Introduction to Electronic

Commerce

Objectives
• In this chapter, you will learn about:
• What electronic commerce is and how it is poised for a
second wave of growth and profitability
• Why business models have given way to revenue models
and the analysis of business processes as key elements of
electronic commerce initiatives
Objectives
• How economic forces have created a business environment
that is fostering a rebirth of electronic commerce How
businesses use value chains to identify electronic commerce
opportunities
• How businesses use SWOT analysis to analyze and evaluate
business opportunities

Objectives Electronic Commerce

• Why electronic commerce is international by its very nature
and what challenges arise in doing global electronic
commerce
• Electronic commerce (e-commerce)
– Businesses trading with other businesses and
internal processes
• Electronic business (e-business)
– Term used interchangeably with e-commerce
– The transformation of key business processes
through the use of Internet technologies

Categories of Electronic Commerce Elements of Electronic Commerce

• Five general e-commerce categories

– Business-to-consumer
– Business-to-business
– Business processes
– Consumer-to-consumer
– Business-to-government
• Supply management or procurement
– Departments devoted to negotiating purchase
transactions with suppliers

Categories of Electronic Commerce (Continued) Electronic Commerce Categories

• Transaction
– An exchange of value
• Business processes
– The group of logical, related, and sequential
activities and transactions in which businesses
engage
• Telecommuting or telework
– Employee logs in to company computer through
Internet instead of traveling to office

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 The Development and Growth of Electronic The Development and Growth of Electronic
Commerce Commerce (Continued)
• Electronic funds transfers (EFTs) • Trading partners
• Also called wire transfers • Businesses that engage in EDI with each other
• Electronic transmissions of account exchange information • Value-added network (VAN)
over private communications networks • Independent firm
• Electronic data interchange (EDI) • Offers connection and transaction-forwarding services to
• Transmitting computer-readable data in a standard format buyers and sellers engaged in EDI
to another business

Actual and Estimated Online Sales in B2C and

The Second Wave of Electronic Commerce
B2B Categories
• Defining characteristics of first wave
– Dominant influence of U.S. businesses
– Extensive use of the English language
– Low bandwidth data transmission technologies
– Unstructured use of e-mail
– Overreliance on advertising as a revenue source

The Second Wave of Electronic Commerce Business Models, Revenue Models, and Business
(Continued) Processes
• As second wave begins • Business model
o Future of electronic commerce will be – A set of processes that combine to yield a profit
international in scope • Revenue model
o Language translation and handling currency – Used to
conversion problem will need to be solved • Identify customers
• Market to those customers
o E-mail will be used as an integral part of • Generate sales to those customers
marketing and customer contact strategies

Focus on Specific Business Processes Focus on Specific Business Processes (Continued)

• Merchandising • Shipping profile
– Combination of store design, layout, and product – Collection of attributes that affect how easily a
display knowledge
product can be packaged and delivered
• Commodity item
– Hard to distinguish from the same products or • High value-to-weight ratio
services provided by other sellers – Can make overall shipping cost a small fraction
– Features have become standardized and well
of the selling price
known

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 Advantages of Electronic Commerce
• Can increase sales and decrease costs
• If advertising done well on the Web
– Can get a firm’s promotional message out to
potential customers in every country
• Using e-commerce sales support and order-taking
processes, a business can
– Reduce costs of handling sales inquiries
– Provide price quotes
Advantages of Electronic Commerce
(Continued)
• Increases purchasing opportunities for buyer
• Negotiating price and delivery terms is easier
• The following cost less to issue and arrive securely and
quickly
• Electronic payments of tax refunds
• Public retirement
• Welfare support
Economic Forces and Electronic Commerce
• Economics
– Study of how people allocate scarce resources
• Two conditions of a market
– Potential sellers of a good come into contact with
potential buyers
– A medium of exchange is available
The Role of Electronic Commerce
• Businesses and individuals
– Can use electronic commerce to reduce
transaction costs by
• Improving flow of information
• Increasing coordination of actions
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Advantages of Electronic Commerce
(Continued)
• Increases purchasing opportunities for buyer
• Negotiating price and delivery terms is easier
• The following cost less to issue and arrive securely and
quickly
– Electronic payments of tax refunds
– Public retirement
– Welfare support
Disadvantages of Electronic Commerce
• Perishable grocery products are much harder to sell online
• Difficult to
– Calculate return-on-investment
– Integrate existing databases and transaction-
processing software into software that enables e-
commerce
• Cultural and legal obstacles also exist
Transaction Costs
• Total costs that a buyer and seller incur
• Significant components of transaction costs
– Cost of information search and acquisition
– Investment of seller in equipment or in the hiring
of skilled employees to supply product or service
to buyer
Network Economic Structures
• Network economic structure
– Companies coordinate their strategies, resources,
and skill sets
• Strategic alliances (strategic partnerships)
– Relationships created within the network
economic structure
 Network Economic Structures (Continued) Network Effects
• Virtual companies • Law of diminishing returns
– Strategic alliances that occur between or among – Most activities yield less value as the amount of
companies operating on the Internet consumption increases
• Network effect
• Strategic partners
– As more people or organizations participate in a
– Come together as a team for a specific project or network
activity • Value of network to each participant
increases

Value Chains in Electronic Commerce Strategic Business Unit Value Chains

• Strategic business unit • Value chain
– One particular combination of product, – A way of organizing the activities that each
distribution channel, and customer type strategic business unit undertakes
• Firm • Primary activities
– Multiple business units owned by a common set – Design, produce, promote, market, deliver, and
of shareholders support the products or services it sells
• Industry • Supporting activities
– Multiple firms that sell similar products to similar – Human resource management and purchasing
customers

Industry Value Chains

Value Chain for a Strategic Business Unit
• Value system

– Larger stream of activities into which a particular

business unit’s value chain is embedded
– Also referred to as industry value chain

SWOT Analysis: Evaluating Business Unit SWOT Analysis Questions

Opportunities
• SWOT analysis
– Analyst first looks into the business unit to
identify its strengths and weaknesses
– Analyst then reviews operating environment and
identifies opportunities and threats

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 Results of Dell’s SWOT Analysis
Culture Issues
• Important element of business trust
– Anticipate how the other party to a transaction
will act in specific circumstances
• Culture
– Combination of language and customs
– Varies across national boundaries
– Varies across regions within nations
Infrastructure Issues (Continued)
• Flat-rate access system
– Consumer or business pays one monthly fee for
unlimited telephone line usage
– Contributed to rapid rise of U.S. electronic
commerce
• Targets for technological solutions
– Paperwork and processes that accompany
international transactions
Summary
• Commerce
– Negotiated exchange of goods or services
• Electronic commerce
– Application of new technologies to conduct
business more effectively
• First wave of electronic commerce
– Ended in 2000
• Second wave of electronic commerce
– New approaches to integrating Internet
technologies into business processes
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Language Issues
• To do business effectively in other cultures
– Must adapt to culture
• Researchers have found that
– Customers are more likely to buy products and
services from Web sites in their own language
• Localization
– Translation that considers multiple elements of
local environment
Infrastructure Issues
• Internet infrastructure includes
– Computers and software connected to Internet
– Communications networks over which message
packets travel
• Organization for Economic Cooperation and Development’s
(OECD)
– Statements on Information and Communications
Policy
• Deal with telecommunications
infrastructure development issues
Parties Involved in a Typical International Trade
Transaction
Summary
• Using electronic commerce, businesses have
– Created new products and services
– Improved promotion, marketing, and delivery of
existing offerings
• Global nature of electronic commerce
– Leads to many opportunities and few challenges
• To conduct electronic commerce across international borders
– You must understand the trust, cultural, and
language legal issues
 Technology Infrastructure : The
Internet and the World Wide Web
Objectives
In this chapter, you will learn about:
• The origin, growth, and current structure of the Internet
• How packet-switched networks are combined to form the
Internet
• How Internet protocols and Internet addressing work
• The history and use of markup languages on the Web, including
SGML, HTML, and XML
The Internet and the World Wide Web
• Computer network
– Any technology that allows people to connect
computers to each other
• The Internet
– A large system of interconnected computer networks
spanning the globe
• World Wide Web
– A subset of computers on the Internet
Emergence of the World Wide Web (Continued)
• Tim Berners-Lee
– Developed code for hypertext server program
• Hypertext server
– Stores files written in hypertext markup language
– Lets other computers connect to it and read files
• Hypertext Markup Language (HTML)
– Includes set of codes (or tags) attached to text
Packet-Switched Networks (Continued)
• Circuit switching
– Centrally controlled, single-connection model
• Packets
– Files and e-mail messages on a packet-switched
network that are broken down into small pieces
– Travel from computer to computer along the
interconnected networks until they reach their
destinations
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Objectives
• How HTML tags and links work on the World Wide Web
• The differences among internets, intranets, and extranets
• Options for connecting to the Internet, including cost and
bandwidth factors
• About Internet2 and the Semantic Web
Emergence of the World Wide Web
• The Web
– Software that runs on computers connected to the
Internet
• Vannevar Bush
– Speculated that engineers would eventually build a
memory extension device (the Memex)
• In the 1960s
– Ted Nelson described a similar system called
hypertext
Packet-Switched Networks
• Local area network (LAN)
– Network of computers located close together
• Wide area networks (WANs)
– Networks of computers connected over greater
distances
• Circuit
– Combination of telephone lines and closed switches
that connect them to each other
Routing Packets
• Routing computers
– Computers that decide how best to forward packets
• Routing algorithms
– Rules contained in programs on router computers that
determine the best path on which to send packet
– Programs apply their routing algorithms to
information they have stored in routing tables
 Router-based Architecture of the Internet
TCP/IP
• TCP
– Controls disassembly of a message or a file into
packets before transmission over Internet
– Controls reassembly of packets into their original
formats when they reach their destinations
• IP
– Specifies addressing details for each packet
IP Addressing (Continued)
• Private IP addresses
– Series of IP numbers not permitted on packets that
travel on the Internet
• Network Address Translation (NAT) device
– Used in subnetting to convert private IP addresses
into normal IP addresses
• Internet Protocol version 6 (IPv6)
– Protocol that will replace IPv4
– Uses a 128-bit number for addresses
Top-level Domain Names
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Routing Packets
• Protocol
– Collection of rules for formatting, ordering, and error-
checking data sent across a network
• Rules contributing to success of Internet
– Independent networks should not require any internal
changes to be connected to the network
– Packets that do not arrive at their destinations must be
retransmitted from their source network
– Router computers act as receive-and-forward devices
– No global control exists over the network
IP Addressing
• Internet Protocol version 4 (IPv4)
– Uses a 32-bit number to identify computers connected
to the Internet
• Base 2 (binary) number system
– Used by computers to perform internal calculations
• Subnetting
– Use of reserved private IP addresses within LANs and
WANs to provide additional address space
Domain Names
• Sets of words assigned to specific IP addresses
• Top-level domain (or TLD)
– Rightmost part of a domain name
• Internet Corporation for Assigned Names and Numbers
(ICANN)
– Responsible for managing domain names and
coordinating them with IP address registrars
Web Page Request and Delivery Protocols
• Web client computers
– Run software called Web client software or Web
browser software
• Web server computer
– Runs software called Web server software
• Client/server architecture
– Combination of client computers running Web client
software and server computers running Web server
software
 Web Page Request and Delivery Protocols Electronic Mail Protocols
(Continued)
• Electronic mail (e-mail)
• Hypertext Transfer Protocol (HTTP) – Must also be formatted according to common set
– Set of rules for delivering Web page files over of rules
the Internet • E-mail server
• Uniform Resource Locator (URL) – Computer devoted to handling e-mail
– Combination of the protocol name and domain • E-mail client software
name – Used to read and send e-mail
– Allows user to locate a resource (the Web page) – Example: Microsoft Outlook, Netscape
on another computer (the Web server) Messenger

Electronic Mail Protocols (Continued)

• Simple Mail Transfer Protocol (SMTP) Markup Languages and the Web
– Specifies format of a mail message
• Text markup language
• Post Office Protocol (POP)
– Specifies set of tags that are inserted into text
– POP message can tell the e-mail server to
• Standard Generalized Markup Language (SGML)
• Send mail to user’s computer and delete it – Older and complex text markup language
from e-mail server
– A meta language
• Send mail to user’s computer and not delete • World Wide Web Consortium (W3C)
it
– Not-for-profit group that maintains standards for the
• Simply ask whether new mail has arrived
Web
– Provides support for Multipurpose Internet Mail
Extensions (MIME)

Hypertext Markup Language (HTML) Hypertext Markup Language (HTML) (Continued)

• Prevalent markup language used to create documents on the • Scripting languages and style sheets
– Most common scripting languages
Web today • JavaScript, JScript, Perl, and VBScript
• HTML tags – Cascading Style Sheets (CSS)
– Interpreted by Web browser and used by it to format • Sets of instructions that give Web developers more
the display of the text control over the format of displayed pages
• HTML Links • Style sheet
– Usually stored in a separate file
– Linear hyperlink structure – Referenced using the HTML style tag
– Hierarchical hyperlink structure

Extensible Markup Language (XML) Intranets and Extranets

• Uses paired start and stop tags • Intranet
• Includes data management capabilities that HTML cannot – Interconnected network that does not extend beyond
provide organization that created it
• Differences between XML and HTML • Extranet
– XML is not a markup language with defined tags – Intranet extended to include entities outside
– XML tags do not specify how text appears on a Web boundaries of organization
page – Connects companies with suppliers, business
partners, or other authorized users

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 Public and Private Networks
• Public network
– Any computer network or telecommunications
network available to the public
• Private network
– A private, leased-line connection between two
companies that physically connects their intranets
• Leased line
– A permanent telephone connection between two
points
Internet Connection Options
• Bandwidth
– Amount of data that can travel through a
communication line per unit of time
• Net bandwidth
– Actual speed that information travels
• Symmetric connections
– Provide same bandwidth in both directions
• Asymmetric connections
– Provide different bandwidths for each direction
Leased-Line Connections
• DS0 (digital signal zero)
– Telephone line designed to carry 1 digital signal
• T1 line (also called a DS1)
– Carries 24 DS0 lines and operates at 1.544 Mbps
• Fractional T1
– Provides service speeds of 128 Kbps and upward in
128-Kbps increments
• T3 service (also called DS3)
– Offers 44.736 Mbps
Wireless Ethernet (Wi-Fi or 802.11b)
• Most common wireless connection technology for use on LANs
• Wireless access point (WAP)
– Device that transmits network packets between Wi-
Fi-equipped computers and other devices
• Has potential bandwidth of 11 Mbps and range of about 300 feet
• Devices are capable of roaming
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Virtual Private Network (VPN)
• Extranet that uses public networks and their protocols
• IP tunneling
– Effectively creates a private passageway through the
public Internet
• Encapsulation
– Process used by VPN software
• VPN software
– Must be installed on the computers at both ends of the
transmission
Broadband Connections
• Operate at speeds of greater than 200 Kbps
• Asymmetric digital subscriber (ADSL)
– Transmission bandwidth is from 100 to 640 Kbps
upstream and from 1.5 to 9 Mbps downstream
• Cable modems
– Provide transmission speeds between 300 Kbps and 1
Mbps
• DSL
– Private line with no competing traffic
Wireless Connections
• Bluetooth
– Designed for personal use over short distances
– Low-bandwidth technology, with speeds of up to 722
Kbps
– Networks are called personal area networks (PANs)
or piconets
– Consumes very little power
– Devices can discover each other and exchange
information automatically
Wireless Ethernet (Wi-Fi or 802.11b)
(Continued)
• 802.11a protocol
– Capable of transmitting data at speeds up to 54 Mbps
• 802.11g protocol
– Has 54 Mbps speed of 802.11a
– Compatible with 802.11b devices
• 802.11n
– Expected to offer speeds up to 320 Mbps
 Cellular Telephone Networks Internet2 and the Semantic Web
• Third-generation (3G) cell phones • Internet2
– Combine latest technologies available today – Experimental test bed for new networking
• Short message service (SMS) technologies
– Protocol used to send and receive short text messages – Has achieved bandwidths of 10 Gbps and more on
• Mobile commerce (m-commerce) parts of its network
– Describes the kinds of resources people might want – Used by universities to conduct large collaborative
to access using wireless devices research projects

Internet2 and the Semantic Web (Continued) Summary

• Semantic Web
– Project by Tim Berners-Lee
– If successful
• Would result in words on Web pages being
tagged (using XML) with their meanings
• Resource description framework (RDF)
– Set of standards for XML syntax
• Ontology
– Set of standards that defines relationships among
RDF standards and specific XML tags
• TCP/IP
– Protocol suite used to create and transport
information packets across the Internet
• POP, SMTP, and IMAP
– Protocols that help manage e-mail
• Languages derived from SGML
– Hypertext Markup Language (HTML)
– Extensible Markup Language (XML)

Summary
• Intranets
– Private internal networks
• Extranet
– Used when companies want to collaborate with
suppliers, partners, or customers
• Internet2
– Experimental network built by a consortium of
research universities and businesses

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 Selling on the Web: Revenue Models
and Building a Web Presence

Objectives Objectives
In this chapter, you will learn about:

• Revenue models • Creating an effective business presence on the Web

• How some companies move from one revenue model to • Web site usability
another to achieve success
• Communicating effectively with customers on the Web
• Revenue strategy issues that companies face when selling
on the Web

Revenue Models Computers and Consumer Electronics

• Revenue model of selling goods and services on the Web
– Based on mail order catalog revenue model that
predates the Web
• Mail order or catalog model
– Proven to be successful for wide variety of consumer
items
• Web catalog revenue model
– Taking the catalog model to the Web
• Apple, Dell, Gateway, and Sun Microsystems
– Have had great success selling on the Web
• Dell
– Created value by designing entire business around
offering high degree of configuration flexibility to its
customers

Books, Music, and Videos Luxury Goods

• Retailers using the Web catalog model to sell books,
• People are still reluctant to buy through a Web site
music, and videos
– Among the most visible examples of electronic • Web sites of Vera Wang and Versace
commerce
• Jeff Bezos – Constructed to provide information to shoppers,
not to generate revenue
– Formed Amazon.com
• Jason and Matthew Olim • Web site of Evian
– Formed online music store they called CDnow
– Used the Web catalog revenue model – Designed for a select, affluent group of
customers

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 Clothing Retailers
• Lands’ End
– Pioneered idea of online Web shopping assistance
with its Lands’ End Live feature in 1999
• Personal shopper
– Intelligent agent program that learns customer’s
preferences and makes suggestions
• Virtual model
– Graphic image built from customer measurements
Digital Content Revenue Models
• Firms that own intellectual property
– Have embraced the Web as a new and highly efficient
distribution mechanism
• Lexis.com
– Provides full-text search of court cases, laws, patent
databases, and tax regulations
• ProQuest
– Sells digital copies of published documents
Web Portals
• Web directory
– A listing of hyperlinks to Web Pages
• Portal or Web portal
– Site used as a launching point to enter the Web
– Almost always includes a Web directory and search
engine
– Example: Yahoo, AOL, Altavista
Advertising-Subscription Mixed Revenue Models
(continued)
• Business Week
– Offers some free content at its Business Week online
site
– Requires visitors to buy subscription to Business
Week print magazine
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Flowers and Gifts
• 1-800-Flowers
– Created online extension to its telephone order
business
• Chocolatier Godiva
– Offers business gift plans on its site
Advertising-Supported Revenue Models
• Broadcasters provide free programming to an audience along
with advertising messages
• Success of Web advertising hampered by
– No consensus has emerged on how to measure and
charge for site visitor views
• Stickiness of a Web site: ability to keep
visitors and attract repeat visitors
– Very few Web sites have sufficient visitors to interest
large advertisers
Advertising-Subscription Mixed Revenue Models
• Subscribers
– Pay a fee and accept some level of advertising
– Typically subjected to much less advertising
• Used by
– The New York Times and The Wall Street Journal
Fee-for-Transaction Revenue Models
• Businesses offer services and charge a fee based on number or
size of transactions processed
• Disintermediation
– Removal of an intermediary from value chain
• Reintermediation
– Introduction of a new intermediary
 Fee-for-Service Revenue Models Fee-for-Service Revenue Models (Continued)

• Fee based on value of service provided • Concerts and films

– As more households obtain broadband access to the
• Services
Internet
– Range from games and entertainment to financial
• Companies are providing streaming video
advice of concerts and films to paying subscribers
• Online games • Professional Services
– Growing number of sites include premium games in – State laws
their offerings • One of the main forces preventing U.S.
– Site visitors must pay to play these premium games professionals from extending their
practices to the Web

Strategic Alliances and Channel Distribution Creating an Effective Web Presence

Management • An organization’s presence
• Strategic alliance – The public image it conveys to its stakeholders
– When two or more companies join forces to undertake
an activity over a long period of time • Stakeholders of a firm
• Account aggregation services
– Include its customers, suppliers, employees,
– Increase propensity of customers to return to the site
• Channel distribution managers stockholders, neighbors, and the general public
– Companies that take over responsibility for a
particular product line within a retail store

Achieving Web Presence Goals

Achieving Web Presence Goals (Continued)
• Objectives of the business
• Objectives of the business
– Attracting visitors to the Web site – Creating an impression consistent with the
organization’s desired image
– Making the site interesting enough that visitors stay
– Building a trusting relationship with visitors
and explore
– Reinforcing positive images that the visitor might
– Convincing visitors to follow the site’s links to obtain already have about the organization
information – Encouraging visitors to return to the site

Profit-Driven Organizations Not-for-Profit Organization

• Toyota site • Key goal for the Web sites
– A good example of an effective Web presence – Information dissemination
– Provides links to • Key element on any successful electronic commerce Web site
• Detailed information about each vehicle – Combination of information dissemination and a two-
model way contact channel
• A dealer locator page
• Information about the company and the
financing services it offers

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 Web Site Usability
• Motivations of Web site visitors
– Learning about products or services that the company
offers
– Buying products or services that the company offers
– Obtaining information about warranty, service, or
repair policies for products they purchased
– Obtaining general information about the company or
organization
Making Web Sites Accessible
• One of the best ways to accommodate a broad range of visitor
needs
– Build flexibility into the Web site’s interface
• Good site design
– Lets visitors choose among information attributes
• Web sites
– Can offer visitors multiple information formats by
including links to files in those formats
Trust and Loyalty
• Studies by business researchers
– A 5 percent increase in customer loyalty can yield
profit increases between 25% and 80%
• Repetition of satisfactory service
– Can build customer loyalty
• Customer service
– A problem for many electronic commerce sites
Customer-Centric Web Site Design
• Putting the customer at the center of all site designs
• Guidelines
– Design site around how visitors will navigate the
links
– Allow visitors to access information quickly
– Avoid using inflated marketing statements
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Web Site Usability (Continued)
• Motivations of Web site visitors
– Obtaining financial information for making an
investment or credit granting decision
– Identifying the people who manage the company or
organization
– Obtaining contact information for a person or
department in the organization
Making Web Sites Accessible (Continued)
• Goals that should be met when constructing Web sites
– Offer easily accessible facts about the organization
– Allow visitors to experience the site in different ways
and at different levels
– Sustain visitor attention and encourage return visits
– Offer easily accessible information
Usability Testing
• Companies that have done usability tests
– Conduct focus groups
– Watch how different customers navigate through a
series of Web site test designs
• Cost of usability testing
– Low compared to total cost of a Web site design or
overhaul
Customer-Centric Web Site Design (Continued)
• Guidelines
– Avoid using business jargon and terms that
visitors might not understand
– Be consistent in use of design features and colors
– Make sure navigation controls are clearly
labeled
– Test text visibility on smaller monitors
– Conduct usability tests
 Connecting With Customers Connecting With Customers (Continued)

• Personal contact model • Addressable media

– Firm’s employees individually search for, qualify,
and contact potential customers
• Prospecting
– Personal contact approach to identifying and reaching
customers
• Mass media approach
– Firms prepare advertising and promotional materials
about the firm and its products
– Advertising efforts directed to a known addressee
– Also called mass media
• One-to-many communication model
– Communication flows from one advertiser to many
potential buyers
• One-to-one communication model
– Both buyer and seller participate in information
exchange

Summary
Summary
• Firms
• Models used to generate revenue on the Web – Must understand how the Web differs from other
– Web catalog, digital content sales media
– Advertising-supported • Enlisting help of users when building test versions of the Web
– Advertising-subscription mixed site
– Fee-for-transaction and fee-for-service – A good way to create a site that represents the
• Companies undertaking electronic commerce initiatives to organization well
– Form strategic alliances • Firms must also
– Contract with channel distribution managers – Understand nature of communication on the Web

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 Marketing on the Web

Objectives
Objectives
In this chapter, you will learn about:
• E-mail marketing
• When to use product-based and customer-based marketing
• Technology-enabled customer relationship management
strategies
• Creating and maintaining brands on the Web
• Communicating with different market segments
• Search engine positioning and domain name selection
• Customer relationship intensity and the customer relationship
life cycle
• Using advertising on the Web

Web Marketing Strategies Product-Based Marketing Strategies

• Four Ps of marketing • When creating a marketing strategy
– Product
– Managers must consider both the nature of their
• Physical item or service that company is
selling products and the nature of their potential customers
– Price • Most office supply stores on the Web
• Amount customer pays for product – Believe customers organize their needs into product
– Promotion categories
• Any means of spreading the word about
product
– Place
• Need to have products or services available
in different locations

Customer-Based Marketing Strategies Communicating with Different Market Segments

• Good first step in building a customer-based marketing strategy
– Identify groups of customers who share common
characteristics
• Customer-based marketing approaches
– More common on B2B sites than on B2C sites
• B2B sellers
– More aware of the need to customize product and
service offerings to match their customers’ needs
• Identifying groups of potential customers
– The first step in selling to those customers
• Media selection
– Can be critical for an online firm
• Challenge for online businesses
– Convince customers to trust them

Customer-Based Marketing Strategies Trust and Media Choice

• Good first step in building a customer-based marketing strategy
• Identify groups of customers who share common characteristics
• Customer-based marketing approaches
• More common on B2B sites than on B2C sites
• B2B sellers
• More aware of the need to customize product and service
offerings to match their customers’ needs
• The Web
– An intermediate step between mass media and
personal contact
• Cost of mass media advertising
– Can be spread over its audience
• Companies can use the Web
– To capture some of the benefits of personal contact,
yet avoid some of the costs inherent in that approach

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 Trust in Three Information Dissemination Models Market Segmentation
• Targeting specific portions of the market with advertising
messages

• Segments

– Usually defined in terms of demographic

characteristics

• Micromarketing

– Targeting very small market segments

Market Segmentation (Continued) Market Segmentation (Continued)

• Geographic segmentation • Psychographic segmentation

– Creating different combinations of marketing efforts – Groups customers by variables such as social class,
for each geographical group of customers personality, or their approach to life

• Demographic segmentation

– Uses age, gender, family size, income, education,

religion, or ethnicity to group customers

Beyond Market Segmentation: Customer Behavior Behavior-Based Categories

and Relationship Intensity • Simplifiers
• Behavioral segmentation – Users who like convenience
– Creation of separate experiences for customers based • Surfers
on their behavior – Use the Web to find info and explore new ideas
• Occasion segmentation • Bargainers
– When behavioral segmentation is based on things that – In search of a good deal
happen at a specific time • Connectors
• Usage-based market segmentation – Use the Web to stay in touch with other people
– Customizing visitor experiences to match the site • Routiners
usage behavior patterns of each visitor – Return to the same sites over and over again

Customer Relationship Intensity and Life-Cycle Five Stages of Customer Loyalty

Segmentation
• One goal of marketing
– To create strong relationships between a company
and its customers
• Good customer experiences
– Can help create intense feeling of loyalty
• Touchpoints
– Online and offline customer contact points
• Touchpoint consistency
– Goal of providing similar levels and quality of service
at all touchpoints

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 Acquisition, Conversion, and Retention of Customer Acquisition, Conversion, and Retention:
Customers The Funnel Model
• Acquisition cost • Marketing managers
– Money a site spends to draw one visitor to site – Need to have a good sense of how their companies
• Conversion acquire and retain customers
– Converting first-time visitor into a customer
• Funnel model
• Conversion cost
– Cost of inducing one visitor to make a purchase, sign – Used as a conceptual tool to understand the overall
up for a subscription, or register nature of a marketing strategy
• Retained customers – Very similar to the customer life-cycle model
– Customers who return to the site one or more times
after making their first purchases

Funnel Model of Customer Acquisition, Conversion, Advertising on the Web

and Retention
• Banner ad
– Small rectangular object on a Web page
• Interactive marketing unit (IMU) ad formats
– Standard banner sizes that most Web sites have
voluntarily agreed to use
• Banner exchange network
– Coordinates ad sharing
• Banner advertising network
– Acts as a broker between advertisers and Web sites
that carry ads

Advertising on the Web (Continued) Other Web Ad Formats

• Cost per thousand (CPM) • Pop-up ad
– Pricing metric used when a company purchases mass – Appears in its own window when the user opens or
media advertising closes a Web page
• Trial visit • Ad-blocking software
– First time a visitor loads a Web site page – Prevents banner ads and pop-up ads from loading
• Page view • Interstitial ad
– Each page loaded by a visitor counts – When a user clicks a link to load a page, the interstitial
• Impression ad opens in its own browser window
– Each time the banner ad loads

Site Sponsorships E-Mail Marketing

• Give advertisers a chance to promote products, services, or
brands in a more subtle way
• Helps build brand images and develop reputation rather than
generate immediate sales
• Sending one e-mail message to a customer
– Can cost less than one cent if the company already has
the customer’s e-mail address
• Conversion rate
– The percentage of recipients who respond to an ad or
promotion
• Opt-in e-mail
– Practice of sending e-mail messages to people who
request information on a particular topic

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 Creating and Maintaining Brands on the Web Emotional Branding vs. Rational Branding
• Key elements of a brand • Brands
– Differentiation – Can lose value if environment in which they have
• Company must clearly distinguish its become successful changes
product from all others
• Emotional appeals
– Relevance
• Degree to which product offers utility to a – Difficult to convey on the Web
potential customer • Rational branding
– Perceived value – Relies on the cognitive appeal of the specific help
• Key element in creating a brand that has offered, not on a broad emotional appeal
value

Elements of a Brand Affiliate Marketing Strategies

• Affiliate marketing
– One firm’s Web site includes descriptions, reviews,
ratings, or other information about a product that is
linked to another firm’s site
• Affiliate site
– Obtains the benefit of the selling site’s brand in
exchange for the referral
• Cause marketing
– Affiliate marketing program that benefits a charitable
organization

Viral Marketing Strategies Search Engine Positioning and Domain Names

• Relies on existing customers • Search engine
– To tell other people about products or services they – Web site that helps people find things on the Web
have enjoyed using – Spider, crawler, or robot
• Example • Program that automatically searches the
Web
– Blue Mountain Arts
• Index or database
• Electronic greeting card company – Storage element of a search engine
• Purchases very little advertising, but is one • Search utility
of the most-visited sites on the Web – Uses terms provided to find Web pages that match

Search Engine Positioning and Domain Names Search Engine Positioning and Domain Names
(Continued) (Continued)
• Nielsen//Net Ratings • Search engine positioning or search engine optimization

– Frequently issues press releases that list most – Combined art and science of having a particular URL
frequently visited Web sites listed near the top of search engine results

• Search engine ranking

– Weighting factors used by search engines to decide

which URLs appear first on searches

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 Paid Search Engine Inclusion and Placement Web Site Naming Issues
• Paid placement • Domain names

– Option of purchasing a top listing on results pages for – Companies often buy more than one
a particular set of search terms – Reason for additional domain names
– Rates vary • To ensure that potential site visitors who
misspell the URL will still be redirected to
• Search engine placement brokers
intended site
– Companies that aggregate inclusion and placement • Example: Yahoo! owns the name
rights on multiple search engines Yahow.com

Domain Names that Sold for more than $1 million URL Brokers and Registrars
• URL brokers
– Sell, lease, or auction domain names
• ICANN
– Maintains a list of accredited registrars
• Domain name parking
– Permits purchaser of a domain name to maintain a
simple Web site so that domain name remains in use

Summary
• Four Ps of marketing
– Product, price, promotion, and place
• Market segmentation
– Using geographic, demographic, and psychographic
information can work well on the Web
• Types of online ads
– Pop-ups, pop-behinds, and interstitials
Summary
• Technology-enabled customer relationship management
– Can provide better returns for businesses on the Web
• Firms on the Web
– Can use rational branding instead of emotional
branding techniques
• Critical for many businesses
– Successful search engine positioning and domain
name selection

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