BUSINESS AND THE INTERNET

McGraw-Hill/Irwin

2008 The McGraw-Hill Companies, All Rights Reserved

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DISRUPTIVE TECHNOLOGY
Digital Darwinism implies that organizations which cannot adapt to the new demands placed on them for surviving in the information age are doomed to extinction

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Disruptive versus Sustaining Technology

What do steamboats, transistor radios, and Intels 8088 processor all have in common?
Disruptive technology a new way of doing things that initially does not meet the needs of existing customers Sustaining technology produces an improved product customers are eager to buy

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The Internet Business Disruption One of the biggest forces changing business is the Internet Organizations must be able to transform as markets, economic environments, and technologies change Focusing on the unexpected allows an organization to capitalize on the opportunity for new business growth from a disruptive technology

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The Internet Business Disruption The Internet has had an impact on almost every industry including: Travel Entertainment Electronics Financial services Retail Automobiles

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Evolution of the World Wide Web

The Internets impact on information Easy to compile Increased richness Increased reach Improved content

E-BUSINESS

McGraw-Hill/Irwin

2008 The McGraw-Hill Companies, All Rights Reserved

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E-BUSINESS BASICS
How do e-commerce and e-business differ? E-commerce the buying and selling of goods and services over the Internet E-business the conducting of business on the Internet including, not only buying and selling, but also serving customers and collaborating with business partners

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E-BUSINESS BASICS
Industries Using E-Business

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E-BUSINESS MODELS
E-business model an approach to conducting electronic business on the Internet

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E-Commerce Domains
Major Domains B2C
B2B

C2C
C2B

Online consumers Now more mainstream and diverse Has created new targeting opportunities Online behavior differs by age Online consumers differ from traditional off-line consumers They initiate and control the exchange process Value information highly

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E-Commerce Domains
Major Domains B2C
B2B B2B sales far exceed B2C sales B2B sales are estimated to reach $4.3 trillion in 2005 Open trading networks E-marketspace bringing sellers and buyers together Private trading

C2C
C2B

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E-Commerce Domains
Major Domains B2C
B2B

C2C
C2B

C2C web sites help consumers exchange goods or information eBay is one example Auction sites facilitate the exchange process Newsgroups / forums Help consumers to find and share information

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E-Commerce Domains
Major Domains B2C
B2B

C2C
C2B

Allow consumers to search out sellers, learn about offers, initiate purchase, or dictate purchase terms Ex: Priceline.com Some sites facilitate the feedback process between customers and companies Ex: Planetfeed.com

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E-BUSINESS MODELS

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Business-to-Business (B2B)
Electronic marketplace (emarketplace) interactive business communities providing a central market where multiple buyers and sellers can engage in e-business activities

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Business-to-Consumer (B2C)
Common B2C e-business models include: e-shop a version of a retail store where customers can shop any time without leaving their home e-mall consists of a number of e-shops; it serves as a gateway through which a visitor can access other e-shops

Business types include:

Brick-and-mortar business Pure-play business Click-and-mortar business

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C2B (Consumer to Business)

Consumers can search out sellers, view offers, initiate purchases, and give feedback.
Example: on priceline.com one can bid for airline tickets, hotel rooms, etc. and decide whether to accept company offers.

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Consumer-to-Consumer (C2C)
Online auctions
Electronic auction (e-auction) - Sellers and buyers solicit consecutive bids from each other and prices are determined dynamically Forward auction - Sellers use as a selling channel to many buyers and the highest bid wins Reverse auction - Buyers use to purchase a product or service, selecting the seller with the lowest bid

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ORGANIZATIONAL STRATEGIES FOR E-BUSINESS

Primary business areas taking advantage of e-business include:

Marketing/sales Financial services Procurement Customer service Intermediaries

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Generating revenue on the Internet

Marketing/Sales

Online ad (banner ad) - box running across a Web page that contains advertisements Pop-up ad - a small Web page containing
an advertisement

Viral marketing - a technique that induces Web sites or users to pass on a marketing message Mass customization - gives customers

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Generating revenue on the Internet (cont.) Personalization - occurs when a Web site offers products that are more likely to appeal to that person Blog - Web site in which items are posted on a regular basis and displayed in reverse chronological order Podcasting - the distribution of audio or video files, such as radio programs or music videos, over the Internet to play on mobile devices

Marketing/Sales

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E-BUSINESS BENEFITS AND CHALLENGES

E-business benefits include:

Highly accessible Increased customer loyalty Improved information content Increased convenience Increased global reach Decreased cost

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E-BUSINESS BENEFITS AND CHALLENGES

E-business challenges include:

Protecting consumers Increasing liability Providing security Adhering to taxation rules

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E-BUSINESS BENEFITS AND CHALLENGES

There are numerous advantages and limitations in e-business revenue models including:

Transaction fees License fees Subscription fees Value-added fees Advertising fees

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Clicks V/S Bricks and clicks company

Bricks-and-clicks is a business model by which a company integrates both offline (bricks) and online (clicks) presences. It is also known as click-and-mortar or clicksand-bricks, as well as bricks, clicks and flips

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Example
electronics store may allow the user to order online, but pick up their order immediately at a local store, which the user finds using locator software. Conversely, a furniture store may have displays at a local store from which a customer can order an item electronically for

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Types of Web Sites

Corporate Web Sites are designed to build customer goodwill and to supplement other sales channels Marketing Web Sites engage consumers in an interaction that will move them closer to a direct purchase or other marketing outcome

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Conducting E-Commerce
E-Marketing
Creating web sites

Placing online ads and promotions Creating or using web communities Using E-mail and webcasting

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Conducting E-Commerce
SevenCsofWebSiteDesign Context Communicatio Content n Community Connection Commerce Customization

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Conducting E-Commerce
E-Marketing
Online forms of ads and promotions

Banner ads Skyscrapers- large add on internet Interstitials Browser ads Content sponsorships Microsites

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Marketing Database System

A marketing database is an organized collection of data about individual customers, prospects, or suspects that is accessible and actionable for such marketing purposes as lead generation,, sale of a product or service, or maintenance of customer relationships

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How does the firm earn revenue? Three issues to consider: What does it sell (product/services). To whom does it sell (customers). How does it sell (distribution channel).

Revenue/Business Models

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Common e-commerce revenue models: Web catalog (e-tailing): Amazon, Dell, Lands End. Advertising-based: Yahoo, Google, CNN.com. Subscription-based: WSJ. Fee per transaction: eBay, ETrade. Fee per service: CNN videos.

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Similar to mail-order catalogs predating the web:

Web Catalog Revenue Model

Proven successful for variety of consumer products/services. May not work with all products/service (e.g., groceries).

Works best for:

Standardized products with little quality concerns:
(New) Books, music, and videos. (New) computers and consumer electronics.

Impulse purchases:
Gifts, electronics.

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Advertising-Supported Models Free programming used to attract viewers, and then sell ads to marketers based on viewership (like broadcast TV).

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Subscription-Based Revenue Models Subscription fee charged for preferred content (like cable TV): New York Times (crosswords) Wall Street Journal (special articles).

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Fee-for-Transaction Revenue Models

Businesses offer services and charge a fee based on number or size of transactions processed. Ebay: Listing fee + % of highest bid (commission).

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Fee-for-Service Revenue Models

Fee based on value of service provided. Online games:
Customers pay to play premium games on the Web.

Concerts and films:

Subscribers pay concert videos and films accessed via broadband connection.

Professional services:
Prepaid legal, dental, insurance, warranty, and other services marketed and sold through the Web.

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Three Decisions: Sell What

Customized products:
Greater price premium, differentiation. Build-to-order PCs, cars, CDs.

Commodity products:
Books

Information products:
The best products to retail on the Internet. Stocks, information, airline tickets, digital music, etc. Digital delivery reduces fulfillment costs.

 To whom:

Three Decisions: To Whom & How

Usually younger demographic. High spenders on optional purchases like electronics, music, phone services, etc. Comfortable with researching and purchasing online. Know what they need and where to go.

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How:

Using Internet as a distribution channel (e.g., software downloads). Using Internet as an information channel, guiding customers to a local retail store (e.g., Ford, Nike). Using a combination of online and offline channels (e.g., Best Buy, Home Depot, Walmart).

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Relationship Marketing

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What is Relationship Marketing?

"Relationship marketing refers to all marketing activities directed toward establishing, developing, and maintaining successful relational exchanges." Morgan & Hunt 1994

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Commitment & Trust vs. Satisfaction

Satisfaction is very unstable Satisfaction is a poor predictor of outcomes Commitment & Trust are very stable Commitment & Trust are good predictors of outcomes

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Outcomes of Commitment & Trust Retention Positive Word of Mouth Cooperation Ease of Complaining Willingness to Complain

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How do we generate Commitment & Trust?

Economic Content Resource Content Social Content

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Economic Content
The purely economic costs and benefits of participating in the relationships

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Social Content
Psychic benefits gained due to feelings of compatibility -- similar values, goals, etc. -- that result in a feeling of comfort. Eg Relation with employ CSR

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Attitudinal Outcomes
Customer beliefs that result from relationship dynamics, these attitudes can go on to impact behaviours and the development of even stronger attitudes.
Examples:
B Brand equity Brand personality

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Databases Marketing

Secondary Data Sources: Internal Databases What is a database? Internal database: a database developed from data within an organization. Where does the data come from? Sales Invoices Salespersons Call Reports Warranty Cards Customer Registration/Sign-in

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The Growing Importance of Internal Database Marketing Database marketing: the creation of large computerized files of customers and potential customers profiles and purchasing patterns. Often called micromarketing.

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 Internal database marketing enables firms to: evaluate sales territories identify most and least profitable customers identify potential market segments identify which products, services, and segments need the most marketing support evaluate opportunities for offering new products or services evaluate existing marketing programs

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Secondary Data Sources: External Databases

Industry Information Company Information Market and Consumer Information General Economic Information General Guides to Business Information Indexes Specialized Directories

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Some Definitions of Database Marketing

AMA definition: An approach by which computer database technologies are harnessed to design, create, and manage customer data lists containing information about each customer's characteristics and history of interactions with the company. The lists are used as needed for locating, selecting, targeting, servicing, and establishing relationships with customers in order to enhance the long-term value of these customers to the company. Another definition Database marketing is a systematic approach to the gathering, consolidation, and processing of consumer data (both for customers and potential customers) that is maintained in a company's databases. Although databases have been used for customer data in traditional marketing for a long time, the database marketing approach is differentiated by the fact that much more consumer data is maintained, and that the data is processed and used in new and more sophisticated ways.

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Why Database Marketing?

Informational Reasons
Availability of abundance data Permission to collect them

Technological Reasons
Technology to collect and warehouse data Technology and computing power available to analyze them

Commercial Reason
Interest in generating intelligence to remain competitive main market share Drive to be efficient

Database Marketing (DBM) and Customer Relationship Management (CRM)

In order to form a learning relationship with its customers, an enterprise (firm) must be able to: Notice what its customers are doing Remember what it and its customers have

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done over time

Learn from what it has remembered Act On what it has learned to make customers more profitable

DATA WAREHOUSING AND DATA MINING

McGraw-Hill/Irwin

2008 The McGraw-Hill Companies, All Rights Reserved

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A producer wants to know.

Which are our lowest/highest margin customers ? What is the most effective distribution channel?
Who are my customers and what products are they buying?

What product prom-otions have the biggest impact on revenue?

Which customers are most likely to go to the competition ? What impact will new products/services have on revenue and margins?

Data, Data everywhere yet ...

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I cant get the data I need

need an expert to get the data

I cant understand the data I found

available data poorly documented

I cant use the data I found

results are unexpected data needs to be transformed from one form to other

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What is a Data Warehouse?

A single, complete and consistent store of data obtained from a variety of different sources made available to end users in a what they can understand and use in a business context.
[Barry Devlin]

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Data mining is the process of extracting hidden patterns from data. As more data is gathered, with the amount of data doubling data mining is becoming an increasingly important tool to transform this data into information, such as marketing, surveillance, fraud detection and scientific discovery. Data mining can be applied to data sets of any size.

Data Mining works with Warehouse Data

Data Warehousing provides the Enterprise with a memory

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Data Mining provides the Enterprise with intelligence

Managing the total marketing effect

McGraw-Hill/Irwin 2008 The McGraw-Hill Companies, All Rights Reserved

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Marketing Organization Simple Sales Department Sales Department With Ancillary Marketing Functions Separate Marketing Department Modern Marketing Department / Effective Marketing Company Process-And Outcome-Based Company

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Marketing Organization

Organizing the Marketing Department Functional Organization Field sales Customer service Product management Geographic Organization Area market specialist

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Marketing Organization
Product- or Brand-Management Organization Product and brand managers have these tasks:

Preparing an annual marketing plan and sales forecast Stimulating support of the product among the sales force and distributors Develop a long-range and competitive strategy for the product

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Marketing Organization
Marketing Relations with Other Departments R&D Engineering Purchasing Manufacturing and Operations Finance Accounting and Credit

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Marketing Organization
Building a Companywide Marketing OrientationTransforming into a true market-

driven firm requires: Developing a companywide passion for customers Organizing around customer segments instead of around products Developing a deep understanding of customers through qualitative and quantitative research

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Marketing Organization
What steps can a CEO take to create a market and customer focused company?

1. Convince senior management of the need 2. Appoint a senior marketing officer and a marketing task force 3. Get outside help and guidance 4. Change the companys reward measurement and system 5. Hire strong marketing talent

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Develop strong in-house marketing training programs Install a modern marketing planning system Establish an annual marketing excellence recognition program Shift from a department focus to a process-outcome focus

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Evaluation and Control

Market-Share Analysis Overall market share Served market share Relative market share Marketing Expense-to-Sales Analysis

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Evaluation and Control

Market-Based Scorecard Analysis Customer-performance scorecard Stakeholder-performance scorecard Profitability Control

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Evaluation and Control Efficiency control Marketing Controller Sales-Force Efficiency Advertising Efficiency Sales-Promotion Efficiency Distribution Efficiency

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Evaluation and Control Strategic control The Marketing Effectiveness Review The Marketing Audit

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Evaluation and Control

The Marketing Excellence Review

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Evaluation and Control

The Ethical and Social Responsibility Review