E-Commerce Market Mechanisms

1
Chapter 2

• E-Commerce Market Mechanisms

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How Raffles Hotel is Conducting E-Commerce

• The Problem
• The companys success depends on the its ability
  to lure customers to its hotels and facilities
  and on its ability to contain costs
• Solution
• Business-to-consumermaintains a public portal
  (raffles.com) that includes
• Information on the hotels
• Reservation system
• Links to travelers resources
• Customer relationship management (CRM) program
• Online store for Raffles products

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Raffles Hotel (cont.)

• Business-to-businessmaintains an
  interorganizational systems that enable efficient
  contacts with its suppliers
• The e-marketplace also has a sell-side, allowing
  other hotels to buy Raffles-branded products from
  electronic catalogs (bathrobes)
• Competitors buy Raffles-branded products because
  they are inexpensive, but look upscale

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Raffles Hotel (cont.)

• The Results
• Public portal helps in customer acquisition
• Hotel is able to maintain high occupancy rates
  using
• Promotions
• Direct sales

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Electronic Marketplaces

• Markets create economic value for
• Buyers
• Sellers
• Market intermediaries
• Society at large

• Markets facilitate exchange of
• Information
• Goods
• Services
• Payments

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Electronic Marketplaces (cont.)

• 3 main functions of markets
• Matching buyers and sellers
• Facilitating the exchange of information, goods,
  services, and payments associated with market
  transactions
• Providing an institutional infrastructure

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NTE Evens the Load

• National Transportation Exchange (nte.com) is
  attempting to keep trucks on the road full on
  both outbound and return tripsuses the Internet
  to connect shippers with fleet managers who have
  space to fill
• Creates spot market
• Gets information from shippers about their needs
  and flexibility in dates
• Works out the best deals for the shippers and the
  haulers
• Issues the contract and handles payments
• The process takes only a few minutes

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NTE Evens the Load (cont.)

• NTE collects a commission based on the value of
  each deal
• Fleet manager gets extra revenue that they would
  otherwise have missed out on
• The shipper gets a bargain price, at the cost of
  some loss of flexibility
• NTE reaches down to the level of individual truck
  drivers and provides a much wider range of
  services (wireless Internet access)

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Marketspace Components

• Marketspacea marketplace in which sellers and
  buyers exchange goods and services for money (or
  for other goods and services), but do so
  electronically
• Customers Sellers
• Goods (physical or digital) Infrastructure
• Front-end Back-end
• Intermediaries/business partners
• Support services

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Marketspace Components (cont.)

• Customers
• Web surfers looking for
• Bargains
• customized items
• Collectors items
• entertainment etc.
• Organizations account for over 85 percent of EC
  activities

• Sellers
• Hundreds of thousands of storefronts are on the
  Web
• Advertising and offering millions of Web sites
• Sellers can sell
• Direct from their Web site
• E-marketplaces

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Marketspace Components (cont.)

• Products
• Physical products
• Digital productsgoods that can be transformed to
  digital format and delivered over the Internet

• Infrastructure
• Hardware
• Software
• Networks

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Marketspace Components (cont.)

• Front-end business processes include
• Sellers portal
• Electronic catalogs
• shopping cart
• Search engine
• Payment gateway

• Back-end activities are related to
• Order aggregation and fulfillment
• Inventory management
• Purchasing from suppliers
• Payment processing
• Packaging and delivery

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Marketspace Components (cont.)

• Intermediarya third party that operates between
  sellers and buyers
• Other business partnerscollaborate on the
  Internet, mostly along the supply chain
• Support services such as
• Certification and trust services
• Knowledge providers

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Types of Electronic Markets

• Electronic storefrontsa single companys Web
  site where products and services are sold
• Mechanisms for conducting sales
• Electronic catalogs Payment gateway
• Search engine Shipment court
• Customer services Electronic cart
• E-auction facilities
• Electronic malls (e-malls)an online shopping
  center where many stores are located

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Types of Electronic Markets (cont.)

• Types of stores and malls

• General stores/mallslarge marketspaces that sell
  all types of products
• Public portals
• Specialized stores/mallssell only one or a few
  types of products

• Regional vs. global stores
• Pure online organizations vs. click-and-mortar
  stores

• E-marketplacesonline market, usually B2B, in
  which buyers and sellers negotiate the three
  types of e-marketplaces are private , public ,
  consortia

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E-Marketplaces

• Private e-marketplacesonline markets owned by a
  single company
• Sell-sidecompany sells either standard or
  customized products to qualified companies
• Buy-side marketplacescompany makes purchases
  from invited suppliers
• Public e-marketplacesB2B markets, usually owned
  and/or managed by an independent third party,
  that include many sellers and many buyers
  (exchanges)

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Consortia Information Portals

• Consortiae-marketplaces that deal with suppliers
  and buyers in a single industry
• Vertical consortia are confined to one industry
• Horizontal allow different industries trade there
• Information portala personalized, single point
  of access through a Web browser to business
  information inside (and marginally from outside)
  an organization
• Publishing portals Commercial portals
• Personal portals Corporate portals
• Mobile portals

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Supply Chains

• Supply chainthe flow of materials, information,
  money, and services from raw material suppliers
  through factories and warehouses to the end
  customers
• Includes organizations and processes that create
  and deliver the following to the end customers
• Products
• Information
• Services

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Supply Chains (cont.)

• A supply chain involves activities that take
  place during the entire product life cycle
• It also includes
• Movement of information and money and procedures
  that support the movement of a product or a
  service
• The organizations and individuals involved

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Exhibit 2.3A Simple Supply Chain
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Supply Chain Components

• Upstream supply chainincludes the activities of
  suppliers (manufacturers and/or assemblers) and
  their suppliers
• Internal supply chainincludes all in-house
  processes used in transforming the inputs
  received from the suppliers into the
  organizations outputs
• Downstream supply chainincludes all the
  activities involved in delivering the product to
  the final customers

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Types of Supply Chains

• Integrated make-to-stock
• Continuous replenishment
• Build-to-ordermodel in which a manufacturer
  begins assembly of the customers order almost
  immediately upon receipt of the order
• Channel assemblymodel in which product is
  assembled as it moves through the distribution
  channel

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Exhibit 2.4Supply Chains Integrated
Build-to-Order
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Value Chain Value System

• Value chainthe series of activities a company
  performs to achieve its goal(s) at various stages
  of the production process each activity adds
  value to the companys product or service,
  contributes to profit, and enhances competitive
  position in the market
• Value systema set of value chains in an entire
  industry, including the value chains of tiers of
  suppliers, distribution channels, and customers

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Supply Chain Value Chain

• Value chain and the supply chain concepts are
  interrelated
• Value chain shows the activities performed by an
  organization and the values added by each
• The supply chain shows flows of materials, money,
  and information that support the execution of
  these activities

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Supply Chain Value Chain (cont.)

• EC increases the value added by
• Introducing new business models
• Automating business processes
• EC smoothes the supply chain by
• Reducing problems in the flows of material,
  money, and information
• EC facilitates the restructuring of business
  activities and supply chains

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Intermediation in E-Commerce

• Intermediaries provide value-added activities and
  services to buyers and sellers wholesalers,
  retailers, infomediaries
• Roles of intermediaries
• Search costsdatabases on customer preferences
• Lack of privacyanonymity of sellers and buyers
• Incomplete informationgather product information
• Contract riskprotect sellers against non-payment
• Pricing inefficienciesinduce appropriate trades

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E-Distributors on B2B

• E-distributoran e-commerce intermediary that
  connects manufacturers (suppliers) with buyers by
  aggregating the catalogs of many suppliers in one
  placethe intermediarys Web site
• E-distributors also provide support services
• Payments
• Deliveries
• Escrow services
• Aggregate buyers and or sellers orders

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Disintermediation Reintermediation

• Disintermediationelimination of intermediaries
  between sellers and buyers
• Reintermediationestablishment of new
  intermediary roles for traditional intermediaries
  that were disintermediated

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Syndication as an EC Mechanism

• Syndicationthe sale of the same good (e.g.,
  digital content) to many customers, who then
  integrate it with other offerings and resell it
  or give it away free

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Competition in the Internet Ecosystem

• Competition in the Internet ecosystem (business
  model of the online economy)
• Inclusive with low barriers to entry
• Self-organizing
• Old rules may no longer apply
• Competition is tense
• Lower buyers search cost
• Speedy comparisons
• Differentiation and personalization

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Competition in the Internet Ecosystem (cont.)

• Differentiationproviding a product or service
  that is unique
• Personalizationthe ability to tailor a product,
  service, or Web content to specific user
  preferences
• Lower prices

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Competition in the Internet Ecosystem (cont.)

• Customer service is an extremely important
  competitive factor
• Some competitive factors are less important as a
  result of EC
• Size of company is no longer significant
• Geographical location is insignificant
• Language barriers are being removed
• Digital products do not have normal wear and tear

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Competition in the Internet Ecosystem (cont.)

• EC supports efficient markets and could result in
  almost perfect competition with these
  characteristics
• Many buyers and sellers must be able to enter the
  market at no entry cost
• Large buyers or sellers are not able to
  individually influence the market
• The products must be homogeneous
• Buyers and sellers must have comprehensive
  information about the products and about the
  market participants demands, supplies, and
  conditions

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Porters Competitive Analysis

• Porters competitive forces model applied to an
  industry views 5 major forces of competition that
  determine the industrys structural
  attractiveness
• These forces, in combination, determine how the
  economic value created in an industry is divided
  among the players in the industry
• Such an industry analysis helps companies develop
  their competitive strategy

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Exhibit 2.6 Porters Competitive Forces Model
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Liquidity

• Liquiditythe need for a critical mass of buyers
  and sellers
• The fixed cost of deploying EC can be very high
• Without a large number of buyers, sellers will
  not make money
• Early liquidityachieving a critical mass of
  buyers and sellers as fast as possible, before
  the market-makers cash disappears

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Quality Uncertainty Assurance

• Quality uncertaintythe uncertainty of online
  buyers about the quality of products that they
  have never seen, especially from an unknown
  vendor
• Provide free samples
• Return if not satisfied
• Microproducta small digital product costing a
  few cents
• Insurance, escrow, and other services

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E-Market Success Factors

• Contributors to e-market success

• Seller characteristics
• Consumers find sellers with the lowest prices
• Low-volume, higher-profit-margin transactions
• Consumer characteristics
• Impulse buyers
• Patient buyers
• Analytical buyers

• Product characteristics
• Type
• Price
• Availability of standards and product information
• Industry characteristics
• Brokers currently necessary
• Intelligent systems may replace brokers

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Electronic Catalogs

• Electronic catalogsthe presentation of product
  information in an electronic form the backbone
  of most e-selling sites
• Evolution of electronic catalogs
• Merchantsadvertise and promote
• Customerssource of information and price
  comparisons
• Consist of product database, directory and search
  capability and presentation function
• Replication of text that appears in paper
  catalogs
• More dynamic, customized, and integrated

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Electronic catalog

• The presentation of product information in an
  electronic form the backbone of most e-selling
  sites.

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Electronic catalog can be classified to 3
dimensions

• The dynamics of the information presentation.
• The degree of customization.
• Integration with business processes.

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Customized catalog

• Is a catalog assembled specifically for a
  company, usually a customer of the catalog owner.
• 2 approaches
• 1st approach is to let customers identify the
  interesting parts.
• 2nd approach is to let system identify it
  automatically.

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Search engine

• A computer program that can access a database of
  internet resources, search for specific
  information or keywords, and report the results.
• Software (intelligent) agent software that can
  perform routine tasks that require intelligence.

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E-shopping cart

• An order-processing technology that allows
  customers to accumulate items they wish to buy
  while they continue to shop.

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Electronic auction

• Electronic auction auctions conducted online.
• Dynamic Pricing prices that change based on
  supply and demand relationship at any given time.

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Types of auctions

• Forward auction. (Most common)
• English auction.
• Yankee auction.
• Dutch auction.
• Free-fall auction. (Declining auction)

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Benefits of auction

• Seller ? ex. optimal price setting, more buyers
  than regular auction.
• Buyers ? ex. Convenience, buyers conduct trade
  from anywhere even with a cell phone.
• E-auctioner (e-Bay) ? ex. Research has proven
  that auction sites such as eBay tend to have
  higher repeat purchase rates than ordinary
  e-commerce sites.

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Limitation of E-commerce

• Possibility of fraud.
• Limited participation.
• Lack of security.
• Limited software.

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Bartering and negotiating online

• Bartering An exchange of goods and services.
• E-bartering Bartering conducted online, usually
  by a bartering exchange.
• Bartering exchange A marketplace in which an
  intermediary arranges barter transactions.

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Advantages of e- bartering

• The commission by the third party is much lower.
  (5-10)
• It may take short time to arrange a transactions
  in e- bartering.

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Online negotiating

• Online negotiating electronic negotiation,
  usually supported by software (intelligent)
  agents that perform searches and comparisons
  improves bundling and customization of products
  and services.

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3 factors may facilitate online negotiation

• Products and service that are bundled and
  customized.
• Computer technology.
• Software.

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Mobile computing

• This is fully portable and permits real time
  access to information, application and tools
  that, until recently, were accessible only from a
  desktop computer.

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What is m-commerce (mobile commerce)?

• It is E-commerce conducted via wireless devices.
  it is also called some times m-business which is
  the broadest definition of m-commerce in which
  e-business is conducted in a wireless environment.

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Example of m-commerce

• DoCoMo is the worlds largest mobile portal,
  which is most used by customers in Japan.
• It offers many services via its I-mode services.

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Some applications of I-mode

• Shopping guide addresses and telephone numbers
  of the favorite shops. Users can purchase online.
• Maps and transportation digital maps show
  detailed guides of local routes and stops of the
  major public transportation system.

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Some applications of I-mode

• Ticketing airline and movie tickets can be
  purchased online.
• News and reports fast access to global news,
  traffic conditions and weather reports.
• Personalized movie service updates on the latest
  movies.

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Some applications of I-mode

• Entertainment up-to-date personalized
  entertainment such as, playing favorite games,
  online chatting, sending and receiving photos.
• Dining and reservations the exact location of a
  selected restaurant Reservations and discount
  coupons are available online.
• Additional services such as banking, stock
  trading, telephone directory.

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Impacts of e-markets on business process and
organizations

• Blochs et al.model divided to
• Improving direct marketing.
• Transforming organizations.
• Redefining organizations.

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Improving direct marketing.

• Bloch et al. suggested the following impacts of
  e-markets on B2C direct marketing
• Product promotion.
• New sales channel.
• Direct saving.
• Reduced cycle time.
• Customer service.

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Impacts of e-markets on B2C direct marketing

• Brand or corporate image.
• Customization.
• Advertising.
• Ordering system.
• Market operations.

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Transforming organizations.

• 2 organizational transformations
• Technology and organizational learning.
• The changing nature of work.

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Redefining organizations.

• Ways in which e-markets will redefine
  organizations
• New and improved product capabilities.
• New business models.
• Improving the supply chain.
• Impacts on manufacturing.

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Virtual manufacturing

• Running global manufacturing plants as though
  they were one location, by a single company
  electronically controlling the entire
  manufacturing process.
• Impacts on finance and accounting.
• Impacts on human resources management and
  training.