and received the goods. deletion. or manipulation of information on the card 76 . If the central is believable to the issuer. Smart card: An electronic card containing an embedded microchip  that enables predefined operations or the addition. the merchant will bear the loss.

 Contact card: A smart card containing a small gold plate on the face that when inserted in a smart-card reader makes contact and so passes data to and from the embedded microchip  Contactless (proximity) card: A smart card with an embedded antenna. by means of which data and applications are passed to and from a card reader unit or other device without contact between the card and the card reader  Securing smart cards Stored-value card: A card that has monetary value loaded onto it. and is usually rechargeable 77 .

and more.   Some smart cards show account numbers Most store the information in encrypted form Cost to the attacker so far exceeds the benefits of hacking into these cards Applications of smart cards   Loyalty cards: Retailers are using smart cards to identify Financial applications: Multiple applications such as credit their loyal customers and reward them  card. e-cash (from Mondex). to download money value on a physical smart card. loyalty programs. to pay from a PC.g. and public transportation fares E-Cash and Innovative Payment Systems: 78 .. issued the first multipurpose smart card in the world  It contains credit and debit card features. digital identification.     Health and social welfare information cards Transportation Identification Multipurpose cards  February 2001. MasterCard International and Korea’s Kookmin Card Corp. and electronic money are securely offered. as payments).  Information technology cards: The technology will allow individuals to accept other people's smart cards (e.

Campus Cards: money value is not stored on the card. 5. Wall Street Journal. purchases or micropayments. 7. E-cash: The digital equivalent of paper currency and coins.com)  Prepaid Stored-value Cards 79 . Wireless Payments Vodafone's “m-pay bill” system The m-pay bill system is based on reverse billing text message Qpass is used primarily to purchase content from participating (SMS) like micropayments. a subsidiary of MasterCard 4. E-loyalty and rewards programs: 1. sponsored by Visa 2. 6. sponsored by Mondex. but in an account equivalent to the card’s ID number 8. which enables secure and anonymous purchase of low-priced items Inconvenience of opening an account and downloading software and the difficulty of obtaining a critical mass of users seems to have outweighed the benefits Here are examples of a few innovative methods. Visa Cash: A stored-value card designed to handle small Visa Bucks: prepaid card designed for teens Mondex: A stored-value card designed to handle small purchases or micropayments. can be used by consumers to make purchases at participating stores MyPoints-CyberGold (mypoints. Electronic script: A form of electronic money (or points). news services and periodicals such as the New York Times. issued by a third party as part of a loyalty program. Stored-value cards and other innovations 1. 3. and Forbes. 4.

com) (bankone.com) Web Certificate (webcertificate.com) combines an online cash account with a rewards program  Person-to-Person (P2P) payments: E-payment schemes (such as PayPal) that enable the transfer of funds between two individuals     PayPal (paypal.com) Bank One’s eMoneyMail Yahoo Pay Direct (paydirect.yahoo. at least until the stored value runs out    Telephone cards Starbuck’s RocketCash (rocketcash. they are more likely to be loyal to the card sponsor.com) AOL QuickCash (aol.The customer has a prepaid stored-value card.com) Citibank c2it (c2it.com/presents/emoneymail/home/)   80 .

the merchant account is credited (Wal-Mart. Home Depot)  cards at PepsiCo and Coca-Cola vending machines  scanned. customer’s bank account is debited. Costco) 81 . Kmart. Non-Internet EC payments  Check yourself out—consumers can use kiosks to check Buying from vending machines—use regular credit Paying with a check without writing it—check is out (Sears.

E-Checking:  E-check: The electronic version or representation of a paper check  Eliminate the need for expensive process reengineering and taking advantage of the banking industry  Can be used by all bank customers who have checking accounts 82 .

B2B Electronic Payments:  Financial Supply Chains (FSC)  FSC parallels the physical supply chain  Follows a buyer’s transaction activities related to cash flow. and booking  Segment 5: Data matching. final payment calculation. and arrangements for automatic payment  Segment 6: Payment instructions. money transfer. buyer approval. seller validation. which start with a purchase order and end in settlement with the seller Typical segments of the FCS:  Segment 1: Examination of catalogs. verification of delivery. electronic order entry  Segment 2: Online negotiations. financing  Segment 4: Invoice presentment. focus on relationships with suppliers  Bill Consolidation Consolidated into a single invoice that can be paid electronically through EDI or EFT  83 . culminating in a preliminary agreement  Segment 3: Credit check. payment assurance. debit and credit notices B2B payment solutions  Purchasing cards: Special-purpose payment cards issued to a company’s employees to be used solely for purchasing nonstrategic materials and services up to a preset dollar limit   Benefits accrued from the use of purchasing cards  Productivity Gains Purchasing departments freed from day-to-day procurement activities. “trade service” quote. currency exchange calculation (if needed). discrepancy resolution.

84 .

 Benefits to the buyers. and the merchant  Payment reconciliation  Expedited payments  Management reports  Control 85 . agency where they work.

 Global B2B payments  Letter of Credit (LC): A written agreement by a bank to pay the seller. a sum of money upon presentation of certain documents Benefits of LC’s to the seller  payment is highly assured if all the terms and conditions stipulated are met  credit risk is reduced  political/country risk is reduced when confirmed by a bank in the seller’s country Benefits of LC's to the buyer 86   . on account of the buyer.

 allows the buyer to negotiate for a lower purchase  buyer may expand its sources of supply and bargaining power  funds withdrawn from the buyer’s account only after the documents have been inspected giving the buyer a bit more time to hold its money Trade card payments in B2B global tracing  Members of Trade card interact with each other via the Trade Card system  Checks purchase orders for both parties  Waits for a confirmation from a logistics company that deliveries have been made and received  Authorizes payment to complete the financial transaction between the buyer and seller  Electronic Bill Presentment and Payment:  E-billing Presentment: The presentation and hosting on a specialized Web server of information that is typically printed on a bill  Two models of presentment  Common-biller direct 87 .

 Third-party consolidators 88 .

89 .

and go to “bill payments” on the menu  Insert the account number of the biller and the amount to be paid  Customer gets a printed receipt showing that the payment has been made Advantages of e-billing   For the billing firm:  Reduction in expenses  Enables better customer service  Electronic ad inserts can be customized   Advantages of e-billing  For the customer:  Reduces customer’s expenses  Simplifies and centralizes payment processing and provides better record keeping  Customers review and pay bills at virtually any time. slide in their bank card.com) leading third-party e-billing vendor  Consolidates and aggregates all of a customer’s bills into a single presentment  Set up payments with companies that do not offer electronic billing  Alerts users to problems with any payments  Users can export the transaction records to Quicken or Microsoft Money Payment-Related Issues:  Tax calculation services for businesses  DPC (salestax.com) licenses software that makes it simple to collect and report sales taxes 90 . Paying bills at ATMs  Customer receives the bill  Go to any ATM. giving them direct control over the timing of the payment Check free (checkfree. enter a password.

managed by the third party over the Web.  The tax authority then securely accesses a database. to examine the transaction data for tax compliance  Special Payment-Related Issues: Cyber Source: a comprehensive payment provider.com) produces software that operates seamlessly with leading financial and accounting packages on multiple hardware platforms to accurately automate tax compliance   Implementing tax collection in the U.S.S.Tax-Related Issues:  Sales Tax Clearinghouse (STC) has a free online sales tax calculator for the U.stm) Tax-Related Issues (cont. services include:  Electronic payments  91 .  Streamlined Sales Tax Project (SSTP)— designed to create uniformity in the way states administer sales and use taxes  Merchants use the Internet to send sales transaction data in real time to any participating system How the systems works  A consumer initiates an online purchase  The e-business uses the Internet to access a trusted third-party tax service provider  The provider calculates the tax on the purchase based on  The Locations of the buyer and the seller  Applicable State and local tax laws  The third party makes a single monthly or quarterly tax payment to each relevant government tax authority. and Canada (thestc.com/ratecalc.): Tax ware International (taxware.

92 . 4. 2. Online credit card players and processes. Categories and potential uses of smart cards. 3. Crucial factors determining the success of an e-payment method.   Credit card fraud management Verification and compliance services Financial services for B2B  Credit reporting  Risk analysis and financial matching  Exchange insurance Managerial Issues:     What B2C payment methods should we use? What B2B payment methods should we use? Should we use an in-house payment mechanism or our source? How secure are e-payments? Summary: 1. Online alternatives to credit card payments.

including global trade. 7. Payment methods in B2B. 6. Bill presentment and payment.): 5. 8. E-check processes and involved parties. Special payment methods. Chapter 10 93 .Summary (cont.

5. Describe the hazards of e-auction fraud and discuss possible countermeasures. Describe bartering and negotiating. Describe the benefits and limitations of e-auctions.Dynamic Trading: E-Auctions. Describe some unique e-auction models. Define the various types of e-auctions and list their characteristics. Describe forward and reverse auctions. Describe e-auction deployment and implementation issues. 4. 9. Analyze mobile and future directions of e-auctions. Describe the various services that support e-auctions. Fundamentals of Dynamic Pricing and E-Auctions: 94 . Bartering and Negotiations Learning Objectives: 1. 3. 6. 2. 8. 7.

 auction Market mechanism by which buyers make bids and sellers place offers. used mainly in B2B and G2B e-commerce  B2B reverse auctions  C2C reverse auctions  “name-your-own-price” model Auction model in which would-be buyers specify the price (and other terms) they are willing to pay to any willing seller. One Seller  One Seller. and the lowest bid wins. Many Potential Sellers  reverse auction Auction in which the buyer places an item for bid (tender) on a request for quote (RFQ) system. Many Potential Buyers  forward auction An auction in which a seller offers a product to many potential buyers  sealed-bid auction Auction in which each bidder bids only once. potential suppliers bid on the job. with bid price reducing sequentially. characterized by the competitive and dynamic nature by which the final price is reached  electronic auctions (e-auctions) Auctions conducted online  dynamic pricing Fluctuating prices that are determined based on supply and demand relationships at any given time  One Buyer. in which bidders do not know who is placing bids or what the bid prices are  Vickrey auction Auction in which the highest bidder wins but pays only the second highest bid  One Buyer. a C2B model pioneered by Priceline. a silent auction.com Many Sellers. Many Buyers  vertical auction Auction that takes place between sellers and buyers in one industry or for one commodity  auction vortals  95 .

and Strategic Uses of E-Auctions:  Benefits of E-Auctions  Benefits to sellers  Larger reach and increased revenues  Optimal price setting  Removal of expensive intermediaries  Liquidation  Lower transaction costs  Lower administrative costs  Better customer relationships  Benefits to buyers  Opportunities to Find Unique Items and Collectibles  Lower prices  Anonymity  Convenience  Entertainment  Benefits to E-Auctioneers  Higher repeat purchases  A stickier Web site  Expansion of the auction business Limitations of E-Auctions  Possibility of fraud  Limited participation  Security  Auction software  Long cycle time  Monitoring time  Equipment for buyers  Order fulfillment costs  The “Name-Your-Own-Price” C2B Model: One of the most interesting e-commerce models is the “nameyour-own-price” model  96 . Limitations.Another name for a vertical auction vertical portal Benefits.

when another bidder places a bid. the software (the proxy) will automatically raise the bid to the next level until it reaches the buyer’s predetermined maximum price  Phase 4: Post auction Follow-Up  Post auction activities  Bidding notifications  End-of-auction notices  Seller notices  Postcards and thank-you notes  User communication  97 . and deliver it to users  Browsing site categories  Basic and advanced searching  Phase 2: Getting Started at an Auction  Registration and participants’ profiles  Listing and promoting  Pricing  Phase 3: Bidding  Bid Watching and Multiple Bids  sniping Entering a bid during the very last seconds of an auction and outbidding the highest bidder  proxy bidding Use of a software system to place bids on behalf of buyers. summarize it. This model enables consumers to achieve significant savings by naming their own price for goods and services  The concept is that of a C2B reverse auction. in which vendors bid on a job by submitting offers and the lowest-priced vendor or the one that meets the buyer’s requirements gets the job The Forward E-Auction Process and Software Support: Phase 1: Searching and Comparing  Auction aggregators and notification  auction aggregators Companies that use software agents to visit Web auction sites. find information.

buyers and their bidding prices and sellers and their asking prices are matched. and Pricing Issues: Double Auctions  single auction Auction in which at least one side of the market consists of a single entity (a single buyer or a single seller)  double auction Auction in which multiple buyers and sellers may be making bids and offers simultaneously. considering the quantities on both sides   bundle trading The selling of several related products and/or services together  Prices in Auctions: Higher or Lower?  Pricing strategies in online auctions Bartering and Negotiating Online:  bartering The exchange of goods and services  electronic bartering (e-bartering) Bartering conducted online. usually by a bartering exchange  Consumer-to-consumer barter exchanges  Negotiation and Bargaining  online negotiation 98 .     Chat groups  Mailing lists  Message boards Feedback and ratings Invoicing and billing Payment methods  P2P transfer service  Escrow service  Credit card payment Shipping and postage Double Auctions. Bundle Trading.

A back-and-forth electronic process of bargaining until the buyer and seller reach a mutually agreeable price. sometimes supported by software (intelligent) agents  P2P online negotiations E-Auction Fraud and Its Prevention: Types of E-Auction Fraud  bid shielding Having phantom bidders bid at a very high price when an auction begins. and the real bidder who bid a much lower price wins  shilling Placing fake bids on auction items to artificially jack up the bidding price  Fake photos and misleading descriptions  Improper grading techniques  Bid siphoning  Selling reproductions as originals  Failure to pay  Failure to pay the auction house  High shipping costs and handling fees  Failure to ship merchandise  Loss and damage claims  Fake escrow services  Switch and return  Other frauds   User identity  Protecting against E-Auction Fraud:Appraisal services verification  Authentication service  Grading services  Feedback forum  Insurance policy  Escrow services  Nonpayment  Physical inspection  Item verification  Buyer protections  Spoof (fraudulent) Web site protection  eBay security center 99 . they pull out at the last minute.

Issues in E-Auction Implementation:  Strategic Issues  Which items (services) to auction  What type of auction to use  Whether to do the auction in-house or to use an auctioneer (and which one)  How long to run each auction  How to set the initial prices  How to accept a bid  What increments to allow in the bidding  What information to disclose to the participants Auctions in Exchanges Infrastructure for E-Auctions  Building auction sites Auctions on Private Networks  Pigs in Singapore and Taiwan  Livestock auctions in Australia    Mobile E-Auctions and the Future of Auctions:  Benefits of Mobile Auctions  Convenience and ubiquity  Privacy  Simpler and faster Limitations of Mobile Auctions  Visual quality  Memory capacity  Security The Future of E-Auctions  Global auctions  Wireless auctions  Selling art online in real-time auctions  Strategic alliances 100   .

101 .

Describe the purpose and content of a business plan.Chapter 14 E-Commerce Strategy And Global EC Learning Objectives: 1. 102 . Describe the strategic planning process. 2.

Understand how to formulate. what its goals should be. 6. Organizational Strategy: Concepts and Overview:  strategy A broad-based formula for how a business is going to accomplish its mission. Evaluate the issues involved in global EC. 5. 4. Describe strategy implementation and assessment. 7. and what plans and policies will be needed to carry out those goals  Strategy and the Web Environment  e-commerce strategy (e-strategy) The formulation and execution of a vision of how a new or existing company intends to do business electronically Strategy and the Web Environment  strategic information systems planning (SISP) A process for developing a strategy and plans for aligning information systems (including e-commerce applications) with the business strategies of an organization   The Strategic Planning Process  Strategy initiation  Strategy formulation  Strategy implementation  Strategy assessment  strategy initiation The initial phase of strategic planning in which the organization examines itself and its environment  Specific outcomes initiation phase include:  Company analysis and value proposition  value proposition 103 . and prioritize EC applications. justify. including the use of metrics.3. Understand how e-commerce impacts the strategic planning process. Analyze the impact of EC on small and medium-sized businesses.

short-term plans for carrying out the projects agreed on in strategy formulation  Specific activities and outcomes from the strategy implementation phase include:  Project planning  Resource allocation  Project management  strategy assessment The continuous evaluation of progress toward the organization’s strategic goals. resulting in corrective action and.The benefit that a company’s products or services provide to a company and its customers  Core competencies  Forecasts  Competitor (industry) analysis  strategy formulation The development of strategies to exploit opportunities and manage threats in the business environment in light of corporate strengths and weaknesses  Specific activities and outcomes from the formulation phase include:  Business opportunities  Cost-benefit analysis  Risk analysis. strategy reformulation  Strategic Planning Tools  SWOT analysis A methodology that surveys external opportunities and threats and relates them to internal strengths and weaknesses  competitor analysis grid A strategic planning tool that highlights points of differentiation between competitors and the target firm  scenario planning A strategic planning methodology that generates plausible alternative futures to help decision makers identify actions that can be taken today to ensure success in the future  balanced scorecard 104 . assessment. and management  Business plan  strategy implementation The development of detailed. if necessary.

high-stakes initiative 3. Betting it all in a single. Technology-driven strategy 3. “Trend-surfing”  Productive approaches to EC strategy selection 1. E-business maturity model 105 . Problem-driven strategy 2.A management tool that assesses organizational progress toward strategic goals by measuring performance in a number of different areas Business Planning in E-Commerce:  business plan A written document that identifies the company’s goals and outlines how the company intends to achieve those goals  Outline of a business plan  Executive Summary  Business Description  Operations Plan  Financial Plan  Marketing Plan  Competitor Analysis  Business Plan Fundamentals  Purposes for business plan  To acquire funding  To acquire nonfinancial resources  To obtain a realistic approach to the business  business case A business plan for a new initiative or large. Indiscriminately funding many projects and hoping for a few winners 2. Market-driven strategy 4. new project inside an existing organization E-Strategy Formulation:  Selecting EC Opportunities  Incorrect approaches to EC strategy selection: 1.

 Determining an Appropriate EC Application Portfolio Mix  The BCG model  An Internet portfolio map for selecting applications Risk Analysis and Management  e-commerce (EC) risk The likelihood that a negative outcome will occur in the course of developing and operating an electronic commerce strategy  Security issues  Issues in Strategy Formulation  How to handle channel conflict  How to handle conflict between the off-line and online businesses  Pricing strategy  Price comparison is easier  Buyers sometimes set the price  Online and off-line goods are priced differently  Differentiated pricing can be a pricing strategy  versioning  106 .

but with different selection and delivery characteristics E-Strategy Implementation: Create a Web Team  project champion The person who ensures the EC project gets the time.Selling the same good. and resources required and defends the project from detractors at all times  Start with a Pilot Project  Allocate Resources  Manage the Project  Strategy Implementation Issues  Application development  Partners’ strategy  outsourcing The use of an external vendor to provide all or part of the products and services that could be provided internally   Business alliances and virtual corporations Virtual Corporation (VC)  An organization composed of several business partners sharing costs and resources for the production or utilization of a product or service  co-opetition Two or more companies cooperate together on some activities for their mutual benefit. systems-to-systems. even while competing against each other in the marketplace Redesigning business processes  business process reengineering (BPR) A methodology for conducting a comprehensive redesign of an enterprise’s processes  business process management (BPM) Method for business restructuring that combines workflow systems and redesign methods. covers three process categories—people-topeople. attention. and systems-to-people interactions  107 .

E-Strategy and Project Assessment: The Objectives of Assessment  Measure the extent to which the EC strategy and ensuing projects are delivering what they were supposed to deliver  Determine if the EC strategy and projects are still viable in the current environment  Reassess the initial strategy in order to learn from mistakes and improve future planning  Identify failing projects as soon as possible and determine why they failed  Measuring Results and Using Metrics  metric A specific. and at a reasonable cost Barriers to Global EC  Cultural issues  Culture and language translation  Administrative issues  Geographic issues and localization  Economic issues 108  . from anywhere. BPM) Advanced performance measuring and analysis approach that embraces planning and strategy  Web analytics The analysis of click stream data to understand visitor behavior on a Web site  Global E-Commerce:  Benefits and Extent of Operations  The major advantage of EC is the ability to do business at any time. measurable standard against which actual performance is compared  corporate (business) performance management (CPM.

document. etc. Breaking Down the Barriers to Global EC  Be strategic  Know your audience  Localize  Think globally.  Products not suitable for online sales  Reduced personal contact with customers  Inability to afford the advantages of digital exchanges  Critical Success Factors for SMES  Product is critical  Payment methods must be flexible  Electronic payments must be secure  Capital investment should be kept to a minimum  Inventory control is crucial  Logistics services must be quick and reliable  Critical Success Factors for SMES 109 .  Less risk tolerance than a large company. explain  Offer services that reduce barriers E-Commerce in Small and Medium-Sized Enterprises:  Advantages and Benefits of EC to Small and Medium-Sized Enterprises  Inexpensive sources of information  Inexpensive ways of advertising and conducting market research  Competitor analysis is easier  Inexpensive ways to build storefronts  Less locked into legacy technologies  Image and public recognition can be generated quickly  An opportunity to reach worldwide customers  Disadvantages and Risks of EC to Small and Medium-Sized Enterprises  Lack of financial resources to fully exploit the Web  Lack of technical staff or insufficient expertise in legal issues. act consistently  Value the human touch  Clarify. advertising.

  Owner support  High visibility on the Internet  Join an online community  A Web site should provide all the services needed by consumers Supporting SMES  Government agencies  Vendor service centers Chapter 15 Economics and Justification Of Electronic Commerce 110 .

4. Recognize key factors in the success of EC projects and the major reasons for failures. Recognize the difficulties in establishing intangible metrics and describe how to overcome them. Why Justify E-Commerce Investments. and buyer characteristics impact the economics of EC. Describe the need for justifying EC investments. how it is done. How Can They Be Justified?  Increased Demand for Financial Justification  IT executives feel the demand for financial justification and planning from executives but:  65% of companies lack the knowledge or tools to do ROI calculations 111 . Understand how e-CRM. List and briefly describe traditional and advanced methods of justifying IT investments. 8. seller. 6. Describe some economic principles of EC. 5. e-learning. Understand how product. 3. 7. industry. Understand the difficulties in measuring and justifying EC investments. and other EC projects are justified.Learning Objectives: 1. and how metrics are used to determine justification. 2.

and later on a periodic basis  The success of EC projects may be assessed in order to pay bonuses  Specific benefits  Cost reduction  Productivity improvement  Improved customer satisfaction  Improved staffing levels  Higher revenues  Higher earnings  Better customer  Retention  More return of equity  Faster time-to-market How Is an EC Investment Justified?  cost-benefit analysis A comparison of the costs of a project against the benefits  Business justification and business case  Why Justify E-Commerce Investments. are inaccurate. or are too volatile 112 . How Can They Be ustified?(Not needed)  What Needs to Be Justified? When Should Justification Take Place?  When the value of the investment is relatively small for the organization  When the relevant data are not available.  75% have no formal processes or budgets in place for measuring ROI  68% do not measure how projects coincide with promised benefits six months after completion Other Reasons Why EC Justification Is Needed  Companies realize that EC is not necessarily the solution to all problems  A formal evaluation of requests for funding is mandated  Companies need to assess the success of EC projects after completion.

and key performance indicators  key performance indicators (KPI) The quantitative expression of critically important metrics  Difficulties in Measuring and Justifying E-Commerce Investments: 113 . measurable standard against which actual performance is compared  Using Metrics in EC Justification  Metrics can:  Define the value proposition of business models  Communicate a business strategy to the workforce  Increase accountability  Align the objectives of individuals. measurements. and divisions to the enterprise’s strategic objectives  Track the performance of EC systems  Assess the health of companies Metrics.  When the EC project is mandated Using Metrics in EC Justification  metric A specific. departments.

so there is only a certain probability for return on the EC investment known as the opportunity matrix Traditional Methods for Evaluating EC Investments  ROI method  Payback period 114  . including vendors and top management Methods and Tools for Evaluating and Justifying E-Commerce Investments:  Opportunities and Revenue Generated by EC Investment  A major difficulty in assessing the EC value is the measurement of possible benefits that drive EC investment  Some of these are opportunities that may or may not materialize. and then conduct your ROI  Conduct a good research on metrics and validate them  Justify and document the cost and benefit assumptions  Document and verify all figures used in the calculation  Do not leave out strategic benefits  Be careful not to underestimate cost and overestimate benefits  Make figures as realistic as possible and include risk analysis  Commit all partners. Difficulties in Measuring Productivity and Performance Gains  Data and analysis issues  EC productivity gains may be offset by losses in other areas  Incorrectly defining what is measured  Other difficulties  Difficulties in Measuring Intangible Costs and Benefits  Tangible costs and benefits  Intangible costs and benefits  Handling intangible benefits  Handling uncertainties  The Process of Justifying EC and IT Projects  Lay an appropriate foundation for analysis with your vendor.

getting approval from buyers. delivering and receiving items.Net Present Value (NPV)  Business ROI  Technology ROI  ROI calculator Calculator that uses metrics and formulas to compute ROI  Internal rate of return (IRR)  Break-even analyses  total cost of ownership (TCO) A formula for calculating the cost of owning. submitting formal requests for goods and services to suppliers. operating. the metrics used to measure the value of e-procurement must reflect how well each process is accomplished  Customer Service and eCRM  Only a small percentage of companies have demonstrated a significantly positive ROI for their eCRM investments  CRM-based EC applications are most effective when they are part of a company’s overall business plan and not just an EC investment  115 . and processing payments  The diversity of activities involved in e-procurement. selecting suppliers. and controlling an IT system  total benefits of ownership (TBO) Benefits of ownership that include both tangible and intangible benefits  Economic value added  Using several traditional methods  Examples of E-Commerce Project Justification: E-PROCUREMENT  E-procurement encompasses buying and selling. processing purchase orders. fulfilling orders.

   Justifying E-Training Projects  End-user training that helps employees acquire or improve their EC and IT skills plays a key role in ensuring the smooth operation of organizations in the information economy Justifying Security Projects  More than 85% of viruses enter business networks via email. but antivirus scanning is not  Employee security training is usually poorly done Calculating the Cost of the Sarbanes-Oxley Act The Economics of E-Commerce:  Reducing Production Costs  Product cost curves  average-cost curve (AVC) 116 . Cleaning up infections is labor intensive.

quality concerns. Q. the information provided in e-markets better informs participants and. as quantity increases. negotiating. decision making. and financial transactions Facilitating Product Differentiation  product differentiation Special features available in products that make them distinguishable from other products. and legal fees  Reducing Transaction Friction or Risk  Organizations can increase the value of their products or services by using the unique capabilities of EC to reduce risks to consumers. therefore. monitoring the exchange of goods. allows them to make better decisions  Valuation of EC Companies  valuation  117 . gathering information. generally.Behavior of average costs as quantity changes. This property attracts customers that appreciate what they consider an added value  EC Increases Agility  agility An EC firm’s ability to capture. report and quickly respond to changes happening in the marketplace and business environment  Markets versus E-Markets  Even if the flow of physical goods does not decrease. companies either can use a certain amount of labor or invest in more automation  agency costs Costs incurred in ensuring that the agent performs tasks as expected (also called administrative costs)  transaction costs Costs that are associated with the distribution (sale) or exchange of products and services including the cost of searching for buyers and sellers. such as those involving psychological relationships. delays. average costs decline  production function An equation indicating that for the same quantity of production.

For a publicly traded company. technological revolutions have had a boom–bust–consolidation cycle  At a mid-economic level. infrastructure. the “Web rush” reflected an over-allocation of scarce resources and too many advertisingdriven business models E-Commerce Successes  Strategies for EC success  Thousands of brick-and-mortar companies are adding online channels with great success  Existing firms can use organizational knowledge.The fair market value of a business or the price at which a property would change hands between a willing buyer and a willing seller who are both informed and under no compulsion to act. brand. failures are consistent with periodic economic downturns that have occurred in other areas over the years  At a microeconomic level. the value can be readily obtained by multiplying the selling price of the stock by the number of available shares Factors that Determine E-Commerce Success:  Categories of EC Success  Product characteristics  Industry characteristics  Seller characteristics  Consumer characteristics Opportunities for Success in E-Commerce and Avoiding Failure:  E-Commerce Failures  Three economic phenomena suggest why:  At a macroeconomic level. and other “morphing strategies” to migrate from the off-line marketplace to the online marketspace 118  .

  Cultural Differences and EC  EC-driven businesses must consider the cultural differences in this diverse global consumer base because without the broad acceptance of the EC channel. undependable delivery mechanisms. consumes may choose not to participate in online transactions EC in Developing Economies  Developing economies often face power blackouts. unreliable telecommunications infrastructure. and the fact that only a few customers own computers and credit cards 119 .

120 .

Chapter 16
Launching a Successful Online Business and EC Projects

Learning Objectives:
1. Understand the fundamental requirements for initiating an online business. 2. Describe the process of initiating and funding a start-up e-business or large e-project. 3. Understand the process of adding EC initiatives to an existing business. 4. Describe the issues and methods of transforming an organization into an e-business. 5. Describe the process of acquiring Web sites and evaluating building versus hosting options. 6. Understand the importance of providing and managing content and describe how to accomplish this.
121

7. Evaluate Web sites on design criteria, such as appearance, navigation, consistency, and performance. 8. Understand how search engine optimization may help a Web site obtain high placement in search engines. 9. Understand how to provide some major support e-services. 10. Understand the process of building an online storefront. 11. Be able to build an online storefront with templates.

Starting a New Online Business:
 An E-Start-Up Is a Start-Up  An e-start-up is basically a start-up and, as such, must consider all the issues faced by a physical start up  Guidelines to avoid dot-com failures: 1. The growth rate of the market you plan to enter 2. The timing of your market entry 3. The revenue flow 4. What cycle a market is in

 Steps in Creating a New Company or Adding an Online Project
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1. 2. 3. 

Identify a consumer or business need in the marketplace Investigate the opportunity Determine the business owner’s ability to meet the need

Five “secrets” to help you come up with the next big thing: 1. Do your homework 2. Aim for excitement 3. Whittle, shape, iterate, repeat 4. Get real 5. Avoid creating a gizmo

Online Business Planning  business plan A written document that identifies a company’s goals and outlines how the company intends to achieve the goals and at what cost  business case A document that justifies the investment of internal, organizational resources in a specific application or project  Funding a New Online Business  First round of initial funding  angel investor A wealthy individual who contributes personal funds and possibly expertise at the earliest stage of business development  incubator A company, university, or nonprofit organization that supports businesses in their initial stages of development  Second round financing  venture capital (VC) Money invested in a business by an individual, a group of individuals (venture capitalists), or a funding company in exchange for equity in the business  Additional funding: A large partner  The initial public offering (IPO) 

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Adding E-Commerce Initiatives or Transforming to an EBusiness:  Adding EC Initiatives to an Existing Business  The most common additions are:  A storefront  A portal  E-procurement  Auctions and reverse auctions  Other initiatives Transformation to an E-Business  What is organizational transformation?  How an organization can be transformed into an e-business  Business process reengineering  Business process management (BPM)  Software tools for facilitating transformation to e-business  Change management   business process management (BPM) Method for business restructuring that combines workflow systems and redesign methods. and systems-to-people interactions Building or Acquiring a Web Site: Classification of Web Sites  informational Web site A Web site that does little more than provide information about the business and its products and services  interactive Web site A Web site that provides opportunities for the customers and the business to communicate and share information  attractors  124 . covers three process categories—people-topeople. systems-to-systems.

Web site features that attract and interact with visitors in the target stakeholder group  transactional Web site A Web site that sells products and services  collaborative Web site A site that allows business partners to collaborate  Steps in Building a Web Site  Select a Web host  Register a domain name  Create and manage content  Design the Web site  Construct the Web site and test  Market and promote the Web site Web Site Hosting and Obtaining a Domain Name: Web Hosting Options  storebuilder service A hosting service that provides disk space and services to help small and microbusinesses build a Web site quickly and cheaply  A pure hosting service  Web hosting service A dedicated Web site hosting company that offers a wide range of hosting services and functionality to businesses of all sizes  mirror site An exact duplicate of an original Web site that is physically located on a Web server on another continent or in another country  co-location A Web server owned and maintained by the business is given to a Web hosting service that manages the server’s connection to the Internet   ISP hosting service A hosting service that provides an independent. stand-alone Web site for small and medium-sized businesses  self-hosting 125 .

images. sound.com and . etc.When a business acquires the hardware. it refers to the portion of the address to the left of . staff. and video that make up a Web page  Categories and Types of Content  dynamic Web content Content that must be kept up-to-date  commodity content Information that is widely available and generally free to access on the Web  Primary and secondary content  Primary content is information about the product itself  Secondary content offers marketing opportunities  Secondary content  cross-selling Offering similar or complementary products and services to increase sales  up-selling Offering an upgraded version of the product in order to boost sales and profit  Promotion  Comment  Creation or Acquisition  Buying content  Buying from a syndicator 126 .  domain name registrar A business that assists prospective Web site owners with finding and registering the domain name of their choice Content Creation. Usually. software. and dedicated telecommunications services necessary to set up and manage its own Web site  Registering a Domain Name  domain name A name-based address that identifies an Internet-connected server. Delivery. and Management  content The text.org.

accurate. who then integrate it with other offerings and resell it or give it away free  Web syndication A form of syndication in which a section of a Web site is made available for other sites to use  RSS An XML format for syndicating and sharing Web content  podcast A media file distributed over the Internet using syndication feeds. and removing content from a Web site to keep content fresh. revising. digital content) to many customers. and credible       Content testing and updating Measuring content quality Pitfalls of content management Content removal Content management software 127 . informative articles sent at regular intervals by email to individuals who have an interest in the newsletter’s topic  Writing effective content Content Management and Maintenance  content management The process of adding. syndication The sale of the same good (e.. A collection of audio files in MP3 format  Representative content-related vendors  Content delivery networks  personalized content Web content that matches the needs and expectations of the individual visitor Delivering content by e-newsletter  e-newsletter A collection of short.g. compelling.

classifying. and continually updating their catalog data Content Maximization and Streaming Services  Many companies provide media-rich content. music. labeled. and navigated to support browsing and searching throughout the Web site Web Site Design Criteria Navigation:  Consistency  Response time  Appearance  Quality Assurance  Availability      Interactivity Content Usability Security Scalability  site navigation Aids that help visitors find the information they need quickly and easily  Site map and navigation  Frame An HTML element that divides the browser window into two or more separate windows  Performance  Colors and Graphics 128 . in an effort to reach their target audience with an appealing marketing message Web Site Design:  information architecture How the site and its Web pages are organized. or Flash media. hosting.  Catalog Content and Its Management  For B2B buyers who aggregate suppliers’ catalogs on their own Web sites. such as video clips. content management begins with engaging suppliers and then collecting. standardizing.

 usability (of Web site) The quality of the user’s experience when interacting with the Web site  Factors that measure usability:  Ease of learning  Efficiency of use  Memorability  Error frequency and severity  Subjective satisfaction Providing E-Commerce Support Services: Who Builds the Web Site? Payments: Accepting Credit Cards  card-not-present (CNP) transaction A credit card transaction in which the merchant does not verify the customer’s signature   129 .

Eng. Taha 130 . Ismail A. An online business that wants to accept credit cards must:  Open a merchant account  Purchase credit card processing software  Integrate the credit card processing software into the transaction system Web Site Promotion  Internal Web site promotion  signature file A simple text message an e-mail program automatically adds to outgoing messages  search engine optimization (SEO) The application of strategies intended to position a Web site at the top of Web search engines   Customer Relationship Management  The first step to building customer relationships is to give customers good reasons to visit and return to the Web site  The site should be rich in information and have more content than a visitor can absorb in a single visit  The site should include not just product information but also value-added content from which visitors can get valuable information and services for free Prepared By: Professor Dr.

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