8 Key Element for a Business Model

E-commerce: business. technology. society. E-commerce E commerce Business. Technology. Society gy y Kenneth  C. Laudon Copyright  © 2011 Pearson Education, Ltd. Chapter 5 Business  Models  for  E? commerce Copyright  © 2007Pearson Education, Ltd. 2011 Pearson Education, Inc. Slide 1-2 E-commerce Business Models Business  model d l Set  of  planned  activities  designed  to  result  in  a   Set of planned activities designed to result in a profit  in  a  marketplace Business  plan Describes  a  firm s  business  model Describes a firm’s business modelE commerce  business  model E? commerce business model Uses/leverages  unique  qualities  of  Internet  and   Web W b Slide 2-3 8 Key Elements of Business Model 1. 2. 3. 4. 5. 6. 7. 8. Value  proposition Revenue  model Market  opportunity Market opportunity Competitive  environment Competitive  advantage Market  strategy Market strategy Organizational  De velopment Management  team Slide 2-4 1. Value Proposition Why  should  the  customer  buy  from  you? h h ld h b f ? Successful  e? ommerce  value   S f l l propositions: Personalization/customization Reduction  of  product  search,  price  discovery  costs Facilitation  of  transactions  by  managing  product   delivery Slide 2-5 2. Revenue Model How  will  the  firm  earn  revenue,  generate   p profits,  and  produce  a  superior  return  on   p p invested  capital? Major  types: Advertising  revenue  model g Subscription  revenue  model Transaction  fee  revenue  model Transaction fee revenue model Sales  revenue  model Affiliate  revenue  model Slide 2-6 3. Market Opportunity What  marketspace  do  you  intend  to   h k d d serve  and  what  is  its  size?Marketspace:  Area  of  actual  or  potential  commercial  value   in  which  companyà ‚  intends  to  operate in which company intends to operate Realistic  market  opportunity:  Defined  by  revenue   potential  in  each  market  niche  in  which  company  hopes  to   potential in each market niche in which company hopes to compete Market  opportunity  typically  divided  into   M k t t it t i ll di id d i t smaller  niches Slide 2-7 4. Competitive Environment Who  else  occupies  your  intended   h l d d marketspace? p Other  companies  selling  similar  products  in  the  same   marketspace Includes  both  direct  and  indirect  competitors Influenced  by: Influenced by:Number  and  size  of  active  competitors Each  competitor s  market  share Each competitor’s market share Competitors’  profitability Competitors pricing Competitors’  pricing Slide 2-8 5. Competitive Advantage Achieved  when  firm: h d h f Produces  superior  pro duct  Ã‚  or Produces superior product or Can  bring  product  to  market  at  lower  price   than  competitors th tit Important  concepts: p p Asymmetries First? mover  advantage Fi t d t Unfair  competitive  advantage Leverage Slide 2-9 6. Market Strategy How  do  you  plan  to  promote  your   products  or  services  to  attract  your   products or services to attract your target  audience?Details  how  a  company  intends  to  enter  market and  attract  customers Best  business  concepts  will  fail  if  not  properly   marketed  to  potential  customers k d i l Slide 2-10 7. Organizational Development What  types  of  organizational  structures   within  the  firm  are  necessary  to  carry  out   within the firm are necessary to carry out the  business  plan? Describes  how  firm  will  organize  work Typically  divided  into  functiona l  departments As  company  grows,  hiring  moves  from  generalists  to   As company grows hiring moves from generalists to specialists Slide 2-11 8.Management Team What  kinds  of  experiences  and   background  are  important  for  the   background are important for the company’s  leaders  to  have? Employees  are  responsible  for  making  the  business  model   work Strong  management  team  gives  instant  credibility  to   outside  investors Strong  management  team  may  not  be  able  to  salvage  a   weak  business  model,  but  should  be  able  to  change  the   model  and  redefine  the  business  as  it  becomes  necessary Slide 2-12 Insight on Business Online Grocers: Finding and Executing the Right Model g g Class Discussion Slide 2-13 Categorizing E-commerce Business ModelsNo  one  correct  way We  categorize  businessà ‚  models  according  to: We categorize business models according to: E? commerce  sector  (B2C,  B2B,  C2C) Type  of  e? commerce  technology;  i. e. m? commerce Type of e commerce technology; i e m commerce Similar  business  models  appear  in  more  than   one  sector Some  companies  use  multiple  business   Some companies use multiple business models;  e. g. eBay Slide 2-14 B2C Business Models: Portal Search  plus  an  integrated  package  of  content   and  services Revenue  models:   d l Advertising,  referral  fees,  transaction  fees,  subscriptions g p Variations:Horizontal  /  General Vertical  /  Specialized  (Vortal) Vertical / Specialized (Vortal) Pure  Search Slide 2-15 Insight on Technology Can Bing Bong Google? Class Discussion Slide 2-16 B2C Models: E-tailer Online  version  of  traditional  retailer Revenue  model:  Sales Variations: Virtual  merchant Virtual merchant Bricks? and? clicks Catalog  merchant C t l h t Manufacturer? direct Low  barriers  to  entry Slide 2-17 B2C Models: Content Provider Digital  content  on  the  Web News,  music,  video Revenue  models:   Revenue models: Subscription;  pay  per  download  (micropayment);   advertising;  affiliate  referral  fees Variations:Content  owners Syndication S di i Web  aggregators Slide 2-18 B2C Models: Transaction Broker Process  online  transactions  for  consumers Primary  value  proposition—saving  time  and  money Revenue  model:   R d l Transaction  fees Industries  using  this  model: Financial  services Travel  services Job  placement  services Slide 2-19 B2C Models: Market Creator Create  digital  environment  where  buyers   and  sellers  can  meet  and  transact Examples:   Priceline eBay y Revenue  model:  Transaction  fees Revenue model: Transaction fee s Slide 2-20 B2C Models: Service Provider Online  services e. g. Google:  Google  Maps,  Gmail,  etc. Value  proposition   Value propositionValuable,  convenient,  time? saving,  low? cost  alternatives  to   traditional  service  providers t diti l i id Revenue  models: Revenue models: Sales  of  services,  subscription  fees,  advertising,  sales  of   marketing  data marketing data Slide 2-21 B2C Models: Community Provider Provide  online  environment  (social   network)  where  people  with  similar   interests  can  transact,  share  content,  and   , , communicate   E. g. Facebook,  MySpace,  LinkedIn,  Twitter Revenue  models: R d l Typically  hybrid,  combining  advertising, subscriptions,  sales,  transaction  fees,  affiliate  fees Slide 2-22 B2B Business Models Net  marketplaces E? istributor E procurement E? procurement Exchange Industry  consortium Industry cons ortium Private  industrial  network Private industrial network Single  firm Industry? wide Industry wide Slide 2-23 B2B Models: E-distributor Version  of  retail  and  wholesale  store,   , MRO  goods  and  indirect  goods Owned  by  one  company  seeking  to  serve   many  customers Revenue  model:  Sales  of  goods Example:  Grainger. com Slide 2-24 B2B Models: E-procurement Creates  digital  markets  where   participants  transact  for  indirect  goods B2B  service  providers,  application  service  providers  (ASPs) B2B service providers application service providers (ASPs)Revenue  model: Service  fees,  supply? chain  management,  fulfillment   services Example:  Ariba Slide 2-25 B2B Models: Exchanges Independently  owned  vertical  digital   p y g marketplace  for  direct  inputs Revenue  model:  Transaction,  commission  fees Revenue model Transaction commission fees C eate po e u co pet t o bet ee Create  powerful  competition  between   suppliers Tend  to  force  suppliers  into  powerful  price   T d f li i f l i competition;  number  of  exchanges  has   dropped  dramatically d dd ll Slide 2-26 B2B Models: Industry Consortia Industry? wned  vertical  digital  marketplace   open  to  select  suppliers More  successful  than  exchanges More successful than exchanges Sponsored  by  powerful  industry  players Strengthen  traditional  purchasing  behavior Revenue  model:  Transaction,  commission  fees R d l T ti i i f Example:  Exostar Example: Exostar Slide 2-27 Private Industrial Networks Designed  to  coordinate  flow  of  communication   among  firms  engaged  in  business  together fi di b i h Electronic  data  interchange  (EDI) Single  firm  networks Most  common  form   M t f Example:  Wal? Mart’s  network   for  suppliersIndustry? wide  networks Often  evolve  out  of  industry  associations   Often evolve out of industry associations Example:  Agentrics Slide 2-28 Other E-commerce Business Models Consumer? to? consumer  (C2C) eBay,  Craigslist Peer? to? peer  (P2P) Peer to peer (P2P) The  Pirate  Bay,  Cloudmark M? commerce: Technology  platform  continues  to  evolve Technology platform continues to evolve iPhone,  smartphones  energizing  interest  in  m? commerce   pp apps Slide 2-29 Insight on Society Where R U? Not Here! Class Discussion Slide 2-30 E-commerce Enablers: Gold Rush ModelE? commerce  infrastructure  companies   p have  profited  the  most: Hardware,  software,  networking,  security E? commerce  software  systems,  payment  systems Media  solutions,  performance  enhancement CRM  software CRM software Databases Hosting  services,  etc. Slide 2-31 How Internet & Web Change Busi ness E? commerce  changes  industry  structure   g y by  changing: Basis  of  competition  among  rivals Barriers  to  entry y Threat  of  new  substitute  products Strength  of  suppliers Bargaining  power  of  buyers Bargaining power of buyers Slide 2-32 Industry Value ChainsSet  of  activities  performed  by  suppliers,   manufacturers,  transporters,  distributors,  and   f di ib d retailers  that  transform  raw  inputs  into  final   products  and  services   Internet  reduces  cost  of  information  and   Internet reduces cost of information and other  transactional  costs Leads  to  greater  operational  efficiencies,   lowering  cost,  prices,  adding  value  for   lowering cost prices adding value for customers Slide 2-33 E-commerce & Industry Value Chains Figure  5. 4 Slide 2-34 Firm Value Chains Activities  that  a  firm  engages  in  to   create inal  products  from  raw  inputs Each  step  adds  value Effect  of  Internet: Eff fI Increases  operational  efficiency p y Enables  product  differentiation Enables  precise  coordination  of  steps  in  chain E bl i di ti f t i h i Slide 2-35 E-commerce & Firm Value Chains Figure  5. 5 Slide 2-36 Firm Value Webs Networked  business  ecosystem   Uses  Internet  technology  to  coordinate  the   value  chains  of  business  partners l h i fb i Coordinates  a  firm’s  suppliers  with  its  own   C di t fi ’ li ith it production  needs  using  an  Internet? based   supply  chain  management  systemSlide 2-37 Internet-Enabled Value Web bl d l b Figure  5. 6 Slide 2-38 Business Strategy Plan  for  achieving  superior  long? term   returns  on  the  capital  invested  in  a   business  firm   business firm Four  Generic  Strategies 1. Di fferentiation   2. Cost 3. Scope 4. 4 Focus Slide 2-39 Chapter 6 E-commerce Marketing Copyright  © 2010 Pearson Education, Ltd. 2011 Pearson Education, Inc. Slide 6-40 Netflix N fli Strengthens and Defends Its Brand Class Discussion Slide 6-41 Consumers Online: Internet Audience & Consumer Behavior Around  70%  (82  million)  U. S. ouseholds  have   Around 70% (82 million) U S households have Internet  access  in  2010 Growth  rate  has  slowed Intensity  and  scope  of  use  both  increasing d f b h Some  demographic  groups  have  much  higher   Some demographic groups have much higher percentages  of  online  usage  than  others   Gender,  age,  ethnicity,  community  type,  income,  education Slide 6-42 Consumers Online: Internet Audience & Consumer Behavior Broadband  audience  vs. dial? up  audience Purchasing  behavior  affected  by   neighborhood Lifestyle  and  sociological  impa cts Use  of  Internet  by  children,  teens Use  of  Internet  as  substitute  for  other  social  activitiesMedia  choices Traditional  media  competes  with  Internet  for  attention Traditional media competes with Internet for attention Slide 6-43 Consumer Behavior Models Study  of  consumer  behavior Social  science   Attempts  to  explain  what  consumers  purchase   Attempts to explain what consumers purchase and  where,  when,  how  much  and  why  they  buy Consumer  behavior  models Predict  wide  range  of  consumer  decisions Predict wide range of consumer decisions Based  on  background  demographic  factors  and   other  intervening,  more  immediate  variables   h i i i di i bl Slide 6-44 General Model of Consumer Behavior Figure  6. Slide 6-45 Background Demographic Factors Culture:  Broadest  impact Subculture  (ethnicity,  age,  lifestyle,  geography) S b lt ( th i it lif t l h ) Social Reference  groups Direct  Ã‚  reference  groups g p Indirect  reference  groups Opinion  leaders  (viral  influencers) Lifestyle  groups   f l Psychological Psychological  profiles Slide 6-46 Online Purchasing Decision Psychographic  research Combines  demographic  and  psychological  data Combines demographic and psychological data Divides  market  into  groups  based  on  social  class,  lifestyle,   and/or  personality  characteristics and/or personality characteristicsFive  stages  in  the  consumer  decision  process: 1. 2. 3. 4. 5. Awareness  of  need Search  for  more  information Evaluation  of  alternatives Actual  purchase  decision Actual purchase decision Post? purchase  contact  with  firm Slide 6-47 Consumer D i i C Decision Process & P Supporting Communications Figure  6. 3 Slide 6-48 Model of Online Consumer Behavior Decision   process  similar  for  online  and  offline   behavior General  online  behavior  model Consumer  skills Product  characteristics Attitudes  toward  online  purchasing Perceptions  about  control  over  Web  environment p Web  site  featuresClickstream  behavior:  Transaction  log  for   Clickstream behavior: Transaction log for consumer  from  search  engine  to  purchase Slide 6-49 Model of Online Consumer Behavior Figure  6. 4 Slide 6-50 Model of Online Consumer Behavior Clickstream  factors  include: Number  of  days  since  last  visit Number of days since last visit Speed  of  clickstream  behavior Number  of  products  viewed  during  last  visit b f d i dd i l ii Number  of  pages  viewed Supplying  personal  information Number  of  days  since  last  purchase Number  of  past  purchasesClickstream  marketing Clickstream marketing Slide 6-51 Shoppers: B rowsers & Buyers Shoppers:  87%  of  Internet  users 72%  buyers 72% buyers 16%  browsers  (purchase  offline) One? third  offline  retail  purchases  influenced  by   O thi d ffli t il h i fl db online  activities Online  traffic  also  influenced  by  offline  brands  and   shopping pp g E? commerce  and  traditional  commerce  are  coupled: part  of  a  continuum  of  consuming  behavior part of a continuum of consuming behavior Slide 6-52 Online Shoppers & Buyers Figure  6. 5 Slide 6-53What Consumers Shop & Buy Online Big  ticket  items  ($500  plus) Travel,  computer  hardware,  consumer  electronics Expanding   Consumers  more  confident  in  purchasing  costlier  items Small  ticket  items  ($100  or  less) ($ ) Apparel,  books,  office  supplies,  software,  etc. Sold  by  first  movers  on  Web Sold by first movers on Web Physically  small  i tems High  margin  items   Broad  selection  of  products  available Slide 6-54 What Consumers Buy Online Figure  6. 6 Slide 6-55 Intentional Acts: How Shoppers Find Vendors Online pp Search  engines  (59%) S h i (59%) Coupon  Web  sites  (29%) Coupon Web sites (29%) Comparison  shopping  sites  (27%) E? ail  newsletters  (25%) Online  shoppers  are  highly  intentional,   looking  for  specific  products,  companies,   services Slide 6-56 Table  6. 6 Slide 6-57 Trust, Utility, Opportunism in Online Markets Two  most  important  factors  shaping  decision   Two most important factors shaping decision to  purchase  online: Utility:   U ili Better  prices,  convenience,  speed Trust: Asymmetry  of  information  can  lead  to  opportunistic   behavior  by  sellers Sellers  can  develop  trust  by  building  strong  reputations   for  honesty,  fairness,  delivery   Slide 6-58 Basic Marketing Concepts MarketingStrategies  and  actions  to  establish  relationship   Strategies and actions to establish relationship with  consumer  and  encourage  purchases  of   p products  and  services Addresses  competitive  situation  of  industries  and   firms Seeks  to  create  unique,  highly  differentiated   products  or  services  that  are  produced  or  supplied   by  one  trusted  firm Unmatchable  feature  set Avoidance  of  becoming  commodity Slide 6-59 Feature Sets Three  levels  of  product  or  service 1. Core  product e. g. cell  phone g p 2. Actual  product Characteristics  that  deliver  core  benefits Ch t i ti th t d li b fit e. g. wide  screen  that  connects  to  Internet 3. Augmented  productAdditional  benefits Basis  for  building  the  product’s  brand e. g. product  warranty Slide 6-60 Featu re Set Figure  6. 7 Slide 6-61 Products, Brands & Branding Process Brand: Expectations  consumers  have  when  consuming,  or   thinking  about  consuming,  a  specific  product Most  important  expectations:  Quality,  reliability,   Most important expectations: Quality reliability consistency,  trust,  affection,  loyalty,  reputation Branding:  Process  of  brand  creation Branding: Process of brand creation Closed  loop  marketing Brand  strategy Brand  equity Brand eq it Slide 6-62 Marketing A ti iti M k ti Activities: From Products to Brands Figure  6. 8Slide 6-63 STP: Segmenting, Targeting, Positioning Major  ways  used  to  segment,  target  customers 1. 2. 3. 4. 5. 6. Behavioral B h i l Demographic Psychographic h hi Technical Contextual Search Within  segment,  product  is  positioned and  branded  as   a  unique,  high? value  product,  especially  suited  to   q g p p y ne eds  of  segment  customers Slide 6-64 Are Brands Rational? For  consumers,  a  qualified  yes: Brands  introduce  market  efficiency  by  reducing  search  and   decision? making  costs For  business  firms,  a  definite  yes: A  major  source  of  revenue Lower  customer  acquisition  cost Increased  customer  retention Successful  brand  constitutes  a  long? asting  (though  not   necessarily  permanent)  unfair  competitive  advantage Slide 6-65 Can Brands Survive Internet? Brands & Price Dispersion p Early  postulation:   Law  of  One  Price ;  end  of  brands Early postulation: â€Å"Law of One Price†; end of brands Instead: Consumers  still  pay  premium  prices  for  differentiated   products E? commerce  firms  rely  heavily  on  brands  to  attract   customers  and  charge  premium  prices Substantial  price  dispersion Large  differences  in  price  sensitivity  for  same  product Large differences in price sensitivity for same product â€Å"Library  effect† Slide 6-66Revolution in Internet Marketing Technology Three  broad  impacts: Scope  of  marketing  communications  broadened   Richness  of  marketing  communications  increased g Information  intensity  of  marketplace  expanded Internet  marketing  technologies: Internet marketing technologies: Web  transaction  logs Cookies  and  Web  bugs Cookies and Web bugs Databases,  data  warehouses,  data  mining Advertising  networks Customer  relationship  management  systems Slide 6-67 Web Transaction LogsBuilt  into  Web  server  software Record  user  activity  at  Web  site y Webtrends:  Leading  log  analysis  tool Provides  much  marketing  data,  especially  Ã‚   Provides much marketing data especially combined  with: Registratio n  forms R i i f Shopping  cart  database Answers  questions  such  as: What  are  major  patterns  of  interest  and  purchase? After  home  page,  where  do  users  go  first? Second? Slide 6-68 Cookies & Web Bugs Cookies: Small  text  file  Web  sites  place  on  visitor’s  PC  every  time   they  visit,  as  specific  pages  are  accessed Provide  Web  marketers  with  very  quick  means  of   identifying  customer  and  understanding  prior  behavior Flash  cookiesWeb  bugs: Tiny  (1  pixel)  graphics  embedded  in  e mail  and  Web  sites Tiny (1 pixel) graphics embedded in e? mail and Web sites Used  to  automatically  transmit  information  about  user  and   page being viewed to monitoring server page  being  viewed  to  monitoring  server Slide 6-69 Insight on Society g y Every Move You Make, Every Click You Make, Weâ₠¬â„¢ll Be Tracking You , g Class Discussion Slide 6-70 Databases Database:  Ã‚  Stores  records  and  attributes Database  management  system  (DBMS):   Software  used  to  create,  maintain,  and  access  databasesSQL  (Structured  Query  Language): Industry? standard  database  query  and  manipulation  language  used  in   y q y p g g a  relational  database Relational  database: Represents  data  as  two? dimensional  tables  with  records  organized  in   rows  and  attributes  in  columns;  data  within  different  tables  can  be   flexibly  related  as  long  as  the  tables  share  a  common  data  element flexibly related as long as the tables share a common data element Slide 6-71 Relational Database View of E-commerce Customers Figure  6. 12 Slide 6-72 Data Warehouses & Data Mining Data  warehouse:Collects  firm s  transactional  and  custom er  data  in  single   Collects firm’s transactional and customer data in single location  for  offline  analysis  by  marketers  and  site   managers Data  mining: Analytical  techniques  to  find  patterns  in  data,  model   Analytical techniques to find patterns in data model behavior  of  customers,  develop  customer  profiles Query? driven  data  mining Query driven data mining Model? driven  data  mining Rule? based  data  mining l b dd Collaborative  filtering Slide 6-73 Data Mining & Personalization Figure  6. 13 Slide 6-74 Insight on TechnologyThe Long T il Big Hits and Big Misses Th L Tail: Bi Hi d Bi Mi Class Discussion Slide 6-75 Customer Relationship Management ( (CRM) Systems ) y Record  all  contact  that  customer  has  with  firm Generates  customer  profile  available  to  everyone  in firm  with  need  to  Ã¢â‚¬Å"know  the  customer† fi ith d t â€Å"k th t † Customer profiles can contain: ustomer  profiles  can  contain: Map  of  the  customer’s  relationship  with  the  firm Product  and  usage  summary  data Demographic  and  psychographic  data Profitability  measures Contact  history   Contact history Marketing  and  sales  information Slide 6-76Customer Relationship Management System Figure  6. 14 Slide 6-77 Market Entry Strategies Figure  6. 15 Slide 6-78 Establishing Customer Relationship Advertising  Networks Banner  advertisements Ad  server  selects  appropriate  banner  ad  based  on   Ad server selects appropriate banner ad based on cookies,  Web  bugs,  backend  user  profile   databases Permission  marketing Permission marketing Affiliate  marketing g Slide 6-79 How Advertising Network Works e. g. , DoubleClick Figure  6. 16 Slide 6-80 Establishing Customer Relationship (cont’d) Viral  marketingGett ing  customers  to  pass  along  company’s  marketing   message  to  friends,  family,  and  colleagues Blog  marketing Using  blogs  to  market  goods  through  commentary  and   U i bl k d h h d advertising Social  network  marketing,  social  shopping   Mobile  marketing Mobile marketing Slide 6-81 Insight on Business Social Network Marketing: Let’s Buy Together Class Discussion Slide 6-82 Establishing Customer Relationship (cont’d) Wisdom  of  crowds  (Surowiecki,  2004) ( , ) Large  aggregates  produce  better  estimates  and  judgments Examples:   E l Prediction  markets Folksonomies Social  tagging Social taggingBrand  leveraging Slide 6-83 Customer Retention: Strengthening Customer Relationship p Mass  marketing Mass marketing Direct  marketing Micromarketing   Micromarketing Personalized,  one? to? one  marketing  Ã‚   Segmenting  market  on  precise  a nd  timely  understanding  of   Segmenting market on precise and timely understanding of individual’s  needs Targeting  specific  marketing  messages  to  these  individuals Positioning  product  vis? a? vis  competitors  to  be  truly  unique Personalization Can  increase  consumers  sense  of  control,  freedom Can  also  result  in  unwanted  offers  or  reduced  anonymity Slide 6-84Mass Market-Personalization Continuum Figure  6. 17 Slide 6-85 Other Customer Retention Marketing Technics Customization Customer  co? production Transactive  content:   Combine  traditional  content  with  dynamic  information   tailored  to  each  user’s  profile Customer  service FAQs Q Real? time  customer  service  chat  systems Automated  response  systems Automated response systems Slide 6-86 Net Pricing Strategies Pricing Integral  part  of  marketing  strategy I t l t f k ti t t Traditionally  based  on:   Fixed  cost   Variable  costs   Demand  curve Price  discrimination Price discriminationSelling  products  to  different  people  and  groups   based  on  willingness  to  pay Slide 6-87 Net Pricing Strategies (cont’d) Free  and  freemium Can  be  used  to  build  market  awareness Versioning Creating  multiple  versions  of  product  and  selling   essentially  same  product  to  different  market  segments   at  different  prices at different prices Bundling Offers  consumers  two  or  more  goods  for  one  price Off t d f i Dynamic  pricing: Auctions Yield  management Slide 6-88 Channel Management Strategies Channels: Different  methods  by  which  goods  can  be  distributed  and   soldChannel  conflict: When  new  venue  for  selling  products  or  services  threatens   gp or  destroy s  existing  sales  venues E. g. online  airline/travel  services  and  Ã‚  traditional  offline   travel  agencies Some  manufacturers  are  using  partnership   gp p model  to  avoid  channel  conflict   Slide 6-89 Chapter 7: E-commerce Marketing Communications Chapter 7 E-commerce Advertising Copyright  © 2010 Pearson Education, Ltd. 2011 Pearson Education, Inc. Slide 7-90 Video Ads: Shoot, Click, Buy Class Discussion Slide 7-91 Marketing Communications Two  main  purposes:Sales  Ã¢â‚¬â€œ promotional  sales  communications   Branding  Ã¢â‚¬â€œ b di B di branding  communications i i Online  marketing  communications Online marketing communications Takes  many  forms Online  ads,  e? mail,  public  relations,  Web   sites Slide 7-92 Online Advertising li d i i $25  billion,  15%  of  all  advertising Advantages: Internet  is  where  audience  is  moving g Ad  targeting Greater  opp ortunities  for  interactivity Greater opportunities for interactivity Disadvantages: Cost  versus  benefit How  to  adequately  measure  results Supply  of  good  venues  to  display  ads Slide 7-93 Online Advertising from 2002-2014 Figure  7. Slide 7-94 Forms of Online Advertisements Display  ads Rich  media Video  ads Search  engine  advertising Social  network,  blog,  and  game  advertising Social network blog and game advertising Sponsorships Referrals  (affiliate  relationship  marketing) E? mail  marketing g Online  catalogs Slide 7-95 Display Ads Banner  ads Rectangular  box  linking  to  advertiser’s  Web  site IAB  guidelines e. g. Full  banner  is  468  x  60  pixels,  13K e g Full banner is 468 x 60 pixels 13K Pop? up  ads Appear  without  user  calling  for  them Provoke  negative  consumer  sentiment g Twice  as  effective  as  normal  banner  ads Pop? nder  ads:  Open  beneath  browser  window Pop under ads: Open beneath browser window Slide 7-96 Rich Media Ads Use  Flash,  DHTML,  Java,  JavaScript About  7%  of  all  online  advertising  expenditures Tend  to  be  more  about  branding d b b b di Boost  brand  awareness  by  10% Boost brand awareness by 10% IAB  standards  limit  length Interstitials Superstitials Slide 7-97 Video Ads Fastest  growing  form  of  online  advertisement IAB  standards Linear  video  ad Non? linear  video  ad In? banner  video  ad In? text  video  ad Ad placement Advertising  networks Advertising  exchanges Banner  swappingSlide 7-98 Search Engine Advertising h i d i i Almost  50%  of  online  ad  spending  in  2010 Types: Paid  inclusion  or  rank Paid inclusion or rank Inclusion  in  search  results Sponsored  link  areas p Keyword  advertising e. g. Google  AdWords e g Google AdWords Network  keyword  advertising  (context   advertising) d ii ) e. g. Google  AdSense Slide 7-99 Search Engine Advertising (cont’d) Nearly  ideal  targeted  marketing Nearly ideal targeted marketing Issues:   Disclosure  of  paid  inclusion  and  placement   practices Click  fraud   Ad  nonsense   Slide 7-100 Mobile Advertising Half  of  U. S.Internet  users  access  Internet   Half of U. S. Internet users access Internet with  mobile  devices Currently  small  market,  but  fastest   growing  platform  (35%) growing platform (35%) Google  and  Apple  in  race  to  develop   Google and Apple in race to develop mobile  advertising  platform AdMob,  iAd Slide 7-101 Sponsorships & Referrals Sponsorships Paid  effort  to  tie  advertiser s  name  to   Paid effort to tie advertiser’s name to particular  information,  event,  venue  in  a  way   that  reinforces  brand  in  positive  yet  not  overtly   that reinforces brand in positive yet not overtly commercial  manner ReferralsAffiliate  relationship  marketing p g Permits  firm  to  put  logo  or  banner  ad  on   another  firm’s  Web  site  from  which  users  of   th fi ’ W b it f hi h f that  site  can  click  through  to  affiliate’s  site Slide 7-102 E-mail Marketing & Spam Explosion Direct  e? mail  marketing   Low  cost,  primary  cost  is  purchasing  addresses Spam:  Unsolicited  commercial  e? mail Spam: Unsolicited commercial e mail Approx. 90%  of  all  e? mail Efforts  to  control  spam: Technology  (filtering  software)   Government  regulation  (CAN? SPAM  and  state  laws) Voluntary  self? regulation  by  industries  (DMA  ) y g y Volunteer  efforts Slide 7-103Percentage of E-mail That Is Spam Figure 7. 6 Slide 7-104 Online Catalogs Equivalent  of  paper? based  catalogs Graphics? intense;  use  increasing  with  increase   in  broadband  use in broadband use Two  types: 1. 2. 2 Full? page  spreads,  e. g. Landsend. com Grid  displays,  e. g. Amazon Grid displays e g Amazon In  general,  online  and  offline  catalogs   complement  each  other Slide 7-105 Social Marketing â€Å"Many? to? many†Ã‚  model Uses  digitally  enabled  networks  to  spread  ads Blog  advertising   Blog advertising Online  ads  related  to  content  of  blogs Social  network  advertising:   Social network advertising:Ads  on  MySpace,  Facebook,  YouTube,  etc. Game  advertising:   G d ti i Downloadable  Ã¢â‚¬Å"advergames† Placing  brand? name  products  within  games Slide 7-106 Insight on Society g y Marketing to Children of the Web in the Age of Social Networks g Class Discussion Slide 7-107 Behavioral Targeting Interest? based  advertising Data  aggregators  develop  profiles Data aggregators develop profiles Search  engine  queries Online  browsing  history O li b i hi Offline  data  (income,  education,  etc. ) d Information  sold  to  3rd party  advertisers,  who  deliver   ads  based  on  profile Ad  exchanges Privacy  concerns acy co ce s Consumer  resistance Slide 7-108Mixing Off-line & Online Marketing Communications g Most  successful  marketing  campaigns   M t f l k ti i incorporate  both  online  and  offline  tactics Offline  marketing Drive  traffic  to  Web  sites Drive traffic to Web sites Increase  awareness  and  build  brand  equity Consumer  behavior  increasingly  multi? channel 60%  consumers  research  online  before  buying  offline % y g Slide 7-109 Insight on Business g Are the Very Rich Different From You and Me? Class Discussion Sl ide 7-110 Online Marketing Metrics: Lexicon Measuring  audience  size  or  market  share Impressions I i Click? through  rate  (CTR) View? hrough  rate  (VTR) Vi th h t (VTR) Hits Page  views P i Stickiness  (duration) Unique  visitors Loyalty Reach Recency Slide 7-111 Online Marketing Metrics (cont’d) Conversion  of  visitor   Conversion of visitor to  customer Acquisition  rate q Conversion  rate Browse? to? buy? ratio View? to? cart  ratio Vi t t ti Cart  conversion  rate Checkout  conversion  rate   Checkout conversion rate Abandonment  rate Retention  rate Attrition  rate E mail  metrics E? mail metrics Open  rate Delivery  rate Delivery rate Click? through  rate   (e mail) (e? mail) Bounce? back  rate Slide 7-112 Online Consumer Purchasing ModelFigure  7. 8 Slide 7-113 How Well Does Online Adv. Work? Ultimately  measured  by  ROI  on  ad  campaign Highest  click? through  rates:  Searc h  engine  ads,   Permission  e mail  campaigns Permission e? mail campaigns Rich  media,  video  interaction  rates  high Online  channels  compare  favorably  with  traditional Most  powerful  marketing  campaigns  use  multiple   Most powerful marketing campaigns use multiple channels,  including  online,  catalog,  TV,  radio,   newspapers,  stores newspapers, stores Slide 7-114 Comparative Returns on Investment Figure  7. 9 Slide 7-115 Costs of Online Advertising Pricing  modelsBarter Cost  per  thousand  (CPM) Cost  per  click  (CPC)   Cost  per  action  (CPA)   Cost per action (CPA) Online  revenues  only Sales  can  be  directly  correlated Sales can be directly correlated Both  Ã‚  online/offline  revenues Offline  purchases  cannot  always  be  directly  related  to  online   Offli h t l b di tl l t dt li campaign In  general,  online  marketing  more   expensive  on  CPM   In general online marketing more expensive on CPM basis,  but  more  effective Slide 7-116 Web Site Activity Analysis b i i i l i Figure  7. 10 Slide 7-117 Insight on Technology It’s 10 P. M. Do You Know Who Is On Your Web Site? Class Discussion Slide 7-118Web Site †¦ as Marketing Communications Tool g Web  site  as  extended  online  advertisement W b i d d li d i Domain  name:  An  important  role   Domain name: An important role Search  engine  optimization:   Search engine optimization: Search  engines  registration Keywords  in  Web  site  description K d i W b it d i ti Metatag  and  page  title  keywords Links  to  other  sites k h Slide 7-119 Web Site Functionality b i i li Main  factors  in  effectiveness  of  interface Utility Ease  of  use Top  factors  in  credibility  of  Web  sites: Top factors in credibility of Web sites: Design  look Info rmation  design/structure g / Information  focusOrganization  is  important  for  first time  users,  but   Organization is important for first? time users but declines  in  importance Information content becomes major factor attracting Information  content  becomes  major  factor  attracting   further  visits Slide 7-120 Factors in Credibility of Web Sites Figure  7. 11 Slide 7-121 Table  7. 9 Slide 7-122 Chapter 8: Ethical, Social, and Political Issues in E-commerce E commerce Chapter 8 Ethics, Law, E-commerce Copyright  © 2010 Pearson Education, Ltd. 2011 Pearson Education, Inc. Slide 8-123 Ethical, Social, Political Issues in E-commerceInternet,  like  other  technologies,  can: Internet like other technologies can: Enable  new  crimes Affect  environment Threaten  social  values Costs  and  benefits  must  be  carefully   considered,  especially  when  there  are  no   id d i ll h h g g clear? c ut  legal  or  cultural  guidelines Slide 8-124 Model for Organizing Issues Issues  raised  by  Internet  and  e? commerce  can  be  viewed  at  individual,   social,  and  political  levels social and political levels Four  major  categories  of  issues: Four major categories of issues: Information  rights Property  rights Property rights Governance Public  safety  and  welfare Slide 8-125Moral Dimensions of Internet Society M l Di i f I S i Figure  8. 1 Slide 8-126 Basic Ethical Concepts i hi l Ethics Study  of  principles  used  to  determine  right  and  wrong  courses  of   action Responsibility p y Accountability Liability Laws  permitting  individuals  to  recover  damages Due  process Laws  are  known,  understood Laws are known understood Ability  to  appeal  to  higher  authorities  to  ensure  laws  applied  correctly Slide 8-127 Analyzing Ethical Dilemmas l i hi l il Process  for  analyzing  ethical  dilemmas: 1. 2. 3. 3 4. 5. Identify  and  clearly  describe  the  facts Define  the  conflict  or  dilemma  and  identify  the   y higher? rder  values  involved Identify  the  stakeholders Identify the stakeholders Identify  the  options  that  you  can  reasonably   take t k Identify  the  potential  consequences  of  your   options Slide 8-128 Candidate Ethical Principles Golden  Rule Universalism Slippery  Slope Collective  Utilitarian  Principle Risk  Aversion Ri k A i No  Free  Lunch The  New  York  Times  Test The  Social  Contract  Rule Slide 8-129 Privacy & Information Rights Privacy: Moral  right  of  individuals  to  be  left  alone,  free   from  surveillance  or  interference  from  other   individuals  or  organizations Information  privacy p y Subset  of  privacy Includes:The  claim  th at  certain  information  should  not  be   collected  at  all The  claim  of  individuals  to  control  the  use  of  whatever   h l i f i di id l l h f h information  is  collected  about  them Slide 8-130 Privacy & Information Rights (cont. ) Major  ethical  issue  related  to  e? commerce   and  privacy:   d i Under  what  conditions  should  we  invade  the   privacy  of  others? Major  social  issue:   j Development  of  Ã¢â‚¬Å"expectations  of  privacy†Ã‚  and   privacy  norms privacy norms Major  political  issue: Development  of  statutes  that  govern  relations   D l t f t t t th t l ti between  recordkeepers  and  individuals Slide 8-131 Information Collected at E-commerce SitesData  collected  includes Personally  identifiable  information  (PII) Anonymous  information Anonymous information Types  of  data  collected yp Name,  a ddress,  phone,  e? mail,  social  security Bank  and  credit  accounts,  gender,  age,  occupation,   B k d di d i education Preference  data,  transaction  data,  clickstream  data,   browser  type Slide 8-132 Social Networks & Privacy Social  networks Encourage  sharing  personal  details Pose  unique  challenge  to  maintaining   privacy Facebook s  Beacon  program Facebook’s Beacon program Facebook s  Terms  of  Service  change Facebook’s Terms of Service change Slide 8-133 Profiling & Behavioral Targeting ProfilingCreation  of  digital  images  that  characterize  online  individual  and   group  behavior Anonymous  profiles A fil Personal  profiles Personal profiles Advertising  networks Track  consumer  and  browsing  behavior  on  Web T k db i b h i W b Dynamically  adjust  what  user  sees  on  screen Build  and  refresh  profiles  of  consumers Google’s AdWords program Slide 8-134 Profiling & Behavioral Targeting (cont’d) Deep  packet  inspection Business  perspective: Web  profiling  serves  consumers  and  businesses Increases  effectiveness  of  advertising,  subsidizing  free   content Enables  sensing  of  demand  for  new  products  and  services Critics  perspective:Undermines  expectation  of  anonymity  and  privacy Consumers  show  significant  opposition  to  unregulated   collection  of  personal  information Enables  weblining Slide 8-135 Internet & Government Invasions of Privacy Various  laws  strengthen  ability  of  law  enforcement   agencies  to  monitor  Internet  users  without   i i I ih knowledge  and  sometimes  without  judicial  oversight CALEA,  PATRIOT  Act,  Cyber  Security  Enhancement  Act,   Homeland  Security  Act Government  agencies  are  largest  users  of  private   sector  commercial  data  brokers sector commercial data brokers Retention  by  ISPs  of  user  data  a  concern Slide 8-136Legal Protections In  U. S. ,  privacy  rights  explicitly  granted  or   derived  from Constitution   Constitution First  Amendment  Ã‚  Ã¢â‚¬â€œ freedom  of  speech  and  association Fourth  Amendment  Ã‚  Ã¢â‚¬â€œ unreasonable  search  and  seizure F th A d t bl h d i Fourteenth  Amendment  Ã‚  Ã¢â‚¬â€œ due  process Specific  statutes  and  regulations  (federal  and   Specific statutes and regulations (federal and state) Common  law Slide 8-137 Informed Consent U. S. firms  can  gather  and  redistribute   transaction  information  without  individual’s   i i f i ih i di id l’ informed  consent Illegal  in  Europe Informed  consent: Opt? in   Opt out Opt? out Many  U. S. ? commerce  firm s  merely  publish  information   p practices  as  part  of  privacy  policy  without  providing  for   p p yp y p g any  form  of  informed  consent Slide 8-138 FTC’s Fair Information Practices Principles Federal  Trade  Commission: Federal Trade Commission: Conducts  research  and  recommends  legislation  to  Congress Fair  Information  Practice  Principles  (1998): Fair Information Practice Principles (1998): Notice/Awareness  (Core) Choice/Consent  (Core) Choice/Consent (Core) Access/Participation Security Enforcement Guidelines,  not  laws Guidelines not laws Slide 8-139 FTC’s Fair Information Practice PrinciplesNotice/Awareness i / Sites  must  disclose  information  practices  before  collecting  data. Includes Sit t di l i f ti ti b f ll ti d t I l d identification  of  collector,  uses  of  data,  other  recipients  of  data,  nature  of   collection  (ac tive/inactive),  voluntary  or  required,  consequences  of  refusal,  and   steps  taken  to  protect  confidentiality,  integrity,  and  quality  of  the  data Choice/Consent There  must  be  a  choice  regime  in  place  allowing  consumers  to  choose  how   their  information  will  be  used  for  secondary  purposes  other  than  supporting   the  transaction,  including  internal  use  and  transfer  to  third  parties.Opt? in/Opt? out  must  be  available. Consumers  should  be  able  to  review  and  contest  the  accuracy  and   completeness  of  data  collected  about  them  in  a  timely,  inexpensive  process. Access/Participation ccess/ a c pa o Security y Enforcement Data  collectors  must  take  reasonable  steps  to  assure  that  consumer   information  is  accurate  and  secure  from   unauthorized  use. There  must  be  in  place  a  mechanism  to  enforce  FIP principles. This  can  involve  self? regulation,  legislation  giving  consumers  legal   remedies  for  violations,  or  federal  statutes  and  regulation. di f i l ti f d l t t t d l ti Slide 8-140FTC Recommendations: Online Profiling Principle p Notice Recommendation Complete  transparency  to  user  by  providing  disclosure  and  choice  options   on  the  host  Web  site. â€Å"Robust†Ã‚  notice  for  PII  (time/place  of  collection;   before  collection  begins). Clear  and  conspicuous  notice  for  non PII. before  collection  begins). Clear  and  conspicuous  notice  for  non? PII. Opt? in  for  PII,  opt? out  for  non? PII. No  conversion  of  non? PII  to  PII  without   consent. Opt? out  from  any  or  all  network  advertisers  from  a  single  page   consent Opt out from any or all network advertisers from a single page provided  by  the  host  Web  site.Reasonable  provisions  to  allow  inspection  and  correction. Reasonable  efforts  to  secure  information  from  loss,  misuse,  or  improper   access. Done  by  independent  third  parties,  such  as  seal  programs  and  accounting   Done by independent third parties such as seal programs and accounting firms. medical  topics,  sexual  behavior  or  sexual  orientation,  or  use  Social  Security   medical topics sexual behavior or sexual orientation or use Social Security numbers  for  profiling. Slide 8-141 Choice Access Security EnforcementRestricted  Collection Advertising  networks  will  not  collect  information  about  sensitive  financial  or European Data Protection Directive Privacy  protection  much  stronger  inà ‚  Europe  than  U. S. European  approach:   Comprehensive  and  regulatory  in  nature p g y European  Commission’s  Directive  on  Data  Protection   (1998):   (1998): Standardizes  and  broadens  privacy  protection  in  European  Union   countries Department  of  Commerce  safe  harbor  program: For  U. S. firms  that  wish  to  comply  with  Directive Slide 8-142 Private Industry Self-RegulationSafe  harbor  programs: Private  policy  mechanism  to  meet  objectives  of   Pi t li h i t t bj ti f government  regulations  without  government  involvement e. g. Privacy  seal  programs e g Privacy seal programs Industry  associations  include: Online  Privacy  Alliance  (OPA) Network  Advertising  Initiative  (NAI) CLEAR  Ad  Notice  Technical  Specifications Privacy  advocacy  groups Emerging  privacy  protection  business Slide 8-143 Insight on Business Chief Privacy Officers hi f i ffi Class Discussion Slide 8-144 Technological Solutions Spyware,  pop? p  blockers Cookie  managers k Anonymous  remailers,  surfing Anonymous remailers surfing Platform  for  Privacy  Preferences  (P3P):   Comprehensive  technological  privacy  protection  standard Works  through  user s  Web  browser Works through user’s Web browser Communicates  a  Web  site’s  privacy  policy Compares  site  policy  to  user’s  preferences  or  to  other  standards   such  as  FTC’s  FIP  guidelines  or  EU’s  Data  Protection  Directive Slide 8-145 How P3P Works k Figure  8. 2(A) Slide 8-146 Insight on Technology The Privacy T Th P i Tug of War: fW Advertisers Vs. Consumers Class Discussion Slide 8-147 Intellectual Property Rights Intellectual  property:Encompasses  all  tangible  and  intangible  products  of  human   mind Major  ethical  issue: j How  should  we  treat  property  that  belongs  to  others? Major  social  issue: Major social issue: Is  there  continued  value  in  protecting  intellectual  property  in  the   Internet  age? Major  political  issue: How  can  Internet  and  e? commerce  be  regulated  or  governed  to   g g protect  intellectual  property? Slide 8-148 Intellectual Property Protection Three  main  types  of  protection: Copyright Patent Trademark  law Trademark law Goal  of  intellectual  property  law: Balance  two  competing  interests  Ã¢â‚¬â€ public  and   B l t ti i t t bli d privateMaintaining  this  balance  of  interests  is  always   M i t i i thi b l fi t t i l challenged  by  the  invention  of  new   technologies Slide 8-149 Copyright Protects  original  forms  of  expression  (but  not   ideas)  from   being  copied  by  others  for  a  Ã‚   ideas) from being copied by others for a period  of  time Look  and  feel  copyright  infringement  lawsuits Fair  use  doctrine Fair use doctrine Digital  Millennium  Copyright  Act,  1998 First  major  effort  to  adjust  copyright  laws  to  Internet  age Implements  WIPO  treaty  that  makes  it  illegal  to  make,   distribute,  or  use  devices  that  circumvent  technology? ased  protections  of  copyrighted  materials Slide 8-150 Patents Grant  owner  20? year  monopoly  on  ideas  behind  an   invention Machines Man? made  products p Compositions  of  matter Processing  methods Invention  must  be  new,  non? obvious,  novel Encourages  inventors g Promotes  dissemination  of  new  techniques  through   licensing Stifles  competition  by  raising  barriers  to  entry Slide 8-151 E-co mmerce Patents 1998  State  Street  Bank  &  Trust  v. Signature  Financial   Group Business  method  patents Led  to  explosion  in  application  for  e? commerce  Ã¢â‚¬Å"business   L dt l i i li ti f â€Å"b i methods†Ã‚  patentsMost  European  patent  laws  do  not  recognize   M tE t tl d t i business  methods  unless  based  on  technology Examples Amazon’s  One? click  purchasing DoubleClick’s  dynamic  delivery  of  online  advertising Slide 8-152 Trademarks d k Identify,  distinguish  goods  and  indicate  their   source Purpose p Ensure  Ã‚  consumer  gets  what  is  paid  for/expected  to  receive Protect  owner  against  piracy  and  misappropriation Infringement Market  confusion Bad  faith Dilution Behavior  that  weakens  connection  between  trademark   and  product Slide 8-153 Trademarks & Internet CybersquattingAnticy bersquatting  Consumer  Protection  Act  (ACPA) Cyberpiracy Typosquatting Metatagging M i Keywording y g Deep  linking Framing Slide 8-154 Governance Primary  questions Who  will  control  Internet  and  e? commerce? What  elements  will  be  controlled  and  how? What elements will be controlled and how? Stages  of  governance  and  e? commerce g g Government  Control  Period  (1970–1994) Privatization  (1995–1998) Privatization (1995 1998) Self? Regulation  (1995–present) Government  Regulation  (1998–present) Slide 8-155 Who Governs E-commerce & Internet? Mixed  mode  environmentSelf? regulation,  through  variety  of  Internet  policy   and  technical  bodies,  co exists  with  limited   and technical bodies co? exists with limited government  regulation ICANN  :  Domain  Name  System Internet  could  be  easily  controlled,   I t t ld b il t ll d m onitored,  and  regulated  from  a  central   location Slide 8-156 Taxation E? commerce  taxation  illustrates  complexity  of   governance  and  jurisdiction  issues governance and jurisdiction issues U. S. sales  taxed  by  states  and  local  government MOTO  retailing E? commerce  benefits  from  tax  Ã¢â‚¬Å"subsidy† yOctober  2007:  Congress  extends  tax  moratorium  for   an  additional  seven  years an additional seven years Unlikely  that  comprehensive,  integrated  rational   approach  to  taxation  issue  will  be  determined  for   approach to taxation issue will be determined for some  time  to  come Slide 8-157 Net Neutrality Currently,  all  Internet  traffic  treated  equally  Ã¢â‚¬â€œ all  activities  charged  the  same  rate,  no   ll i i i h d h preferential  assignment  of  bandwidth Backbone  providers  would  like  to  charge   differentiated  prices  and  ration  bandwidth 2010,  U. S. ppeals  court  ruled  that  FCC  had  no   authority  to  regulate  Internet  providers Slide 8-158 Public Safety & Welfare Protection  of  children  and  strong   g sentiments  against  pornography Passing  legislation  that  will  survive  court   P i l i l ti th t ill i t challenges  has  proved  difficult Efforts  to  control  gambling  and  restrict   sales  of  drugs  and  cigarettes sales of drugs and cigarettes Currently  mostly  regulated  by  state  law Unlawful  Internet  Gambling  Enforcement  Act Slide 8-159 Insight on Society Internet Drug Bazaar Class Discussion Slide 8-160