Chapter 2

1. Chapter 2 E-Commerce Market Mechanisms Prentice Hall, 2003

2. Learning Objectives • Define e-marketplaces and list their components • List the major types of electronic markets and describe their features • Define supply chains and value chains and understand their roles • Describe the role of intermediaries in EC • Discuss competition, quality, and liquidity issues in e-marketplaces • Describe electronic catalogs, shopping carts, and search engines Prentice Hall, 2003

3. Learning Objectives (cont.) • Describe the various types of auctions and list their characteristics • Discuss the benefits, limitations, and impacts of auctions • Describe bartering and negotiating online • Describe the impact of e-marketplaces on organizations • Define m-commerce and explain its role as a market mechanism Prentice Hall, 2003

4. How Raffles Hotel is Conducting E-Commerce • The Problem • The company’s success depends on the its ability to lure customers to its hotels and facilities and on its ability to contain costs • Solution • B2C • B2B • Results Prentice Hall, 2003

5. Markets facilitate exchange of Information Goods Services Payments Markets create economic value for Buyers Sellers Market intermediaries Society at large Electronic Marketplaces Prentice Hall, 2003

6. 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 Prentice Hall, 2003

7. NTE Evens the Load • National Transportation Exchange (nte.com) is attempting to keep trucks on the road full on both outbound and return trips—uses 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 Prentice Hall, 2003

8. 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) Prentice Hall, 2003

9. Marketspace Components • Marketspace—a 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 Prentice Hall, 2003

10. 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 Marketspace Components (cont.) Prentice Hall, 2003

11. Products Physical products Digital products—goods that can be transformed to digital format and delivered over the Internet Infrastructure Hardware Software Networks Marketspace Components (cont.) Prentice Hall, 2003

12. Front-end business processes include Seller’s 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 Marketspace Components (cont.) Prentice Hall, 2003

13. Marketspace Components (cont.) • Intermediary—a third party that operates between sellers and buyers • Other business partners—collaborate on the Internet, mostly along the supply chain • Support services such as • Certification and trust services • Knowledge providers Prentice Hall, 2003

14. Types of Electronic Markets • Electronic storefronts—a single company’s 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 Prentice Hall, 2003

15. General stores/malls—large marketspaces that sell all types of products Public portals Specialized stores/malls—sell only one or a few types of products Regional vs. global stores Pure online organizations vs. click-and-mortar stores Types of Electronic Markets (cont.) • Types of stores and malls • E-marketplaces—online market, usually B2B, in which buyers and sellers negotiate; the three types of e-marketplaces are private , public , consortia Prentice Hall, 2003

16. E-Marketplaces • Private e-marketplaces—online markets owned by a single company: • Sell-side—company sells either standard or customized products to qualified companies • Buy-side marketplaces—company makes purchases from invited suppliers • Public e-marketplaces—B2B markets, usually owned and/or managed by an independent third party, that include many sellers and many buyers (exchanges) Prentice Hall, 2003

17. Consortia & Information Portals • Consortia—e-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 portal—a 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 Prentice Hall, 2003

18. Supply Chains • Supply chain—the 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 Prentice Hall, 2003

19. 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 Prentice Hall, 2003

20. Exhibit 2.3A Simple Supply Chain Prentice Hall, 2003

21. Supply Chain Components • Upstream supply chain—includes the activities of suppliers (manufacturers and/or assemblers) and their suppliers • Internal supply chain—includes all in-house processes used in transforming the inputs received from the suppliers into the organization’s outputs • Downstream supply chain—includesall the activities involved in delivering the product to the final customers Prentice Hall, 2003

22. Types of Supply Chains • Integrated make-to-stock • Continuous replenishment • Build-to-order—model in which a manufacturer begins assembly of the customer’s order almost immediately upon receipt of the order • Channel assembly—model in which product is assembled as it moves through the distribution channel Prentice Hall, 2003

23. Exhibit 2.4Supply Chains: Integrated & Build-to-Order Prentice Hall, 2003

24. Value Chain & Value System • Value chain—the series of activities a company performs to achieve its goal(s) at various stages of the production process; each activity adds value to the company’s product or service, contributes to profit, and enhances competitive position in the market • Value system—a set of value chains in an entire industry, including the value chains of tiers of suppliers, distribution channels, and customers Prentice Hall, 2003

25. 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 Prentice Hall, 2003

26. 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 Prentice Hall, 2003

27. Intermediation in E-Commerce • Intermediaries provide value-added activities and services to buyers and sellers: wholesalers, retailers, infomediaries • Roles of intermediaries • Search costs—databases on customer preferences • Lack of privacy—anonymity of sellers and buyers • Incomplete information—gather product information • Contract risk—protect sellers against non-payment • Pricing inefficiencies—induce appropriate trades Prentice Hall, 2003

28. E-Distributors on B2B • E-distributor—an e-commerce intermediary that connects manufacturers (suppliers) with buyers by aggregating the catalogs of many suppliers in one place—the intermediary’s Web site • E-distributors also provide support services • Payments • Deliveries • Escrow services • Aggregate buyers’ and or sellers’ orders Prentice Hall, 2003

29. Disintermediation &Reintermediation • Disintermediation—elimination of intermediaries between sellers and buyers • Reintermediation—establishment of new intermediary roles for traditional intermediaries that were disintermediated Prentice Hall, 2003

30. Syndication as an EC Mechanism • Syndication—the 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 Prentice Hall, 2003

31. 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 Prentice Hall, 2003

32. Competition in the Internet Ecosystem (cont.) • Differentiation—providing a product or service that is unique • Personalization—the ability to tailor a product, service, or Web content to specific user preferences • Lower prices Prentice Hall, 2003

33. 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 Prentice Hall, 2003

34. 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 Prentice Hall, 2003

35. Porter’s Competitive Analysis • Porter’s competitive forces model applied to an industry views 5 major forces of competition that determine the industry’s 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 Prentice Hall, 2003

36. Exhibit 2.6: Porter’s Competitive Forces Model Prentice Hall, 2003

37. Product characteristics Type Price Availability of standards and product information Industry characteristics Brokers currently necessary Intelligent systems may replace brokers Seller characteristics Consumers find sellers with the lowest prices Low-volume, higher-profit-margin transactions Consumer characteristics Impulse buyers Patient buyers Analytical buyers E-Market Success Factors • Contributors to e-market success Prentice Hall, 2003

38. Electronic Catalogs • Electronic catalogs—the presentation of product information in an electronic form; the backbone of most e-selling sites • Evolution of electronic catalogs • Merchants—advertise and promote • Customers—source of information and price comparisons • Consist of product database, directory and search capability and presentation function • Replication of text that appears in paper catalogs • Moredynamic, customized, and integrated Prentice Hall, 2003

39. Classifications ofElectronic Catalogs • Dynamics of information presentation—static or dynamic • Degree of customization—ready-made or customized • Electronic catalogs allow integration of: • Order taking and fulfillment • Electronic payment • Intranet workflow • Inventory and accounting system • Suppliers’ extranet • Relationship to paper catalogs Prentice Hall, 2003

40. Customized Catalogs • Assembled specifically for: • A company • An individual shopper • Customization systems can: • Create branded, value-added capabilities • Allows user to compose order • May include individualized prices, products, and display formats • Automatically identify the characteristics of customers based on the transaction records Prentice Hall, 2003

41. Search Engines • 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 Prentice Hall, 2003

42. Search Engines, Intelligent Agentsand Shopping Carts • E-commerce users use both search engines and intelligent agents • Search engines find products or services • Software agents conduct other tasks (comparisons) • Electronic shopping cart—anorder-processing technology that allows customers to accumulate items they wish to buy while they continue to shop Prentice Hall, 2003

43. Auctions • Auction—amarket mechanism by which a seller places an offer to sell a product and buyers make bids sequentially and competitively until a final price is reached • Auctions deal with products and services for which conventional marketing channels are ineffective or inefficient Prentice Hall, 2003

44. Limitations of Traditional Auctions • Traditional auctions are generally a rapid process • It may be difficult for sellers to move goods to the auction site • Commissions are fairly high Prentice Hall, 2003

45. Electronic Auctions • Electronic auctions (e-auctions)—auctions conducted online • Host sites on the Internet serve as brokers offering: • Services for sellers to post their goods for sale • Allowing buyers to bid on those items • Many sites have certain etiquette rules that must be adhered to in order to conduct fair business Prentice Hall, 2003

46. Electronic Auctions (cont.) • Major online auctions offer: • Consumer products • Electronic parts • Artwork • Vacation packages • Airline tickets • Collectibles • Excess supplies and inventories being auctioned off by B2B marketers Prentice Hall, 2003

47. Dynamic Pricing • Dynamic pricing—prices that change based on supply and demand relationships at any given time • The four major categories of dynamic pricing are based on the number of buyers and sellers involved: • One buyer, one seller • One seller, many potential buyers • One buyer, many potential sellers • Many sellers, many buyers Prentice Hall, 2003

48. Exhibit 2.8Types of Dynamic Pricing Prentice Hall, 2003

49. Dynamic Pricing (cont.) • One buyer, one seller uses • Negotiation • Bargaining • Bartering • Price will be determined by: • Each party’s bargaining power • Supply and demand in the item’s market • Possibly business environment factors Prentice Hall, 2003

50. Dynamic Pricing (cont.) • One seller, many potential buyers • Forward auction—an auction in which a seller entertains bids from buyers • English auction—an auction in buyers bid on an item in sequence and the price increases with time • Yankee auction—auction of multiple identical items in which bidders can bid for any number of the items offered, and the highest bid wins Prentice Hall, 2003