Download digital content revenue model

Electronic Commerce
Ninth Edition
Chapter 3
Selling on the Web: Revenue Models
and Building a Web Presence
Revenue Models
• Web business revenue-generating models
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Web catalog
Digital content
Advertising-supported
Advertising-subscription mixed
Fee-based
• Can work for both sale types
– Business-to-consumer (B2C)
– Business-to-business (B2B)
• Can use same revenue model for both types of sales
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Web Catalog Revenue Models
• Adapted from mail-order (catalog) model
– Seller establishes brand image
– Printed information mailed to prospective buyers
• Orders placed by mail or toll-free telephone number
• Expands traditional model
– Replaces or supplements print catalogs
– Offers flexibility
• Orders placed through Web site or telephone
• Payments made though Web site, telephone, or mail
– Creates additional sales outlet for existing companies
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Web Catalog Revenue Models (cont’d.)
• Computers and consumer electronics
– Leading computer manufacturers
• Sell a full range of products on the Web
– Dell allows product configuration flexibility
• Creates value
– Crutchfield
• Expanded successful mail-order catalog operations to
include Web sites
– Best Buy, J&R Music World, Radio Shack
• Web sites sell same products as in stores
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Web Catalog Revenue Models (cont’d.)
• Computers and consumer electronics (cont’d.)
– Marketing channel
• Pathway to customers
– Advantage of having several marketing channels
• Reach more customers at less cost
– Can combine marketing channels
• Example: in-store online ordering
• Example: mail catalogs with reference to retailer’s Web
site
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Web Catalog Revenue Models (cont’d.)
• Books, music, and videos
– Most visible electronic commerce examples
– Amazon.com Web-only retailer originally sold books
• Evolved into general retailer
– Barnes & Noble, Blackwell’s, Books-A-Million,
Powell’s Books
• All adopted Web catalog revenue model
– CDnow Web-only online music store
• CD Universe copied CDnow approach
– Tower Records, Sam Goody retail stores
• Created Web sites to compete with CDnow
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Web Catalog Revenue Models (cont’d.)
• Luxury goods
– Difficult to sell online
• Customers want to see product in person or touch
– Vera Wang and Versace
• Web sites provide information
• Shopper purchases at physical store
• Heavy use of graphics and animation
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Web Catalog Revenue Models (cont’d.)
• Clothing retailers
– Many adapted catalog sales model to Web
– Display clothing photos categorized by type
• Prices, sizes, colors, tailoring details
– Want customers to examine clothing online
• Place orders through Web site
– Lands’ End online Web shopping assistance
• Lands’ End Live (1999)
• Online text chat and call-back feature
• Ability to push Web pages to customer’s browser
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Web Catalog Revenue Models (cont’d.)
• Clothing retailers (cont’d.)
– Lands’ End personal shopper agent (more recent)
• Learns preferences and makes suggestions
– My Virtual Model (customers try clothes)
• Graphic image built from customer measurements
– Another feature allows:
• Two shoppers using different computers to
simultaneously browse Web site together
• Only one of the shoppers can purchase items
• Either shopper can select items to view
• Selected items appear in both Web browsers
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Web Catalog Revenue Models (cont’d.)
• Clothing retailers (cont’d.)
– Online overstocks stores
• Reach more people than physical outlet stores
– Problem: varying computer monitor color settings
• Solution: send fabric swatch on request
• Solution: offer generous return policies
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Web Catalog Revenue Models (cont’d.)
• Flowers and gifts (gift retailers)
– 1-800-Flowers
• Online extension to successful telephone business
• Competes with online-only florists
– Godiva offers business gift plans
– Hickory Farms and Mrs. Fields Cookies
• Offer familiar name brands on the Web
– Harry and David
• Original Web site for informational purposes
• Promoted catalog business and added online ordering
feature
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Web Catalog Revenue Models (cont’d.)
• General discounters
– Buy.com and Overstock.com
• Borrowed Wal-Mart and discount club sales model
• Sell merchandise at extremely low prices
– Traditional discount retailers (Costco, Kmart, Target,
Wal-Mart)
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Slow to implement online sales on their Web sites
Had huge investments in physical stores
Did not understand online retailing world
Now use the Web catalog revenue model in their
successful online sales operations
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Digital Content Subscription Revenue
Models
• Firms owning written information or information
rights
– Embrace the Web as a highly efficient distribution
mechanism
– Use the digital content revenue model
• Sell subscriptions for access to information they own
• Legal content
– LexisNexis: offers variety of information services
– Lexis.com: offers original legal information product
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Digital Content Subscription Revenue
Models (cont’d.)
• Academic research content
– ProQuest: digital copies of academic publications
• Business content
– Dow Jones newspaper publisher subscriptions
• Sold digitized newspaper, magazine, and journal
content subscriptions
• Factiva: online content management and integration
service
• Technical content
– Association for Computer Machinery (ACM): digital
library
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Advertising-Supported Revenue
Models
• Used by United States broadcast network television
– Provides free programming and advertising
messages
• Supports network operations sufficiently
• Problem: measuring and charging site visitor views
– Stickiness
• Keeping visitors at site and attracting repeat visitors
• Exposed to more advertising in a sticky site
• Problem: obtaining large advertiser interest
– Requires demographic information collection
• Characteristics set used to group visitors
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Advertising-Supported Revenue
Models (cont’d.)
• Can obtain large advertiser interest by:
– Using a specialized information Web site
• Draw a specialized audience certain advertisers want to
reach
– Examples:
• The Huffington Post and the Drudge Report
• HowStuffWorks
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FIGURE 3-2 Three strategies for an advertising-supported revenue model
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Advertising-Supported Revenue
Models (cont’d.)
• Web portals (portal)
– Site used as a launching point to enter the Web
• Almost always includes a Web directory or search
engine
• Often includes other features
– Web directories
• Listing of hyperlinks to Web pages
– Yahoo!: one of the first
• Presents search term triggered advertising on each
page
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Advertising-Supported Revenue
Models (cont’d.)
• Web portals (cont’d.)
– Portal sites using general interest strategy
• AOL, Excite, Google, Bing
– Portal sites not using general interest strategy
• Help visitors find information within a specific
knowledge domain
• Advertisers pay more
• Example: C-NET
– Travel sites
• Successful as advertising-supported online businesses
• Example: Kayak
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Advertising-Supported Revenue
Models (cont’d.)
• Newspaper and magazine publishers
– Sell advertising to cover Web site costs
– Internet Public Library Online Newspapers page
• Provides links to worldwide newspaper sites
– Local shopping news, alternative press newspapers
• Easier transition to advertising-supported Web revenue
model
– Newspaper’s Web presence
• Provides greater exposure and advertising audience
• Diverts sales from the print edition (difficult to measure)
• Operating costs not covered by advertising revenue
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Advertising-Supported Revenue
Models (cont’d.)
• Targeted classified advertising sites
– Can command higher rates than general advertising
– Original version
• Newspaper classified advertising
– Growth of classified advertising Web sites
• Very bad for newspapers
• Example: craigslist
– Web employment advertising
• Most successful targeted classified advertising category
• Examples: CareerBuilder.com, The Ladders and
Guru.com, Monster.com
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Advertising-Supported Revenue
Models (cont’d.)
• Targeted classified advertising sites (cont’d.)
– Used vehicle sites
• AutoTrader.com, CycleTrader.com, BoatTrader.com
• Accept paid advertising to sell cars, motorcycles, boats
– Product sites with dedicated following (VetteFinders)
• Successful by catering to small audiences
– Potential classified advertising sites
• Any site selling products useful to buyer after initial use
• Musicians Buy-Line, ComicLink.com, The Golf
Classifieds
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Advertising-Subscription Mixed
Revenue Models
• Subscribers pay fee and accept advertising
– Typically less advertising compared to advertisingsupported sites
• Web sites offer different degrees of success
– The New York Times (today)
• Bulk of revenue derived from advertising
– The Wall Street Journal (mixed model)
• Subscription revenue weighted more heavily
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FIGURE 3-3 Revenue models used by online editions of newspapers and
magazines
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Advertising-Subscription Mixed
Revenue Models (cont’d.)
• ESPN
– Leverages brand name from cable television business
– Sells advertising, offers free information
– Mixed model includes advertising and subscription
revenue (collects Insider subscriber revenue)
• Consumers Union (ConsumerReports.org)
– Purely a subscription-supported site
– Not-for-profit organization with no advertising
– Free information
• Attracts subscribers and fulfills mission
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Fee-for-Transaction Revenue Models
• Service fee charged
– Based on transaction number or size
• Web site offers visitor transaction information
– Personal service formerly provided by a human agent
• Value chain
– Disintermediation
• Intermediary (human agent) removed
– Reintermediation
• New intermediary (fee-for-transaction Web site)
introduced
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Fee-for-Transaction Revenue Models
(cont’d.)
• Travel
– Travel agency revenue model: receive fee for
facilitating a transaction
• Travel agent adds information consolidation and
filtering value
– Computers also good at information consolidation and
filtering
• Travel agents have long used networked computers:
Sabre Travel Network
– Internet provided a new way to do business online
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Fee-for-Transaction Revenue Models
(cont’d.)
• Travel (cont’d.)
– Web-based travel agencies were new entrants
• Examples: Travelocity, Expedia, Hotels.com, Hotel
Discount Reservations, Orbitz
• Generate advertising revenue from ads placed on
travel information pages
– Traditional travel agents: squeezed out
• Surviving agencies charge a flat fee
– Smaller travel agents specialize (cruises, hotels)
• May use a reintermediation strategy
(WaveHunters.com)
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Fee-for-Transaction Revenue Models
(cont’d.)
• Automobile sales
– Web sites implement the fee-for-transaction revenue
model differently
– CarsDirect.com model
• Customers select specific car, site determines price
and finds local dealer
– Autoweb.com and Autobytel model
• Locate local dealers, car sells at small premium over
dealer’s nominal cost
– Car salesperson: disintermediated
– Web site: new intermediary (reintermediation)
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Fee-for-Transaction Revenue Models
(cont’d.)
• Stockbrokers
– Original full-line brokers charged relatively high
commissions
• Provided advice
– 1970s: deregulation resulted in discount brokers
• Web-based brokerage firms: E*TRADE and Datek
• Web allowed investment advice, fast trade execution
online
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Fee-for-Transaction Revenue Models
(cont’d.)
• Stockbrokers (cont’d.)
– 1990s: discount brokers faced competition from
online firms
• Discount brokers and full-line brokers opened new
stock trading and information Web sites
– Online brokers offer transaction cost reductions
– Traditional stockbrokers: disintermediated
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Fee-for-Transaction Revenue Models
(cont’d.)
• Insurance brokers
– Quotesmith offered Internet policy price quotes
directly to public (1996)
• Independent insurance agents: disintermediated
– Insurance policy information, comparisons, sales sites
• InsWeb, Answer Financial, Insurance.com
– Progressive Web site
• Provides quotes for competitors’ products too
– The General (General Automobile Insurance
Services) Web site
• Offers comfortable, anonymous experience
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Fee-for-Transaction Revenue Models
(cont’d.)
• Event tickets
– Web allows event promoters to sell tickets from one
virtual location to customers worldwide
– Online agencies earn a fee on every ticket sold
• Ticketmaster, Tickets.com, TicketWeb
– Web created secondary ticket market (StubHub,
TicketsNow)
• Brokers connecting ticket owners with buyers
• Earn fees on tickets resold for others, buy ticket blocks
– Web created easy-to-find central marketplace,
facilitating buyer-seller negotiations
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Fee-for-Transaction Revenue Models
(cont’d.)
• Real estate and mortgage loans
– Web sites provide all traditional broker services
• Coldwell Banker, Prudential
– National Association of Realtors Web site
• Realtor.com
– 2008 financial crisis
• Dramatically reduced number of mortgage brokers in
business
– Successful online mortgage brokers
• Ditech and E-LOAN
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Fee-for-Transaction Revenue Models
(cont’d.)
• Online banking and financial services
– No physical product
• Easy to offer on Web
– Web financial transactions concerns
• Trust and reliability of financial institution
– Solutions
• Use existing bank’s identification and reputation
• Start online bank not affiliated with existing bank (First
Internet Bank of Indiana)
• Use different name (Bank One used Wingspan)
– Approach was not successful
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Fee-for-Transaction Revenue Models
(cont’d.)
• Online banking and financial services (cont’d.)
– Additional barriers preventing a more rapid rate of
growth
• Lack of bill presentment features
• Lack of account aggregation tools
– By 2012:
• Industry analysts expect most banks (online and
traditional) will offer aggregation services
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Fee-for-Transaction Revenue Models
(cont’d.)
• Online music
– Recording industry: slow to embrace online
distribution
• Feared digital copying
– Large online music stores
• Revenue from fee-for-transaction model
• Some sites offer subscription plans
– Complicating issues
• Stores offer limited number of digital music files
• Stores promote their own music file format
• Artists and recording companies invoke limits
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Fee-for-Transaction Revenue Models
(cont’d.)
• Online music (cont’d.)
– Complicating issues (cont’d.)
• Buyers required to download and install Digital Rights
Management (DRM) software
• Varying restrictions confusing to consumers
– Online music market industry failed to embrace the
network effect gained by adopting one standard file
format
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Fee-for-Transaction Revenue Models
(cont’d.)
• Online music (cont’d.)
– Some stores sold audio in a generally compatible file
format with no copying restrictions
• Mondomix MP3 and Smithsonian Folkways
• Music not produced by major recording companies
– Solutions
• Adopt one standard file format, no copying restrictions,
DRM-free MP3 format (Amazon in 2007)
– By 2012: 80 percent of all music will be sold online
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Fee-for-Transaction Revenue Models
(cont’d.)
• Online video
– Issues hampering prior sales
• Large file size
• Fear of online sales impairing other sales types
• Inability to play on variety of devices
– Overcoming the issues
• New technologies improving delivery
• Companies incorporating online distribution into
revenue strategy
• Delivery allowed on multiple devices
– Through standard Web browser
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Fee-for-Transaction Revenue Models
(cont’d.)
• Electronic books
– Forms of digital audio books
• CDs (originally) and various types of digital files
• Audible sells subscriptions
– Allows monthly download of a certain number of
books
• Pricing is per book
• Amazon.com
– Offers books, newspapers, magazines, other digital
format items
• Delivered directly to its line of Kindle readers
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Fee-for-Service Revenue Models
• Companies offer Web service
– Fee based on service value
• Not a broker service
• Not based on transactions-processed number or size
• Online games
– Sales revenue source
• Advertising (older concept), pay-to-play for premium
games, subscription fees
– Average game player is 35 years old, playing
computer or video games for 12 years
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Fee-for-Service Revenue Models
(cont’d.)
• Professional services
– Limited Web use
• State laws prohibit extension of practice
• Patients may set appointments, receive online
consultation
– Major concern
• Patient privacy
– Law on the Web site
• Legal consultations to United Kingdom residents
– Martindale.com
• Online version of Martindale-Hubbell lawyer directory
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Fee-for-Service Revenue Models
(cont’d.)
• Professional services (cont’d.)
– CPA Directory
• United States accounting professionals site
– General health information
• RealAge, Dr. Andrew Weil’s Self Healing, WebMD
– Significant barrier
• Patient diagnosis difficult without physical examination
– Some physicians beginning to offer online
consultations
• For ongoing, established relationship patients
Free for Many, Fee for a Few
• Economics of manufacturing
– Different for physical and digital products
– Unit cost high percentage of physical products
– Unit cost very small for digital products
• Leads to a different revenue model
– Offer basic product to many for free
– Charge a fee to some for differentiated products
• Examples: Yahoo e-mail accounts, bakery: free cookies
Revenue Models in Transition
• Companies must change revenue model
– To meet needs of new and changing Web users
• Some companies created e-commerce Web sites
– Needed many years to grow large enough to become
profitable (CNN and ESPN)
• Some companies changed model or went out of
business
– Due to lengthy unprofitable growth phases
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Channel Conflict and Cannibalization
• Channel conflict (cannibalization)
– Company Web site sales activities interfere with
existing sales outlets
– Levis Web site and Maytag
• Web sites no longer sell products
• Sites now provide product, retail distributor information
– Eddie Bauer
• Online purchases returnable at retail stores
• Required compensation and bonus plans adjustments
to support Web site
• Channel Cooperation made it successful
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Strategic Alliances
• Strategic alliance
– Two or more companies join forces
• Undertake activity over long time period
• Yodlee account aggregation services provider
– Yodlee concentrates on developing the technology
and services
– Banks provide the customers
• Amazon.com
– Joined with Target, CDnow, ToysRUs
• ToysRUs and Amazon suing each other
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Creating an Effective Web Presence
• Organization’s presence
– Public image conveyed to stakeholders
– Usually not important
• Until growth reaches significant size
– Stakeholders
• Customers, suppliers, employees, stockholders,
neighbors, general public
• Effective Web presence
– Critical even for smallest and newest Web operating
firms
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Identifying Web Presence Goals
• Business physical space
– Focus: very specific objectives
• Not image driven
• Must satisfy many business needs
• Often fails to convey a good presence
• Web business site
– Intentionally creates distinctive presences
– Good Web site design provides:
• Effective image-creation features
• Effective image-enhancing features
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Identifying Web Presence Goals
(cont’d.)
• Web business site objectives:
– Attracting Web site visitors
– Keeping visitors to stay and explore
– Convincing visitors to follow site’s links to obtain
information
– Creating an impression consistent with the
organization’s desired image
– Building a trusting relationship with visitors
– Reinforcing positive images about the organization
– Encouraging visitors to return to the site
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Identifying Web Presence Goals
(cont’d.)
• Making Web presence consistent with brand image
– Different firms establish different Web presence goals
– Coca Cola Web site pages
• Usually include trusted corporate image (Coke bottle)
• Image: traditional position as a trusted classic
– Pepsi Web site pages
• Usually filled with hyperlinks to activities and productrelated promotions
• Image: upstart product favored by younger generation
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Identifying Web Presence Goals
(cont’d.)
• Matching site design to function
– Volkswagen of America site
• Accomplishes important functions for the company
• Provides links to detailed Volkswagen model
information, links to a dealer locator page, links to
information about the company, a link to a set of
shopping tools
– Volkswagen’s home page
• Meets the needs of most visitors quickly and effectively
– Volkswagen site enhances company image by
providing useful information to customers online
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Identifying Web Presence Goals
(cont’d.)
• Not-for-profit organizations
– Web presence effort key goals:
• Image enhancement and information dissemination
– Successful site key elements
• Integrate information dissemination with fund-raising
• Provide two-way contact channel
– American Civil Liberties Union (ACLU)
• Serves many different constituencies
– Web sites used to stay in touch with existing
stakeholders, identify new opportunities for serving
them
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Web Site Usability
• Current Web presences
– Few businesses accomplish all goals
– Most fail to provide visitors sufficient interactive
contact opportunities
– Improving Web presence
•
•
•
•
Make site accessible to more people
Make site easier to use
Make site encourage visitors’ trust
Make site develop feelings of loyalty toward the
organization
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How the Web Is Different
• Simple mid-1990s Web sites
– Conveyed basic business information
– No market research conducted
• Web objectives achievement
– Failed due to no understanding for Web presencebuilding media
• Web sites designed to create an organization’s
presence:
– Contain links to standard information set
– Success dependent on how this information offered
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Meeting the Needs of Web Site Visitors
• Successful Web businesses:
– Realize every visitor is a potential customer (partner)
• Web presence is an important concern
– Know visitor characteristic variations
• Understand that the visitor is at the site for a reason
• Varied motivations of Web site visitors
– Why visitors arrive at Web sites
• Learning about company products or services
• Buying products or services
• Obtaining warranty, service, repair policy information
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Meeting the Needs of Web Site Visitors
(cont’d.)
• Varied motivations of Web site visitors (cont’d.)
– Why visitors arrive at Web sites (cont’d.)
•
•
•
•
•
Obtaining general company information
Obtaining financial information
Identifying people
Obtaining contact information
Following a link into the site while searching for
information about a related product, service, or topic
– Challenge to meet all motivations
• Visitors arrive with different needs, experience, and
expectation levels
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Meeting the Needs of Web Site Visitors
(cont’d.)
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Meeting the Needs of Web Site Visitors
(cont’d.)
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一些现实例子
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有目标用户：50%
无目标用户：50%
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有目标用户：100%
无目标用户：0%
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Meeting the Needs of Web Site Visitors
(cont’d.)
• Making Web sites accessible
– Build interface flexibility options:
•
•
•
•
•
Frame use
Text-only version
Selection of smaller graphic images
Specification of streaming media connection type
Choice among information attributes
– Controversial Web site design issues
• Adobe Flash software use
– Some tasks lend themselves to animated Web pages
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Meeting the Needs of Web Site Visitors
(cont’d.)
• Making Web sites accessible (cont’d.)
– Offer multiple information formats
– Consider goals in Web site construction
FIGURE 3-8 Goals for business Web sites
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Trust and Loyalty
• Creates relationship value
• Good service leads to seller trust
– Delivery, order handling, help selecting product, aftersale support
• Satisfactory service builds customer loyalty
• Customer service in electronic commerce sites
– Problem
• Lack integration between call centers and Web sites
• Poor e-mail responsiveness
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Trust and Loyalty
• In alibaba website
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Rating Electronic Commerce Web Sites
• Companies routinely review electronic commerce
Web sites for:
– Usability, customer service, other factors
– Sell the gathered information directly to the
companies operating the Web sites
• Include suggestions for improvements
• BizRate.com posts ratings
– Provides comparison shopping service
– Compiles ratings by conducting surveys of sites’
customers
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Usability Testing
• Importance
– Helps meet Web site goals
– Avoids Web site frustration
• Customers leave site without buying anything
– Simple site usability changes
• Include telephone contact information
• Staff a call center
– Learn about visitor needs by conducting focus groups
– Usability testing cost
• Low compared to Web site design costs
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Customer-Centric Web Site Design
• Important part of successful electronic business
operation
• Focus on meeting all site visitors’ needs
• Customer-centric approach
– Putting customer at center of all site designs
• Follow guidelines and recommendations
• Make visitors’ Web experiences more efficient,
effective, memorable
• Webby Awards site
– Examples of good Web site design
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The Nature of Communication on the
Web
• Communication modes
– Personal contact (prospecting) model
• Employees individually search for, qualify, contact
potential customers
– Mass media
• Deliver messages by broadcasting
– Addressable media
• Advertising efforts directed to known addressee
• Internet medium
– Occupies central space in medium choice continuum
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FIGURE 3-9 Business communication modes
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