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Chapter 2
E-Commerce
Market
Mechanisms
How Raffles Hotel is
Conducting E-Commerce

The Problem


The company’s success depends on the its ability to lure
customers to its hotels and facilities and on its ability to
contain costs
Solution

Business-to-consumer—maintains a public portal
(raffles.com) that includes:
 Information on the hotels
 Reservation system
 Links to travelers’ resources
 Customer relationship management (CRM) program
 Online store for Raffles products
Raffles Hotel (cont.)



Business-to-business—maintains an
interorganizational systems that
enable efficient contacts with its
suppliers
The e-marketplace also has a sellside, allowing other hotels to buy
Raffles-branded products from
electronic catalogs (bathrobes)
Competitors buy Raffles-branded
products because they are
inexpensive, but look upscale
Raffles Hotel (cont.)

The Results


Public portal helps in customer
acquisition
Hotel is able to maintain high
occupancy rates using:
Promotions
 Direct sales

Electronic Marketplaces

Markets facilitate
exchange of




Information
Goods
Services
Payments

Markets create
economic value for




Buyers
Sellers
Market
intermediaries
Society at large
Electronic Marketplaces (cont.)

3 main functions of markets



Matching buyers and sellers
Facilitating the exchange of
information, goods, services, and
payments associated with market
transactions
Providing an institutional
infrastructure
NTE Evens the Load

National Transportation Exchange (nte.com) is
attempting to keep trucks on the road full on
both outbound and return trips—uses the
Internet to connect shippers with fleet managers
who have space to fill





Creates spot market
Gets information from shippers about their needs and
flexibility in dates
Works out the best deals for the shippers and the haulers
Issues the contract and handles payments
The process takes only a few minutes
NTE Evens the Load (cont.)




NTE collects a commission based on the
value of each deal
Fleet manager gets extra revenue that
they would otherwise have missed out on
The shipper gets a bargain price, at the
cost of some loss of flexibility
NTE reaches down to the level of
individual truck drivers and provides a
much wider range of services (wireless
Internet access)
Marketspace Components

Marketspace—a marketplace in which
sellers and buyers exchange goods and
services for money (or for other goods
and services), but do so electronically





Customers
Sellers
Goods (physical or digital)
Infrastructure
Front-end
Back-end
Intermediaries/business partners
Support services
Marketspace Components (cont.)

Customers


Web surfers looking
for
 Bargains
 customized items
 Collectors’ items
 entertainment
etc.
Organizations
account for over 85
percent of EC
activities

Sellers



Hundreds of
thousands of
storefronts are on
the Web
Advertising and
offering millions of
Web sites
Sellers can sell
 Direct from their
Web site
 E-marketplaces
Marketspace Components (cont.)

Products


Physical products
Digital products—
goods that can be
transformed to
digital format and
delivered over the
Internet

Infrastructure



Hardware
Software
Networks
Marketspace Components (cont.)

Front-end business Back-end activities are
processes include
related to





Seller’s portal
Electronic catalogs
shopping cart
Search engine
Payment gateway



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Order aggregation and
fulfillment
Inventory management
Purchasing from
suppliers
Payment processing
Packaging and delivery
Marketspace Components (cont.)



Intermediary—a third party that
operates between sellers and buyers
Other business partners—
collaborate on the Internet, mostly
along the supply chain
Support services such as


Certification and trust services
Knowledge providers
Types of Electronic Markets


Electronic storefronts—a single company’s
Web site where products and services are sold
Mechanisms for conducting sales





Electronic catalogs
Search engine
Customer services
E-auction facilities
Payment gateway
Shipment court
Electronic cart
Electronic malls (e-malls)—an online shopping
center where many stores are located
Types of Electronic Markets (cont.)
Types of stores and malls



General stores/malls—
large marketspaces that
sell all types of products
Public portals
Specialized
stores/malls—sell only
one or a few types of
products


Regional vs. global
stores
Pure online
organizations vs.
click-and-mortar
stores
E-marketplaces—online market, usually B2B, in which
buyers and sellers negotiate; the three types of e-marketplaces
are private , public , consortia
E-Marketplaces

Private e-marketplaces—online markets
owned by a single company:



Sell-side—company sells either
standard or customized products to
qualified companies
Buy-side marketplaces—company
makes purchases from invited
suppliers
Public e-marketplaces—B2B markets, usually
owned and/or managed by an independent
third party, that include many sellers and many
buyers (exchanges)
Consortia & Information Portals

Consortia—e-marketplaces that deal with
suppliers and buyers in a single industry



Vertical consortia are confined to one industry
Horizontal allow different industries trade there
Information portal—a personalized, single
point of access through a Web browser to
business information inside (and marginally
from outside) an organization



Publishing portals
Commercial portals
Personal portals
Mobile portals
Corporate portals
Supply Chains

Supply chain—the flow of materials,
information, money, and services
from raw material suppliers through
factories and warehouses to the end
customers
Includes organizations and
processes that create and deliver
the following to the end customers:
Products
 Information
 Services

Supply Chains (cont.)


A supply chain involves activities
that take place during the entire
product life cycle
It also includes:


Movement of information and
money and procedures that
support the movement of a product
or a service
The organizations and individuals
involved
Exhibit 2.3
A Simple Supply Chain
Supply Chain Components



Upstream supply chain—includes the activities
of suppliers (manufacturers and/or
assemblers) and their suppliers
Internal supply chain—includes all in-house
processes used in transforming the inputs
received from the suppliers into the
organization’s outputs
Downstream supply chain—includes all the
activities involved in delivering the product to
the final customers
Types of Supply Chains


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Integrated make-to-stock
Continuous replenishment
Build-to-order—model in which a
manufacturer begins assembly of the
customer’s order almost immediately upon
receipt of the order
Channel assembly—model in which product
is assembled as it moves through the
distribution channel
Exhibit 2.4
Supply Chains: Integrated & Build-to-Order
Value Chain & Value System


Value chain—the series of activities a
company performs to achieve its goal(s) at
various stages of the production process;
each activity adds value to the company’s
product or service, contributes to profit, and
enhances competitive position in the market
Value system—a set of value chains in an
entire industry, including the value chains of
tiers of suppliers, distribution channels, and
customers
Supply Chain & Value Chain

Value chain and the supply chain
concepts are interrelated


Value chain shows the activities
performed by an organization and
the values added by each
The supply chain shows flows of
materials, money, and information
that support the execution of these
activities
Supply Chain & Value Chain (cont.)

EC increases the value added by:



Introducing new business models
Automating business processes
EC smoothes the supply chain by:
Reducing problems in the flows of
material, money, and information

EC facilitates the restructuring of
business activities and supply
chains
Intermediation in E-Commerce


Intermediaries provide value-added activities and
services to buyers and sellers: wholesalers, retailers,
infomediaries
Roles of intermediaries

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Search costs—databases on customer preferences
Lack of privacy—anonymity of sellers and buyers
Incomplete information—gather product information
Contract risk—protect sellers against non-payment
Pricing inefficiencies—induce appropriate trades
E-Distributors on B2B


E-distributor—an e-commerce intermediary
that connects manufacturers (suppliers)
with buyers by aggregating the catalogs of
many suppliers in one place—the
intermediary’s Web site
E-distributors also provide support services



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Payments
Deliveries
Escrow services
Aggregate buyers’ and or sellers’ orders
Disintermediation &
Reintermediation


Disintermediation—elimination of
intermediaries between sellers and
buyers
Reintermediation—establishment of
new intermediary roles for
traditional intermediaries that were
disintermediated
Syndication as an EC Mechanism

Syndication—the sale of the same good
(e.g., digital content) to many customers,
who then integrate it with other offerings and
resell it or give it away free
Competition in
the Internet Ecosystem

Competition in the Internet ecosystem
(business model of the online
economy)




Inclusive with low barriers to entry
Self-organizing
Old rules may no longer apply
Competition is tense

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Lower buyers’ search cost
Speedy comparisons
Differentiation and personalization
Competition in
the Internet Ecosystem (cont.)



Differentiation—providing a product or
service that is unique
Personalization—the ability to tailor a
product, service, or Web content to
specific user preferences
Lower prices
Competition in
the Internet Ecosystem (cont.)


Customer service is an extremely
important competitive factor
Some competitive factors are less
important as a result of EC:


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Size of company is no longer significant
Geographical location is insignificant
Language barriers are being removed
Digital products do not have normal wear
and tear
Competition in
the Internet Ecosystem (cont.)

EC supports efficient markets and could result
in almost perfect competition with these
characteristics:




Many buyers and sellers must be able to enter the
market at no entry cost
Large buyers or sellers are not able to individually
influence the market
The products must be homogeneous
Buyers and sellers must have comprehensive
information about the products and about the
market participants’ demands, supplies, and
conditions
Porter’s Competitive Analysis



Porter’s competitive forces model applied
to an industry views 5 major forces of
competition that determine the industry’s
structural attractiveness
These forces, in combination, determine
how the economic value created in an
industry is divided among the players in
the industry
Such an industry analysis helps companies
develop their competitive strategy
Exhibit 2.6:
Porter’s Competitive Forces Model
Liquidity

Liquidity—the need for a critical
mass of buyers and sellers



The fixed cost of deploying EC can
be very high
Without a large number of buyers,
sellers will not make money
Early liquidity—achieving a critical
mass of buyers and sellers as fast as
possible, before the market-maker’s
cash disappears
Quality Uncertainty & Assurance

Quality uncertainty—the uncertainty of
online buyers about the quality of products
that they have never seen, especially from an
unknown vendor


Provide free samples
Return if not satisfied
Microproduct—a small digital product costing a
few cents

Insurance, escrow, and other services
E-Market Success Factors
Contributors to e-market success

Product
characteristics

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
Type
Price
Availability of
standards and product
information
Industry
characteristics


Brokers currently
necessary
Intelligent systems
may replace brokers

Seller characteristics



Consumers find sellers
with the lowest prices
Low-volume, higherprofit-margin
transactions
Consumer
characteristics

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
Impulse buyers
Patient buyers
Analytical buyers
Electronic Catalogs

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Electronic catalogs—the presentation of
product information in an electronic form;
the backbone of most e-selling sites
Evolution of electronic catalogs

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Merchants—advertise and promote
Customers—source of information and price
comparisons
Consist of product database, directory and search
capability and presentation function
Replication of text that appears in paper catalogs
More dynamic, customized, and integrated
Electronic catalog:

The presentation
of product
information in
an electronic
form; the
backbone of
most e-selling
sites.
Electronic catalog can be classified to 3
dimensions:
1.
2.
3.
The dynamics of the
information
presentation.
The degree of
customization.
Integration with
business processes.
Customized catalog:


1.
2.
Is a catalog assembled
specifically for a
company, usually a
customer of the catalog
owner.
2 approaches:
1st approach is to let
customers identify the
interesting parts.
2nd approach is to let
system identify it
automatically.
Search engine:


A computer program that
can access a database of
internet resources,
search for specific
information or keywords,
and report the results.
Software (intelligent)
agent: software that can
perform routine tasks
that require intelligence.
E-shopping cart

An order-processing technology that
allows customers to accumulate items
they wish to buy while they continue to
shop.
Electronic auction:


Electronic auction:
auctions conducted
online.
Dynamic Pricing:
prices that change
based on supply and
demand relationship
at any given time.
Types of auctions:





Forward auction. (Most
common)
English auction.
Yankee auction.
Dutch auction.
Free-fall auction.
(Declining auction)
Benefits of auction:



Seller → ex. optimal price
setting, more buyers than
regular auction.
Buyers → ex. Convenience,
buyers conduct trade from
anywhere even with a cell
phone.
E-auctioner (e-Bay) → ex.
Research has proven that
auction sites such as eBay
tend to have higher repeat
purchase rates than ordinary
e-commerce sites.
Limitation of E-commerce:




Possibility of fraud.
Limited
participation.
Lack of security.
Limited software.
Bartering and negotiating online



Bartering: An exchange of
goods and services.
E-bartering: Bartering
conducted online, usually by
a bartering exchange.
Bartering exchange: A
marketplace in which an
intermediary arranges barter
transactions.
Advantages of e- bartering


The commission by
the third party is
much lower. (5%10%)
It may take short
time to arrange a
transactions in ebartering.
Online negotiating

Online negotiating:
electronic negotiation,
usually supported by
software (intelligent)
agents that perform
searches and
comparisons; improves
bundling and
customization of products
and services.
3 factors may facilitate online
negotiation:
1.
2.
3.
Products and service
that are bundled and
customized.
Computer technology.
Software.
Mobile computing

This is fully portable and
permits real time access to
information, application
and tools that, until
recently, were accessible
only from a desktop
computer.
What is m-commerce (mobile
commerce)?

It is E-commerce
conducted via wireless
devices. it is also
called some times mbusiness which is the
broadest definition of
m-commerce in which
e-business is
conducted in a
wireless environment.
Example of m-commerce


DoCoMo is the
world’s largest
mobile portal,
which is most used
by customers in
Japan.
It offers many
services via its Imode services.
Some applications of I-mode:


Shopping guide:
addresses and
telephone numbers of
the favorite shops.
Users can purchase
online.
Maps and
transportation:
digital maps show
detailed guides of
local routes and stops
of the major public
transportation system.
Some applications of I-mode:



Ticketing: airline
and movie tickets
can be purchased
online.
News and reports:
fast access to global
news, traffic
conditions and
weather reports.
Personalized movie
service: updates on
the latest movies.
Some applications of I-mode:



Entertainment: up-to-date
personalized entertainment
such as, playing favorite
games, online chatting,
sending and receiving photos.
Dining and reservations: the
exact location of a selected
restaurant Reservations and
discount coupons are available
online.
Additional services: such as
banking, stock trading,
telephone directory.
Impacts of e-markets on business
process and organizations

1.
2.
3.
Bloch’s et al.model
divided to:
Improving direct
marketing.
Transforming
organizations.
Redefining
organizations.
Improving direct marketing.

1.
2.
3.
4.
5.
Bloch et al.
suggested the
following impacts of
e-markets on B2C
direct marketing:
Product promotion.
New sales channel.
Direct saving.
Reduced cycle time.
Customer service.
Impacts of e-markets on B2C direct
marketing:
6.
7.
8.
9.
10.
Brand or
corporate image.
Customization.
Advertising.
Ordering system.
Market
operations.
Transforming organizations.

1.
2.
2 organizational
transformations:
Technology and
organizational learning.
The changing nature of
work.
Redefining organizations.

1.
2.
3.
4.
Ways in which e-markets will
redefine organizations:
New and improved product
capabilities.
New business models.
Improving the supply chain.
Impacts on manufacturing.
Virtual manufacturing:

5.
6.
Running global
manufacturing plants as
though they were one
location, by a single
company electronically
controlling the entire
manufacturing process.
Impacts on finance and
accounting.
Impacts on human
resources management and
training.