ELECTRONIC COMMERCE

1. ELECTRONIC COMMERCE • Potential roles of e-commerce • Obstacles to growth • Legal issues • Web site design and problems • Consumer cyber behavior

2. Potential Roles of e-commerce • Trade: • B2C [business to consumer] • B2B • C2C (e.g., eBay) • C2B • Advertising/promotion • Customer service/support • Market research

3. Easy comparison shopping—but do consumers actually compare? Between merchants Between countries Online purchases vs. information gathering Premature departure from site Online Behavior

4. Object of sale Goods Services Traditional Information Entertainment Distribution Shipping by operator Shipping from manufacturer/client Download Methods of sale Direct to customer Online retailer Auction facilitator Referral Business model Retail sale margin Commission Subscription/content Advertising/market research revenue Support of brands/other channels Mixed Types of Trade

5. Considerations in Evaluating E-Commerce Potential • Value-to-bulk ratio • Ability of consumer to evaluate quality and fit through online description • Extent of customization needed • Geographic dispersal of consumers

6. Bulk-to-value ratio Absolute margins Ability of consumer to evaluate product Quality Fit Style Content Impact of delay Extent of customization needed Opportunities for collaborative filtering Dispersion of shoppers Receptivity of targeted segments to online commerce Level of convenience to shopper Some Determinants of Internet Retailing Suitability

7. Dynamic Pricing • Customers charged different prices based on • Prior purchases • Amount • Timing • Frequency • Likely experience with other vendors

8. Collaborative Filtering • Recommendations are made to the customer based on • Prior purchases/new items in a category • E.g., at Amazon.com: • New book on same topic • New book by previously purchased author • Items heavily purchased by others buying a sought object

9. How Suitable For Internet Commerce? Are There Differences Among Segments?

10. Internet User/Shopper Segments Source: Krishnamurthy 2003 (from Media Metrix and McKinsey)

11. Bursting the Internet Bubble • Internet sales may not actually save money • Still very labor intensive • High costs of packaging and shipping • Even if online sales do save money, e-merchants are likely to compete with other e-merchants • Very easy entry

12. Reality of Online Competition • Intense competition for large demand products (large quantity demanded attracts many sellers) • Use of large demand products as loss leaders (e.g., Amazon.com bestsellers) • Competition will force reduced costs—if any—to be passed on to customers • Competition makes charging for shipping and handling difficult. This is often more expensive than traditional distribution. • Less competition on specialty products • Established “brick-and-mortar” firms have large cash reserves

13. Reasons Many Internet Businesses Failed • Focusing on market share rather than profits • Overestimating the value of databases • Underestimating power of established, “entrenched” traditional competitors • Underestimating the time required to change managerial and consumer behavior. Source: Krishnamurthy 2003

14. SEARCH ENGINE OPTIMIZATION • Search engines • Search engine rankings • Optimizing for rankings • Content • Reciprocal linking

15. Search engines • “Search engines” vs. • “Directories” • “Portals” • Link sites • Paid vs. unpaid links • Specificity • Content • Intended users • Strategy/philosophy

16. Search engines • Use an algorithm to identify preferred links • Algorithms may involve • Usage of keywords • “Popularity” (number of links pointing inward) • Other criteria—often proprietary

17. Strategy • General search engine (e.g., Google) • Search engine with directory structure (e.g., Yahoo!) • Aggregator sites • Specialized search engine • Focus • Method (e.g., AskJeeves.com, About.com) • User target • Reward

18. Search Engine Optimization: Text • Credible repetition of key words • Frequently greater credit for • Bolded words • Words early in the document • Identification of desirable key words • Analysis of competing sites • Customer interviews • Misspellings

19. Search Engine Optimization: Reciprocal Linking • Linking from highly rated web sites greatly increases the ranking of a site • Linking from low rated sites does not appear to help much • The weight of a link may be determined by the number of links at that page—one link among many is worth less • Linking to “spamming” sites may be penalized

20. Search Engine Optimization: Other • Domain names • If the domain name features the keyword, more weight is given • Google considers the underscore a space—e.g., Marketing_Tips.com . • Listing in the Open Directory Project (http://www.DMOZ.org) .

21. Building Traffic • “Viral” marketing • “Incidental contagion” • “Contagion due to transaction consumption” • Consumers as recruiters • Search engines • Internet advertising • Promotions/free products

22. Suitability Product uniqueness Excitement Simplicity Low trial and switching costs Potential problems Brand control Limited control over growth Measurement problems Spam threats Viral Marketing

23. Promotions • Free products • Free content/services • Site quality • Promotion models • Direct • Intermediary

24. Consumer Privacy Concerns • Risks of fraud • Identity theft • Dynamic pricing • Appeal to potential “switchers” rather than loyal ones • Disclosure of private information (emotional and philosophical concern)

25. Internet Penetration by Country, 2004 U.S. Australia Sweden Brazil Netherlands Note accounting issues! Japan Source: Nielsen.

26. Prior to 2000, 96% of web sites were estimated to be in English, the “first language” of 6% of the World population 40.2% of online users are estimated to speak English to some extent 2000: Non-English speakers became majority of Internet users 75% of Europeans are multi-lingual; 90% of these include English Dangers of U.S. English British English is international standard “American” often perceived as misspelled Use of slang Lesser distance to British English than to other European languages Language Issues

27. Language Display • Single-byte (Latin-based) vs. double-byte languages (Cyrillic, Arabic, Chinese, Japanese, Korean) • Characters may not be displayed correctly (“????” in Internet Explorer) • Conversion software • Brower adaptation may not be “backwards compatible” with other software

28. Color Black as background “Stylish” in U.S. “Unlucky” in Asia, Europe, Latin America Red as a “lucky” color in China but can be over-used White and green are “unlucky” in Cina Symbolism Dogs as pets Numbers “Unlucky” numbers 4, 9, 13 (Japan) 4, 14 (China) “Lucky” numbers 1, 8 (China) Formality of communication Cultural Issues

29. Measurement issues Metric vs. U.S., British systems Clothing sizes Representation of numbers 1,000.00 vs. 1.000,00 Dates Offensive content Specific body parts “Revealing” content Gestures More Cultural Issues