ECT 455 E-Commerce Web Site Engineering

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ECT 455E-Commerce Web Site Engineering

• Lecture 2
• Consumer Internet Commerce

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Agenda

• Market News
• Types of Consumers and Purchases
• Business Models and Value Propositions
• e-Commerce Value Chain
• Assignments Website Analysis
• Project Deliverable B

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A Quick Poll

• What types of shoppers are you?
• How do you shop online?

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Types of Consumers

• Types of Buyers
• Impulsive Buyers quick purchasing
• Patient Buyers price comparison
• Analytical Buyers research first
• Shopping Experiences
• Utilitarian task-completion and rational
• Hedonic involvement and entertainment

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Types of Online Purchases

• Specifically Planned Purchases
• Generally Planned Purchases
• Reminder Purchases
• Unplanned Purchases
• Implications for Strategies and Design?

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Amazon

• How does Amazon site support different types of
  shoppers, purchases, and shopping behaviors?

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The Multichannel Consumer Embraces The Net
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Customer Expectations

• Merchandize assortment
• About the same number of products available as
  the retail store (21)
• About the same number of products plus specials
  (51)
• More online SKUs than store or catalog (39)

(Global Online Retailing Report)
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• A Technographics View of New consumer Internet
  Adoption

Mainstream
Number of new online consumers
Early adopters
Laggards
Time
Forrester Now or Never
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Meeting Customer Expectations

• Top 3 Reasons for Shopping Online
• Good selection of items
• Competitive pricing
• Convenience
• Shopping carts are frequently abandoned
• Placed products in the cart but did not complete
  the purchase (78) because
• Shipping cost too high (45)
• Price check (37)
• Changed mind (34)
• Price to high (24)
• Check out process was long/unclear (18)

EY Global Retailing
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User Profile Information
GVU Web User Survey
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The e-Commerce Value Cycle
Attract
React
Interact
Act
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The e-Commerce Value Chain
Get and keep customer interest
Turn interest into orders
Service customers
Manage orders
Attract
Act
React
Interact
Catalog Sales static dynamic
AdvertisingMarketing channels media
Order capture-- Shopping Cart Payment Fulfillment
goods
Customer service Order tracking
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Attract Customers (Marketing)

• Purpose
• Build brand awareness, attract customers, and
  entice them to buy
• Merchandizing Methods
• Advertising
• Coupons
• Sales and Promotions
• Frequent buyer programs
• 11 marketing

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Beyond Price, Research and Brand

• Fast Search price
• Long search branding, delivery time, and other
  product characteristics

Brynjolfssor Search and product differentiation
at an Internet Shopbot. MITSloan School of
Management, Dec 2004.
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Interact with Customers (Sales)

• Purpose
• Turn interest into orders
• Catalog, Product and Service
• Techniques
• Registration with Internet search engines
• Hyperlinks
• Onsite product search
• Product and price comparison
• Dynamic vs. static contents
• Pricing

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Act on Customer Instructions (Order Management)

• Purpose Manage order and shopping experience
• Order Processing
• Shopping cart and order aggregation
• Order validation Application of coupons or
  discounts
• Cross selling
• Calculation of sales, taxes, shipping and
  delivery charges, rolled-up order
• Payment handle multiple payment methods (cash,
  credit, credit cards, debit cards)
• Act Fulfillment
• Delivering the goods ordered to their destination
• Transmission of order information to warehouse,
  packing or order assembly for shipping, shipping
  and delivery

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React to Inquiries (Service)

• Purpose customer satisfaction, experience, and
  repeat visits
• Methods
• 24X7 service capacity
• Proactive and Immediate feedback voice and
  email
• Access to status information
• Self-help (FAQ)
• Multi-language support

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Online Retail 2004 Holiday Seasons

• Revenue growth strong.  91 of retailers reported
  revenue growth for the 2004 online holiday
  season 17 experiencing revenues doubled.
  Example PearlParadise.com 113 growth 888m
  -gt1.9b
•  
• Customer satisfaction increases.  95 consumers
  were satisfied with online shopping experience
  89 in 2003, 84 in 2002  
• Free shipping remains the king of online
  marketing promotions (60), Recommendations 56
  gift center, suggested items page (32),
  clearance page (32), featured sale item (31)
•  
• Search engines and affiliate marketing help
  retailers find customers, remained the second
  (58) and third (50) most successful marketing
  vehicle for retailers. 
• Multi-channel strategies 45 research on
  catalog ? buy online 21 research online ? buy
  from catalog
• Shop.org/BizRate 2004 eHoliday Mood study.
  January 2005

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Amazon

• How does Amazon site implement the e-commerce
  value chain?
• Attract
• Interact
• Act
• React

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Value Propositions

• For Consumers/Customers/Users
• For the Firm/Organization

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Value Proposition for Customers

• Transform customer relationship from
  supplier-centered to customer-centered values
• self service, 11 choices delivery to customer
  location customer needs choice of service hours
• Displace traditional source of values
• Physical vs. digital value (information)
• Economies of scale vs economy of scope
• Mass produced vs mass customized
• Information vs. knowledge value
• Distribution as constraints vs. enabler
• Local vs. global

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Value Proposition for Firms

• Ability to reach a global market
• Reduced marketing and selling expense
• Increased efficiency of operation
• Ability to target consumers more precisely
• Ability to convey more accurate product and
  availability information

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Four Strategies

• Channel Master (Cisco Amazon)
• Customer Magnet (Yahoo)
• Value Chain Pirate (Autobytel.com etrade)
• Digital Distributor (Monster.com)
• Disintermediation and reintermediation

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B2C Business Models Generating Revenues

• Merchant Model
• virtual merchants
• Click Brick
• Multi-Channel
• Shopping Malls
• Advertising Model
• Horizontal portal
• Vertical portal
• Personalized portal

• Intermediary (Brokerage)
• Buy/sell fulfillment
• Buyer/demand aggregator
• Virtual mall
• Hypermediary (financial settlement)
• Auction broker
• Reverse auction

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Merchant Models (virtual, CB, MC, shopping
malls)

• Advantages
• Enables merchants to sell products on the Web
• Conduct business 24-by-7, worldwide
• An e-commerce storefront should include
• Online catalog of products
• Order processing (robust shopping cart)
• Secure online payment
• Timely order fulfillment
• CB or MC physical location, brand recognition,
  established customer base, cannibalization,
  channel integration
• Virtual Merchant avoid the cost of physical
  stores

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Portal Model

• Portal sites Give visitors the chance to find
  almost everything they are looking for in one
  place
• Horizontal portalsPortals that aggregate
  information on a broad range of topics
• Yahoo!, AltaVista, Google
• Vertical portals Portals that offer more
  specific information within a single area of
  interest
• WebMD, IMDB, FirstGov
• Requires fresh and abundant content, and robust
  search engine to draw traffic
• Heavy reliance on advertising revenue, decline in
  effectiveness of online advertising

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Auction Model

• Online auction sites
• Act as forums through which Internet users can
  log-on and assume the role of either bidder or
  seller
• Collect a commission on every successful auction
• Sellers post items they wish to sell and wait for
  buyers to bid
• Reserve price
• The minimum price a seller will accept in a given
  auction
• Reverse auctions
• Allow the buyer to set a price as sellers compete
  to match or even beat it

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Dynamic Pricing Models

• The Web has changed the way products are priced
  and purchased
• Comparison pricing model
• Web sites using shopping bot technology to find
  the lowest price for a given item e.g.
  NextTag.com
• Demand-sensitive pricing model
• Group buying reduces price as volume of sales
  increase
• Name-your-price model
• Name-your-price for products and services

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Amazon

• What are their customer value propositions?
• What are their business value propositions?
• What are their business models?
• Who are their competitors?

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The State of Retailing Online 7.0

• Profitable online operations, 43 (2000) ? 56
  (2001) -gt 70 (2002) ? 79 (2003)
• Overall Operating margins ? 21 catalogers 28
  online retailer ? -1 (from -16 in 2002)
• Shoppers spent 51.3 b online in 2001, up 21
  from 2000. 76 b in 2002, up 58 from 2001
  expected to grow 26 in 2003 to 96 b.
• Most popular product categories computer HW/SW
  (40), tickets (17), books (12)
• Marketing costs Web based retailers (10/per
  order), store-based (5), and catalog-based (7)
  shifting toward performance based affiliate
  marketing and search engine marketing (investment
  in operational efficiency)
• Overall marketing costs 8/per order ? 4/per
  order Web-based (10/order ? 2/order)
• Customer acquisition costs 29? 14 repeat
  buyers 4?53 of revenue.
• Customer service costs 1.9? 2.3 fulfillment
  6.3? 9.8
• 24 of offline sales in 2003 were influenced by
  Web, up from 15 in 2002

Source shop.org/Forrester Research, May 2004
2003 report (6.0)
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Transition of an E-Customer
Interactive Marketing Transaction Processing
Online Relationship
Casual Visitor
Prospect
Buyer
Repeat Buyer
Evaluate interest Allow comparison
Support/Interact present options Enable
Transaction Develop relationship Prove
reliability
Push Offers
Conversion rate is low
Gartner Group
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Next Week

• Review reading assignments
• Deliverable B Due
• Market News