Chapter 3 Selling on the Web: Revenue Models and Building a Web Presence
Learning Objectives In this chapter, you will learn about: • revenue models for selling on the Web • establishing an effective business presence on the Web • meeting the needs of Web site visitors • creating trust and building loyalty in Web site visitors • testing usability in Web site design • communicating effectively with customers on the Web
The Web Catalog Model • The Web Catalog model is a revenue model of selling goods and services on the Web, that is based on the mail order catalog revenue model. • In the Web catalog model, a Web site replaces or supplements print catalog distribution with information on its Web site.
Selling Goods and Services • When the catalog model is expanded to a Web site, it is called a Web-catalog model. • Dell and Gateway are examples of selling computers on the Web. • Customers can place orders through the Web site or by telephone.
Businesses Employing the Web Catalog Model • Computer manufacturers, for example Dell and Gateway • Apparel Retailers • Flowers and gifts • General Discounters
Computer Manufacturers • Many of the most successful Web catalog businesses are firms that were in the mail order business and have simply expanded their operations to the Web. • Personal computer manufacturers, such as Dell and Gateway, have had great success selling on the Web. • Dell has been a leader, allowing customers to specify the configuration of their computer.
Luxury Goods • For many types of products, people are still unwilling to buy through a Web site. • For example, luxury goods and high fashion items. • The Web sites of Vera Wang and Versace are not designed to generate income but to provide information to customers who would then visit the physical store. • Evian is another site geared towards affluent customers.
Apparel Retailers • A number of apparel sellers have adopted their catalog sales model to the Web. • Eddie Bauer • Land’s End • L. L. Bean • Talbots • Their intentions are to have customers examine the clothing and place orders through the Web site.
Flowers and Gifts • Gift retailers have also successfully moved or expanded their revenue models to the Web. • 1-800-Flowers has created an online extension to its highly successful telephone order business. • Harry and David has opened a international Web site to promote its existing catalog business.
Channel Conflict and Cannibalization • Companies that have existing sales outlets and distribution networks often worry that their Web sites will take away sales from outlets and networks. • Channel conflict can occur whenever sales activities on a company’s Web site interfere with its existing sales outlets. • This problem is also called cannibalization, because the Web site’s sales consume the sales that would be made in the company’s other sales channel.
Strategic Alliances • When two or more companies join forces to undertake an activity over a long period of time, they are said to create a strategic alliance. • An increasing number of businesses are forming strategic alliances to sell on the Web. • Levi’s has created strategic alliances with JC Penney and Macys. • Amazon.com has formed strategic alliances with ToysRUs to sell toys and with drugstore.com to sell health and beauty products.
Selling Information or Other Digital Content • Firms that own intellectual property have embraced the Web as a new and highly efficient distribution mechanism. • ProQuest is a Web site that sells digital copies of published documents. • The ACM Digital Library offers subscriptions to electronic versions of its journals to its members and to libraries. • Encyclopedia Britannica is an example that has transferred an existing brand to the Web.
Advertising-Supported Model • The advertising-supported business model is the one used by network television in the U.S. • The success of Web advertising has been hampered by two major problems: • No consensus has emerged on how to measure and charge for site visitor views. • Very few Web sites have sufficient numbers of visitors to interest large advertisers.
Advertising-Supported Model • Web Portals • Only a few general-interest sites have sufficient traffic to be profitable based on advertising revenue alone. • Newspaper publishers • It is still unclear whether advertising helps or hurts the newspaper’s business as a whole. • Employment Sites • Employment sites are one implementation of the advertising-supported revenue model that appears to be successful.
Advertising-Subscription Mixed Model • In this mixed model, subscribers pay a fee and accept some level of advertising. • The New York Times and The Wall Street Journal use a mixed advertising-subscription model. • The Reuters wire service also uses a mixed model in its Web offerings.
Advertising-Subscription Mixed Model • Business Week offers a variation on the mixed model theme; it offers some free content but requires a subscription to access the entire site. • ESPN sells advertising and offers a vast amount of free information, but fans can subscribe to its Insider service.
Fee-for-Transaction Models • The travel agency business model involves receiving a fee for facilitating a transaction. • A number of online travel agencies began doing business on the Web. • Stock brokerage firms use a fee-for-transaction model. They charge their customers a commission for each trade executed.
Fee-for-Transaction Models • Automobile Sales • Auto dealers buy cars from the manufacturer and sell them to consumers • MSN Carpoint, CarsDirect.com and Autoweb.com provide an information service to car buyers • Each of these firms implements the fee-for-transaction revenue model in a slightly different way
Fee-for-Transaction Models • Insurance Brokers • Insurance companies have been slow to offer policies and investments for sale on the Web • A number of intermediaries that sell insurance policies have emerged, for example Quotesmith.com • Other Web sites that offer insurance policy information, comparisons, and sales include: • InsWeb, Answer Financial, Insurance.com, and YouDecide.com
Fee-for-Transaction Models • Event Tickets • The Web offers event-promoters an ability to sell tickets from one virtual location to customers practically anywhere in the world. • Real estate and mortgage loan brokers • Online real estate brokers provide all of the services that a traditional broker might provide. • Online banking and financial services • The greatest concerns that most people have when considering moving financial transactions to the Web are security and reliability.
Fee-for-Services Models • The fee in this model is based on the value of the service provided. • These are neither broker services or based on the number or size of transactions processed. • These models range from games and entertainment to financial advice and the professional services of accountants, lawyers and physicians.
Fee-for-Services Models • Online Games • Many online games sites offer premium games. • Site visitors must pay to play these games. • Concerts and films • As more households obtain broadband access to the Internet, companies will provide streaming video of concerts and films to paying customers. • Professional services • State laws have been one of the main forces preventing U.S. professionals from extending their practices to the Web.
Creating an Effective Web Presence • Businesses always create a presence in the physical world by building stores and office buildings. • The only contact that customers and other stakeholders have with a firm on the Web is through its presence there. • Creating an effective Web presence can be critical for even the smallest and newest firm operating on the Web.
Identifying Web Presence Goals • On the Web, businesses have the luxury of intentionally creating a space that creates a distinctive presence. • A Web site can perform many image-creation tasks very effectively, including: • Serving as a sales brochure • Serving as a product showroom • Showing a financial report • Posting an employment ad • Serving as a customer contact point
Making Web Presence Consistent with Brand Image • Different firms, even those in the same industry, might establish different Web presence goals. • Coca Cola and Pepsi are two companies that have developed strong brand images and are in the same business, but have developed different Web presences. • The Web presence conveys the image the company wants to project.
Achieving Web Presence Goals • An effective site is one that creates an attractive presence that meets the objectives of the business or other organization. • Possible objectives include: • attracting visitors to the Web site • making the site interesting enough • convincing visitors to follow the site’s links • creating an impression of corporate image • building a trusting relationship with visitors • reinforcing positive images of the organization • encouraging visitors to return to the site
The Toyota Site • The Toyota site is a good example of an effective Web presence. • The site provides: • a product showroom feature • links to detailed information about each product line • links to dealers • links to information about company
Quaker Oats • Quaker Oats created Web sites that did not offer any corporate presence until 1999. • In 1999, Quaker Oats changed its Web page to improve its general appearance and user-friendliness. • The Toyota and Quaker Oats examples illustrate that the Web can integrate an opportunity for enhancing the image of a business with the dissemination of information.
Not-for-Profit Organizations • A key goal for many not-for-profit organizations is information dissemination. • The combination of information dissemination and a two-way contact channel is a key element in any Web site. • The American Civil Liberties Union and American Red Cross have created effective Web presences. • Political parties and museums also use Web sites for their image presences.
How the Web is Different • When firms started creating Web sites in the mid 1990s, they often built simple sites that conveyed basic information about their business. • The failure to understand how the Web is different from other presence-building media is one reason that businesses fail to achieve their Web objectives. • Firms must use the Web’s capability for two-way, meaningful communication with their customers.
Meeting the Needs of Web Site Visitors • Businesses that are successful on the Web realize that every visitor to their Web site is a potential customer. • An important concern for businesses is the variation in important visitor characteristics. • People who visit a Web site seldom arrive by accident; they are there for a reason. • Technology variations among visitors (e.g., connection speed) should be a concern for Web sites.
Many Motivations of Web Site Visitors • Creating a Web site that meets the needs of visitors with a wide range of motivations can be challenging. • to learn about products or services that the company offers, • to buy the products or services that the company offers, • to obtain information about warranty service, or repair policies for products they have purchased
Meeting the Needs of Web Site Visitors(cont’d) • to obtain general information about the company or organization • to obtain financial information for making an investment or credit granting decision • to identify the people who manage the company or organization • to obtain contact information for a person or department in the organization.
Making Web Sites Accessible • One of the best ways to accommodate a broad range of visitors’ needs is to build flexibility into the Web site’s interface. • Many sites offers separate versions with and without frames and giving visitors the option to choose either one. • A good site design lets visitors choose among information attributes, such as level of detail, forms of aggregation, viewing format, and downloading format.
Trust and Loyalty • When customers buy a product, they are also buying a service element. • A seller can create value in a relationship with a customer by nurturing customers’ trust and developing it into loyalty. • Customer service is a problem for many corporate sites. • A primary weak spot for many sites is the lack of integration between the company's call centers and their Web sites.
Rating E-Business Web Sites • Two companies routinely review electronic commerce Web sites for usability, customer service, and other factors. • BizRate.com provides a comparison shopping service and offers links to sites with low prices and good service ratings for specific products. • Gomez.com provides scorecards for electronic commerce sits in specific categories.
Usability Testing • Firms are now starting to perform usability testing of their Web sites. • Usability testing becomes more common, more Web sites will meet their goals. • Eastman Kodak, T. Rowe Price, and Maytag have found that a series of Web site test designs helped them to understand visitors’ needs.
Customer-Centric Web Site Design • Putting the customer at the center of all site designs is called a customer-centric approach to Web site design. • Electronic commerce sites are encouraged to focus on the customer’s buying process rather than the company’s perspective and organization.
Identifying and Reaching Customers • An important element of corporate Web presence is connecting with site visitors who are customers or potential customers. • Mass media is a one-to-many communication model, the Web is a many-to-one communication model, and personal contact is a one-to-one communication model.
Measuring the Effectiveness of Web Site Advertising • The pricing metric in mass media is called cost-per-thousand (CPM). • Measuring Web audiences is more complicated. • Banner ads are often sold on a CPM basis where the ‘thousand’ is 1000 impressions. • Rates vary greatly and depend on how much demographic information the Web site obtains about its visitors, but most are within the range of $1 to $100 CPM.
Connecting with Customers • Most businesses are familiar with two ways of identifying and reaching customers: personal contact and mass media. • These two ways are referred to as communication modes. • Some experts also distinguish between broadcast and addressable media.
Connecting with Customers • The Web is an intermediate step between mass media and personal contact. • Using the Web to communicate with potential customers offers many of the advantages of personal contact selling and many of the cost savings of mass media. • GartnerGroup reported that customer-centric marketing strategies would be an excellent fit for the Internet marketplace.
Technology-Enabled Relationship Management • Technology-enabled relationship management occurs when a firm obtains detailed information about a customer and uses that information for marketing purposes. • This is also called customer relationship management (CRM) or electronic customer relationship management (eCRM).