ECT 455E-Commerce Web Site Engineering Lecture #2 Consumer Internet Commerce ECT 455 Susy Chan Ph.D.
Agenda • Market News • Types of Consumers and Purchases • Business Models and Value Propositions • e-Commerce Value Chain • Assignments – Website Analysis • Project Deliverable B ECT 455 Susy Chan Ph.D.
A Quick Poll: • What types of shoppers are you? • How do you shop online? ECT 455 Susy Chan Ph.D.
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 ECT 455 Susy Chan Ph.D.
Types of Online Purchases • Specifically Planned Purchases • Generally Planned Purchases • Reminder Purchases • Unplanned Purchases • Implications for Strategies and Design? ECT 455 Susy Chan Ph.D.
Amazon • How does Amazon site support different types of shoppers, purchases, and shopping behaviors? ECT 455 Susy Chan Ph.D.
The Multichannel Consumer Embraces The Net ECT 455 Susy Chan Ph.D.
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) ECT 455 Susy Chan Ph.D.
A Technographics View of New consumer Internet Adoption Mainstream Number of new online consumers Early adopters Laggards Time Forrester: Now or Never ECT 455 Susy Chan Ph.D.
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%) E&Y Global Retailing ECT 455 Susy Chan Ph.D.
User Profile: Information GVU Web User Survey ECT 455 Susy Chan Ph.D.
The e-Commerce Value Cycle Attract React Interact Act ECT 455 Susy Chan Ph.D.
The e-Commerce Value Chain Get and keep customer interest Turn interest into orders Service customers Manage orders Attract Interact Act React Catalog Sales static dynamic AdvertisingMarketing channels media Order capture-- Shopping Cart Payment Fulfillment goods Customer service Order tracking ECT 455 Susy Chan Ph.D.
Attract Customers (Marketing) • Purpose • Build brand awareness, attract customers, and entice them to buy • Merchandizing Methods • Advertising • Coupons • Sales and Promotions • Frequent buyer programs • 1:1 marketing ECT 455 Susy Chan Ph.D.
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. ECT 455 Susy Chan Ph.D.
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 ECT 455 Susy Chan Ph.D.
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 ECT 455 Susy Chan Ph.D.
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 ECT 455 Susy Chan Ph.D.
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 ->$1.9b • 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 ECT 455 Susy Chan Ph.D.
Amazon • How does Amazon site implement the e-commerce value chain? • Attract • Interact • Act • React ECT 455 Susy Chan Ph.D.
Value Propositions • For Consumers/Customers/Users • For the Firm/Organization ECT 455 Susy Chan Ph.D.
Value Proposition for Customers • Transform customer relationship from supplier-centered to customer-centered values • self service, 1:1; 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 ECT 455 Susy Chan Ph.D.
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 ECT 455 Susy Chan Ph.D.
Four Strategies • Channel Master (Cisco; Amazon) • Customer Magnet (Yahoo) • Value Chain Pirate (Autobytel.com; e*trade) • Digital Distributor (Monster.com) • Disintermediation and reintermediation ECT 455 Susy Chan Ph.D.
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 B2C Business Models: Generating Revenues ECT 455 Susy Chan Ph.D.
Merchant Models (virtual, C&B, 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 • C&B or MC – physical location, brand recognition, established customer base, cannibalization, channel integration • Virtual Merchant: avoid the cost of physical stores ECT 455 Susy Chan Ph.D.
Portal Model • Portal sites : Give visitors the chance to find almost everything they are looking for in one place • Horizontal portals:Portals 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 ECT 455 Susy Chan Ph.D.
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 ECT 455 Susy Chan Ph.D.
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 ECT 455 Susy Chan Ph.D.
Amazon • What are their customer value propositions? • What are their business value propositions? • What are their business models? • Who are their competitors? ECT 455 Susy Chan Ph.D.
The State of Retailing Online 7.0* • *Profitable online operations, 43 % (2000) 56% (2001) -> 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) ECT 455 Susy Chan Ph.D.
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 ECT 455 Susy Chan Ph.D.
Next Week • Review reading assignments • Deliverable B Due • Market News ECT 455 Susy Chan Ph.D.