CHAPTER 2

E-commerce Fundamentals

Figure 2.1

The environment in which e-business services are provided

B2B and B2C interactions between an organization, its suppliers and its customers
Figure 2.2

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B2B and B2C characteristics

Characteristic Proportion of adopters with access B2C Low to medium B2B High to very high

Complexity of buying decisions

Channel

Relatively simple individual and influencers

Relatively simple direct or from retailer Low value, high volume or high value, low volume. May be high involvement Often standardized items

More complex buying process involves users, specifiers, buyers, etc.

More complex, direct or via wholesaler, agent or distributor Similar volume/value. May be high Involvement. Repeat orders (rebuys) more common Standardized items or bespoke for sale

Purchasing characteristics

Product characteristic

Dave Chaffey, E-Business and E-Commerce Management, 3rd Edition Marketing Insights Ltd 2007

Slide 2.5

Marketplace channel structure

Channel structure describe the way a manufacturer or selling organization delivers products and services to its customers The distribution channel will consist of one or more intermediaries such as wholesalers and retailers Eg. Music company distributes CDs to retailer or wholesaler Internet offers a means of bypassing some of the channel partners this process is known as disintermediation or cutting out the middleman
Dave Chaffey, E-Business and E-Commerce Management, 3rd Edition Marketing Insights Ltd 2007

Disintermediation of a consumer distribution channel showing (a) the original situation, (b) disintermediation omitting the wholesaler, and (c) disintermediation omitting both wholesaler and retailer
Figure 2.3

Figure 2.4

From original situation (a) to disintermediation (b) and reintermediation (c)

Slide 2.8

Reintermediation: purchase of product still needed assistance in the selection of product and this led to creation of new intermediaries Simplify purchase and sale of goods. Countermediation: marketers create their own online intermediaries

Dave Chaffey, E-Business and E-Commerce Management, 3rd Edition Marketing Insights Ltd 2007

Slide 2.9

Different types of online intermediary

directories: yahoo, excite Search engines: altavista,infoseek Online shopping Malls Virtual resellers (own inventory and sell direct): Amazon Financial intermediaries (offering digital cash and cheque payment services): Digicash, paypal Forums, fan clubs and user groups reffered as virtual communities Evaluators: sites that perform review or

Dave Chaffey, E-Business and E-Commerce Management, 3rd Edition Marketing Insights Ltd 2007

Slide 2.10

Different types of online intermediary(cont.)

Directories are now less important and merge with search engines since search is the most preferred form of access. No consumer benefit in visiting a shopping mall retailer. You could go direct to the retailers web site Sites in the evaluator category enable a choice of many suppliers across many categories based on price.
Dave Chaffey, E-Business and E-Commerce Management, 3rd Edition Marketing Insights Ltd 2007

Yahoo! Shopping Australia, a price comparison site based on the Kelkoo.com shopping comparison technology (http://shopping.yahoo.com.au)
Figure 2.6

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Weblogs or Blogs

Regularly publish web pages such as online journals, diaries or news or events listings Frequency can be hourly, daily, weekly or less frequently, but daily updates are typical E.g. www.davechaffey.com News items and articles structured according to the chapters of the book

Dave Chaffey, E-Business and E-Commerce Management, 3rd Edition Marketing Insights Ltd 2007

Figure 2.5

Dave Chaffeys blog site (www.davechaffey.com)

Example channel chain map for consumers selecting an estate agent to sell their property
Figure 2.7

Slide 2.15

Meta services Search engines Portal Directories A gateway to information resources and services News aggregators

MR aggregators
Comparers

Exchanges
Dave Chaffey, E-Business and E-Commerce Management, 3rd Edition Marketing Insights Ltd 2007

Slide 2.16

Type of portal Access portal

Types of portal
Characteristics Associated with ISP Range of services: search engines, directories, news recruitment, personal information management, shopping, etc. A vertical portal covers a particular market such as construction with news and other services.

Example Wanadoo (www.wanadoo.com) and now (www.orange.co.uk) AOL (www.aol.com) Yahoo! (www.yahoo.com) MSN (www.msn.com) Google (www.google.com) for which a long period just focused on search. Construction Plus (www.constructionplus.co.uk) Chem Industry (www.chemindustry.com) Barbour Index for B2B resources (www.barbour-index.com) E-consultancy (www.e-consultancy.com) Focuses on e-business resources BBC (www.bbc.co.uk) Guardian (www.guardian.co.uk) ITWeek (www.itweek.co.uk) Google country versions Yahoo! country and city versions Craigslist (www.craigslist.com) Countyweb (www.countyweb.com) EC21 (www.ec21.com) eBay (www.eBay.com) Google (www.google.com) Ask Jeeves (www.ask.com)

Horizontal or functional portal

Vertical

Media portal

Main focus is on consumer or business news or entertainment.

Geographical (Region, country, local)

May be: horizontal vertical

Marketplace

May be: Horizontal Vertical Geographical Main focus is on Search

Search portal

Media type

May be: Voice Video Delivered by streaming media or downloads of files

BBC (www.bbc.co.uk) Silicon (www.silicon.com)

Dave Chaffey, E-Business and E-Commerce Management, 3rd Edition Marketing Insights Ltd 2007

Slide 2.17

Auctions

A buying model where traders make offers and bids to sell or buy under certain condition. Offer: Commitment for a trader to sell a product under certain conditions such as minimum price Bid: Made by trader to buy a product under certain condition such as commitment to purchase at a particular price

Dave Chaffey, E-Business and E-Commerce Management, 3rd Edition Marketing Insights Ltd 2007

Slide 2.18

Auctions

Forward, upward or English auction(initiated by seller): Seller sets rule and timing, and then invites potential bidders. Increasing bids are placed within certain time limit and Highest bid will succeed Common on B2C marketplaces Reverse, downward or Dutch auction(initiated by buyer): Buyer sets rule and timing Buyer places a request for tender or quotation and many suppliers compete, decreasing the price. Common on B2B marketplaces
Dave Chaffey, E-Business and E-Commerce Management, 3rd Edition Marketing Insights Ltd 2007

Slide 2.19

Roles for auction

Price discovery: antiques do not have standardize prices, but auction can help establish a realistic market price through bidding Efficient allocation mechanism: sale of item that are difficult to distributes through traditional channel falls into this category. E.g. damaged inventory, limited shelf life product, available at a particular time such as flight or theatre tickets www.lastminute.com

Distribution mechanism: as a means of attracting particular audiences

Coordination mechanism: coordinate a sell of product to a number of interested parties
Dave Chaffey, E-Business and E-Commerce Management, 3rd Edition Marketing Insights Ltd 2007

Slide 2.20

Different places for Online representation

Place of purchase
A. Seller-controlled B. Seller-oriented

Examples of sites
Vendor sites, i.e. home site of organization selling products, e.g. www.dell.com. Intermediaries controlled by third parties to the seller such as distributors and agents, e.g. Opodo (www.opodo.com) represents the main air carriers Intermediaries not controlled by buyers industry, e.g. EC21 (www.ec21.com). Product-specific search engines, e.g. CNET (www.computer.com) Comparison sites, e.g. Barclay Square/Shopsmart (www.barclaysquare.com) Auction space, e.g. eBay (www.ebay.com) Intermediaries controlled by buyers, e.g. Covisint used to represent the major motor manufacturers (www.covisint.com) although they now dont use a single marketplace, but each manufacturer uses technology to access its suppliers direct. Purchasing agents and aggregators Web site procurement posting on companys own site, e.g. GE Trading Process Network (www.tpn.geis.com
Dave Chaffey, E-Business and E-Commerce Management, 3rd Edition Marketing Insights Ltd 2007

C. Neutral

D. Buyer-oriented

E. Buyer-controlled

Figure 2.8

Variations in the location and scale of trading on e-commerce sites

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Trading mechanisms
Commercial (trading) mechanism Online transaction mechanism of Nunes et al. (2000) 1. Negotiated deal Example: can use similar mechanism to auction as on Commerce One (www.commerceone.net) Negotiation bargaining between single seller and buyer. Continuous replenishment ongoing fulfilment of orders under pre-set terms

2. Brokered deal Example: intermediaries such as screentrade (www.screentrade.co.uk) 3. Auction Example: C2C: E-bay (www.ebay.com) B2B: Industry to Industry (http://business.ebay.co.uk/)

Achieved through online intermediaries offering auction and pure markets online

Seller auction buyers bids determine final price of sellers offerings. Buyer auction buyers request prices from multiple sellers. Reverse buyers post desired price for seller acceptance

4. Fixed-price sale Example: all e-tailers

Static call online catalogue with fixed prices. Dynamic call online catalogue with continuously updated prices and features

5. Pure markets Example: electronic share dealing 6. Barter Example: www.intagio.com and www.bartercard.co.uk

Spot buyers and sellers bids clear instantly

Barter buyers and sellers exchange goods. According to the International Reciprocal Trade Association (www.irta.com ) barter trade was over $9 billion in 2002.

Dave Chaffey, E-Business and E-Commerce Management, 3rd Edition Marketing Insights Ltd 2007

Slide 2.23

Business model
Timmers (1999) defines a business model as: An architecture for product, service and information flows, including a description of the various business actors and their roles; and a description of the potential benefits for the various business actors; and a description of the sources of revenue.

Dave Chaffey, E-Business and E-Commerce Management, 3rd Edition Marketing Insights Ltd 2007

Slide 2.24

Business models

The method by which a company generates revenue to sustain itself in the market
Eg.

In B2B one can sell from catalog or in auctions. E-shop, e-procurement e-malls e-auctions virtual communities
Dave Chaffey, E-Business and E-Commerce Management, 3rd Edition Marketing Insights Ltd 2007

11 different types of business model:

Slide 2.25

Business models

collaboration platform third-party marketplaces value-chain integrators value-chain provider information brokerage trust and other services

Dave Chaffey, E-Business and E-Commerce Management, 3rd Edition Marketing Insights Ltd 2007

Figure 2.10

Alternative perspectives on business models

Slide 2.27

Revenue models

Describe methods of generating income for an organization E.g. Publisher revenue model Main types of revenue model for publisher include the following..

Dave Chaffey, E-Business and E-Commerce Management, 3rd Edition Marketing Insights Ltd 2007

Slide 2.28

Revenue models publisher example

1. Subscription access to content: a range of documents can be accessed for a period of a month or typically a year. E.g. I subscribe to www.ft.com foe access to the digital technology section for around $80 per year 2. Pay-per-view access: payment occurs for single access to a document, video or music clip which can be downloaded 3. CPM on site display advertising (e.g. banner ads): cost per thousand (mille). The site owner charges advertisers a rate card price($50 CPM)according to the number of times its ads shown to site visiters

Dave Chaffey, E-Business and E-Commerce Management, 3rd Edition Marketing Insights Ltd 2007

Slide 2.29

Revenue models publisher example

4. CPC advertising on site(pay-per-click text ads): cost per click. Advertiser are charged according to number of times they are viewed. Cost per click can be high($0.10 to $4).

5. Sponsorship of site sections or content types (typically fixed fee for a period): bank HSBC sponsor money section on the www.wanadoo.com
Dave Chaffey, E-Business and E-Commerce Management, 3rd Edition Marketing Insights Ltd 2007

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Revenue models publisher example

6. Affiliate revenue (CPA or CPC): cost per acquisition Affiliate revenue is a commission based. E.g. Dave chaffey display amazon books on his website www.davechaffey.com and receive around 5% of the cover price as a fee from amazon

7. Subscriber data access for e-mail marketing: can send different forms of e-mail to customers and can charge for it.
Dave Chaffey, E-Business and E-Commerce Management, 3rd Edition Marketing Insights Ltd 2007