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Prepared By: Professor Dr. Eng. Ismail A.


Ch1: Overview of Electronic Commerce Ch2: E-Marketplaces: Structures, Mechanisms, Economics, and Impacts Ch3: Retailing in Electronic Commerce: Products and Services Ch4: Consumer Behavior, Market Research, and Advertisement Ch9: Electronic Payment Systems* Ch10: Dynamic Trading: E-Auctions, Bartering, and Negotiations Ch14: E-Commerce Strategy and Global EC Ch15: Economics and Justification of Electronic Commerce Ch16: Launching a Successful Online Business and EC Projects

Chapter 1
Overview of Electronic Commerce

Learning Objectives
1. 2. 3. 4. 5. 6. 7. 8. 9. 10. Define electronic commerce (EC) and describe its various Describe and discuss the content and framework of EC. Describe the major types of EC transactions. Describe the digital revolution as a driver of EC. Describe the business environment as a driver of EC. Describe some EC business models. Describe the benefits of EC to organizations, consumers, and Describe the limitations of EC. Describe the contribution of EC to organizations responding to Describe online social and business networks.



environmental pressures.

Electronic Commerce: Definitions and Concepts

Electronic Commerce (EC)

The process of buying, selling, or exchanging products, services, or information via computer networks . EC can be defined from these perspectives: Business process Service Learning Collaboration Community


A broader definition of EC that includes not just the buying and selling of goods and services, but also servicing customers, collaborating with business partners, and conducting electronic transactions within an organization. Pure versus Partial EC

EC can take several forms depending on the degree of the product (service) sold the process (e.g., ordering, payment, fulfillment) the delivery method

1. 2. 3.

Brick-and-Mortar (Old Economy) organizations

Old-economy organizations (corporations) that perform their primary business off-line, selling physical products by means of physical agents. Virtual (pure-play) Organizations

Organizations that conduct their business activities solely online. Click-and-Mortar (Click-and-Brick) organizations

Organizations that conduct some e-commerce activities, usually as an additional marketing channel. Internet versus Non-Internet EC

Most EC is done over the Internet, but EC also can be

conducted on private networks, such as value-added networks, local area networks, or on a single computerized machine. field. Electronic Market (E-marketplace) Non-Internet EC includes the use of mobile handwritingrecognition computers used by field reps to write their notes in the

An online marketplace where buyers and sellers meet to exchange goods, services, money, or information.

The EC Framework, Classification, and Content:

Intranet An internal corporate or government network that uses Internet tools, such as Web browsers, and Internet protocols Extranet A network that uses the Internet to link multiple intranets

EC applications are supported by infrastructure and by these five People Public policy Marketing and advertisement Support services Business partnerships

support areas:

EC applications are supported by infrastructure and by these five People Public policy Marketing and advertisement Support services Business partnerships

support areas:

Business-to-Consumer (B2C) E-tailing Business-to-Business-to-Consumer (B2B2C)

E-commerce model in which businesses sell to individual shoppers Online retailing, usually B2C E-commerce model in which a business provides some product or service to a client business that maintains its own customers

Consumer-to-Business (C2B)

E-commerce model in which individuals use the Internet to sell products or services to organizations or individuals who seek sellers to bid on products or services they need Mobile Commerce (m-commerce) E-commerce transactions and activities conducted in a wireless environment Consumer-to-Business (C2B) E-commerce model in which individuals use the Internet to sell products or services to organizations or individuals who seek sellers to bid on products or services they need Mobile Commerce (m-commerce) E-commerce transactions and activities conducted in a wireless environment Business-to-Employees (B2E) E-commerce model in which an organization delivers services, information, or products to its individual employees. Collaborative Commerce (c-commerce) E-commerce model in which individuals or groups communicate or collaborate online. Consumer-to-Consumer (C2C) Peer-to-Peer (P2P) E-commerce model in which consumers sell directly to other consumers.


Technology that enables networked peer computers to share data and processing with each other directly; can be used in C2C, B2B, and B2C e-commerce. E-learning The online delivery of information for purposes of training or education. E-government

E-commerce model in which a government entity buys or provides goods, services, or information from or to businesses or individual citizens. Exchange Exchange-to-Exchange (E2E) A public electronic market with many buyers and sellers. E-commerce model in which electronic exchanges formally connect to one another for the purpose of exchanging information. The Future of EC Web 2.0

The second-generation of Internet-based services that let people collaborate and share information online in perceived new wayssuch as social networking sites, wikis, communication tools, and folksonomies.


Digital Revolution Drives EC

Digital Economy An economy that is based on digital technologies, including digital communication networks, computers, software, and other related information technologies; also called the Internet economy, the new economy, or the Web economy.


Business Environment Drives EC


EC Business Models
Business Model A method of doing business by which a company can generate revenue to sustain itself. Six elements of a business model include descriptions of:

Customers to be served and the companys relationships with All products and services the business will offer. The business process required to make and deliver the The resources required and the identification of which ones

these customers including customers value proposition.

2. 3.

products and services.


are available, which will be developed in house, and which will need to be acquired.

The organizations supply chain, including suppliers and The revenues expected (revenue model), anticipated costs,

other business partners.


sources of financing, and estimated profitability (financial viability). Revenue Model Value Proposition Description of how the company or an EC project will earn revenue. The benefits a company can derive from using EC. The major revenue models are: Sales Transaction fees

Subscription fees Advertising fees Affiliate fees Other revenue sources

Functions of a Business Model: Articulate a customer value proposition Identify a market segment Define the ventures specific value chain structure Estimate the cost structure and profit potential Describe the ventures positioning within the value network Formulate the ventures competitive strategy

linking suppliers and customers.

Typical EC Business Models

Online direct marketing Electronic tendering systems. Name your own price Find the best price Affiliate marketing Viral marketing Group purchasing Online auctions Product and service customization Electronic marketplaces and exchanges Information brokers (informediaries) Bartering Deep discounting Membership Value-chain integrators Value-chain service providers Supply chain improvers Social networks, communities, and blogging. Direct sale by manufacturers


Tendering (bidding) system

Model in which a buyer requests would-be sellers to submit bids; the lowest bidder wins Name-your-own-price model Model in which a buyer sets the price he or she is willing to pay and invites sellers to supply the good or service at that price Affiliate marketing An arrangement whereby a marketing partner (a business, an organization, or even an individual) refers consumers to the selling companys Web site. Viral marketing Word-of-mouth marketing in which customers promote a product or service to friends or other people. SMEs group purchasing Small-to-medium enterprises Quantity (aggregated) purchasing that enables groups of purchasers to obtain a discount price on the products purchased. E-Co-Ops Customization Another name for online group purchasing organizations. Creation of a product or service according to the buyers specifications


Social and Business Networks:

Social Networks Web sites that connect people with specified interests by providing free services such as photo presentation, e-mail, blogging, etc. Business-oriented networks are social networks whose primary objective is to facilitate business.

The Digital Enterprise:

Digital Enterprise A new business model that uses IT in a fundamental way to accomplish one or more of three basic objectives: reach and engage customers more effectively, boost employee productivity, and improve operating efficiency. It uses converged communication and computing technology in a way that improves business processes. Corporate Portal

A major gateway through which employees, business partners, and the public can enter a corporate Web site.


Chapter 2
E-Marketplaces: Structures, Mechanisms, Economics, and Impacts


Learning Objectives
1. 2. 3. 4. 5. 6. 7. 8. 9. 10. Define e-marketplaces and list their components. List the major types of e-marketplaces and describe their features. Describe the various types of EC intermediaries and their roles. Describe electronic catalogs, shopping carts, and search engines. Describe the major types of auctions and list their characteristics. Discuss the benefits, limitations, and impacts of auctions. Describe bartering and negotiating online. Define m-commerce and explain its role as a market mechanism. Discuss competition in the digital economy. Describe the impact of e-marketplaces on organizations and



e-marketplace An online market, usually B2B, in which buyers and sellers exchange goods or services; the three types of e-marketplaces are private, public, and consortia


A marketplace in which sellers and buyers exchange goods and services for money (or for other goods and services) but do so electronically


E-Marketplace Components and Participants

Customers Sellers Products and services digital products Goods that can be transformed to digital format and delivered over the Internet Infrastructure Front end Back end Intermediaries Third parties that operates between sellers and buyers Other business partners Support services

front end

The portion of an e-sellers business processes through which customers interact, including the sellers portal, electronic catalogs, a shopping cart, a search engine, and a payment gateway back end The activities that support online order fulfillment, inventory management, purchasing from suppliers, payment processing, packaging, and delivery


Types of E-Marketplaces: From Storefronts to Portals

Electronic Storefronts storefront e-mall (online mall) Visualization and virtual realty in shopping malls

A single companys Web site where products or services are sold An online shopping center where many online stores are located

Types of Stores and Malls General stores/malls Specialized stores/malls Regional versus global stores Pure-play online organizations versus click-and-mortar stores

Types of E-Marketplaces private e-marketplaces

Online markets owned by a single company; may be either sell-side and/or buy-side e-marketplaces sell-side e-marketplace A private e-marketplace in which one company sells either standard and/or customized products to qualified companies buy-side e-marketplace A private e-marketplace in which one company makes purchases from invited suppliers Types of E-Marketplaces

public e-marketplaces

B2B marketplaces, usually owned and/or managed by an independent third party, that include many sellers and many buyers; also known as exchanges information portal A single point of access through a Web browser to business information inside and/or outside an organization Types of Portals Commercial (public) Corporate Publishing Personal Mobile Voice Knowledge

Transactions, Intermediation, and Process in E-Commerce:

Sellers, Buyers, and Transactions A seller (retailer, wholesaler, or manufacturer) sells to customers


The seller buys from suppliers: either raw material (as a

manufacturer) or finished goods (as a retailer)

The Roles and Value of Intermediaries in E-marketplaces infomediaries

Electronic intermediaries that provide and/or control information flow in cyberspace, often aggregating information and selling it to others.

A broker is a company that facilitates transactions between Types of brokers Buy/sell fulfillment Virtual mall Metamediary

buyers and sellers

Bounty Search agent Shopping facilitator

Intermediaries can address the following five important limitations Search costs Lack of privacy Incomplete information Contract risk Pricing inefficiencies

of direct interaction:

e-distributor buyers (customers) by aggregating the catalogs of many manufacturers in one placethe intermediarys Web site disintermediation reinter mediation that have been disintermediated, or for newcomers

An e-commerce intermediary that connects manufacturers with business

Elimination of intermediaries between sellers and buyers Establishment of new intermediary roles for traditional intermediaries

Electronic Catalogs and Other Market Mechanisms:

electronic catalogs backbone of most e-selling sites Three dimensions of electronic catalogs:

The presentation of product information in an electronic form; the

1. 2. 3.

The dynamics of the information presentation The degree of customization Integration with business processes

search engine

A computer program that can access databases of Internet resources, search for specific information or keywords, and report the results software (intelligent) agent electronic shopping cart Software that can perform routine tasks that require intelligence An order-processing technology that allows customers to accumulate items they wish to buy while they continue to shop

Auctions as EC Market Mechanisms:

auction A competitive process in which a seller solicits consecutive bids from buyers (forward auctions) or a buyer solicits bids from sellers (backward auctions). Prices are determined dynamically by the bids Traditional Auctions versus Limitations of traditional offline auctions rapid process gives potential buyers little time to make a decision electronic auction (e-auction) Auctions conducted online dynamic pricing E-Auctions


Prices that change based on supply and demand relationships at any given time Types of Auctions One buyer, one seller One seller, many potential buyers forward auction

An auction in which a seller entertains bids from buyers. Bidders increase price sequentially One buyer, many potential sellers reverse auction (bidding or tendering system)

Auction in which the buyer places an item for bid (tender) on a request for quote (RFQ) system, potential suppliers bid on the job, with the price reducing sequentially, and the lowest bid wins; primarily a B2B or G2B mechanism name-your-own-price model Auction model in which a would-be buyer specifies the price (and other terms) he or she is willing to pay to any willing and able seller. It is a C2B model that was pioneered by Priceline.com


Many sellers, many buyers double auction

Auctions in which multiple buyers and their bidding prices are matched with multiple sellers and their asking prices, considering the quantities on both sides Benefits of E-Auctions Benefits to Sellers Benefits to Buyers Benefits to E-Auctioneers

Limitations of E-Auctions Minimal security Possibility of fraud Limited participation


Impacts of Auctions Auctions as a coordination mechanism Auctions as a social mechanism to determine a price Auctions as a highly visible distribution mechanism Auctions as an EC component

Bartering and Negotiating Online:

Online Bartering bartering e-bartering (electronic bartering) bartering exchange

The exchange of goods or services Bartering conducted online, usually in a bartering exchange A marketplace in which an intermediary arranges barter transactions Online Negotiating Negotiated pricing commonly is used for expensive or Negotiated prices also are popular when large quantities are Much like auctions, negotiated prices result from interactions specialized products purchased and bargaining among sellers and buyers


E-Commerce in the Wireless Environment:

mobile computing Use of portable devices, including smart cell phones, usually in a wireless environment. It permits real-time access to information, applications, and tools that, until recently, were accessible only from a desktop computer mobile commerce (m-commerce) m-business E-commerce conducted via wireless devices The broadest definition of m-commerce, in which e-business is conducted in a wireless environment The Mobility Revolution Organizations are embracing mobilized computing Improved productivity of workers in the field Wireless telecom support for mobility is growing quickly More applications can run both online and offline The prices of notebook computers, wireless handhelds, and technologies for several reasons:

smart phones continue to fall as their capabilities increase The Promise of M-Commerce location-based commerce (LBC)

An m-commerce application targeted to a customer whose location, preferences, and needs are known in real time M-Commerce Adoption


Although there are currently many hurdles to the

widespread adoption of m-commerce, many companies are already shifting their strategy to the mobile world

Competition in the Digital Economy and Its Impact on Industries:

Internet ecosystem The business model of the Internet economy

Competitive FactorsOnline Transactions Allow:

Lower search costs for buyers Speedy comparisons Lower prices Customer service Barriers to entry are reduced Virtual partnerships multiply Market niches abound Differentiation and personalization

differentiation personalization

Providing a product or service that is unique The ability to tailor a product, service, or Web content to specific user preferences Porters Competitive Analysis in an Industry competitive forces model

Model devised by Porter that says that five major forces of competition determine industry structure and how economic value is divided among the industry players in an industry; analysis of these forces helps companies develop their competitive strategy

Impacts of EC on Business Processes and Organizations:

Impacts of e-marketplaces on B2C direct marketing: Product promotion New sales channel Direct savings Reduced cycle time Improved customer service Brand or corporate image Customization

Advertising Ordering systems Market operations Accessibility

Transforming Organizations Technology and organizational learning The changing nature of work

Redefining Organizations New and improved product capabilities New industry order and business models Improving the supply chain Impacts on manufacturing Build-to-Order Manufacturing build-to-order (pull system)

A manufacturing process that starts with an order (usually customized). Once the order is paid for, the vendor starts to fulfill it Real-Time Demand-Driven Manufacturing Virtual Manufacturing Assembly Lines

Impacts on Finance and Accounting Impact on Human Resources Management and Training


Chapter 3
Retailing in Electronic Commerce: Products and Services


Learning Objectives:
1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. Describe electronic retailing (e-tailing) and its characteristics. Define and describe the primary e-tailing business models. Describe how online travel and tourism services operate and their Discuss the online employment market, including its participants, Describe online real estate services. Discuss online stock-trading services. Discuss cyberbanking and online personal finance. Describe on-demand delivery by e-grocers. Describe the delivery of digital products and online entertainment. Discuss various e-tail consumer aids, including comparisonIdentify the critical success factors and failure avoidance tactics for

impact on the industry. benefits, and limitations.

shopping aids. direct online marketing and e-tailing.


Describe reinter mediation, channel conflict, and personalization in



Internet Marketing and Electronic Retailing:

electronic retailing (e-tailing) e-tailers Retailing conducted online, over the Internet Retailers who sell over the Internet

What Sells Well on the Internet?

Travel Computer Hardware and Software Consumer Electronics Office Supplies Sport and Fitness Goods Books and Music Toys Health and Beauty Entertainment Apparel and Clothing Jewelry Cars Services Pet Supplies

Characteristics of Successful E-Tailing High brand recognition A guarantee provided by highly reliable or well-known Digitized format Relatively inexpensive items Frequently purchased items


Commodities with standard specifications Well-known packaged items that cannot be opened even in a

traditional store

E-Tailing Business Models

Classification by Distribution Channel Mail-order retailers that go online Direct marketing from manufacturers Pure-play e-tailers Click-and-mortar retailers Internet (online) malls

direct marketing

Broadly, marketing that takes place without intermediaries between manufacturers and buyers; in the context of this book, marketing done online between any seller and buyer virtual (pure-play) e-tailers Firms that sell directly to consumers over the Internet without maintaining a physical sales channel click-and-mortar retailers Brick-and-mortar retailers that offer a transactional Web site from which to conduct business brick-and-mortar retailers


Retailers who do business in the non-Internet, physical world in traditional brick-and-mortar stores multichannel business model A business model where a company sells in multiple marketing channels simultaneously (e.g., both physical and online stores) Retailing in Online Malls Referring directories Malls with shared services

Other B2C Models and Special Retailing Representative special B2C services Postal services Services and products for adults Wedding channels Gift registries

Travel and Tourism Services Online:

Special Services Wireless services Direct marketing Alliances and consortia

Benefits of Online Travel Services To travelers Free information accessible at any time from any place Substantial discounts are available

To travel services providers Airlines, hotels, and cruise lines sell otherwise-empty Direct selling saves the providers commission and its spaces processing

Limitations of Online Travel Services Many people do not use the Internet The amount of time and the difficulty of using virtual travel

agencies may be significant, especially for complex trips and for inexperienced Internet surfers Complex trips or those that require stopovers may not be available online because they require specialized knowledge and arrangements Corporate Travel trips Impact of EC on the Travel Industry The Internet may be contributing to a sharp reduction in the It has also driven the rise of intermediariesthird-party number of travel agents online sellers and portals provide price comparisons and a range of other value-adding services for the consumer To reduce corporate travel costs, companies can make arrangements that enable employees to plan and book their own


Employment, Placement, and the Job Market Online:

THE INTERNET JOB MARKET Job seekers Employers seeking employees Job agencies Government agencies and institutions

A consortium of large employers and college careers advisors


Global online portals

Limitations of the Electronic Job Market The gap between those with skills and access to the Internet Companies find that they are flooded with applicants when and those without they advertise online, screening is a time-consuming and costly process Security and privacy High turnover costs for employers by accelerating

employees movement to better jobs Intelligent Agents in the Electronic Job Market Intelligent agents for job seekers Intelligent agents for employers

Real Estate, Insurance, and Stock Trading Online:

Real Estate E-commerce and the Internet are slowly but surely having an ever increasing impact on the real estate industry Real Estate Applications Advice for consumers on buying or selling

Commercial real estate listings Links to house listings in all major cities Maps Information on current mortgage rates Real Estate Mortgages Many sites offer loan calculators Mortgage brokers can pass loan applications over the

Internet and receive bids from lenders that want to issue mortgages Name your own price model Aggregation of loan seekers package placed for bid on

the Internet Insurance Online Standard insurance policies, such as auto, home, life, or Third-party aggregators offer free comparisons of available Several large insurance and risk-management companies health are offered at a substantial discount policies offer comprehensive insurance contracts online Online Stock Trading Investment information Related financial markets The risk of having an online stock account

Banking and Personal Finance Online:


electronic (online) banking (e-banking)

Various banking activities conducted from home or the road using an Internet connection; also known as cyberbanking, virtual banking, online banking, and home banking International and Multiple-Currency Banking Some international retail purchasing can be done by providing a credit card number, other transactions may require international banking support Personal Finance Online Online Billing and Bill Paying Automatic transfer of mortgage payments Automatic transfer of funds to pay monthly utility bills Paying bills from online banking accounts. Merchant-to-customer direct billing Using an intermediary for bill consolidation Person-to-person direct payment Pay bills at bank kiosks


On-Demand Delivery Systems and E-Grocers:


A grocer that takes orders online and provides deliveries on a daily or other regular schedule or within a very short period of time on-demand delivery service Express delivery made fairly quickly after an online order is received

Online Delivery of Digital Products, Entertainment, and Media:

Online Entertainment Examples of online entertainment Web browsing Internet gaming Fantasy sports games Single and multiplayer games Adult entertainment

Card games Social networking sites Participatory Web sites Reading Live events

Entertainment-related services Event ticketing Restaurants Information retrieval Retrieval of audio and video entertainment

Online Purchase-Decision Aids:

shopping portals Gateways to e-storefronts and e-malls; may be comprehensive or niche oriented shopping robots (shopping agents or shopbots) Tools that scout the Web on behalf of consumers who specify search criteria Spy services Wireless Shopping comparisons

Business Ratings Sites Trust Verification Sites Other Shopping Tools Amazon.coms A9 Search Engine Answers.com

Problems with E-Tailing and Lessons Learned:

The reasons that retailers give for not going online include: Their product is not appropriate for Web sales Lack of significant opportunity High cost Technological immaturity Online sales conflict with core business

Lessons Learned Dont ignore profitability Manage new risk exposure Watch the cost of branding Do not start with insufficient funds The web site must be effective Keep it interesting

Successful Click-and-Mortar Strategies Speak with one voice Leverage the multichannels Empower the customer

Issues in E-Tailing:
disintermediation The removal of organizations or business process layers responsible for certain intermediary steps in a given supply chain reintermediation

The process whereby intermediaries (either new ones or those that had been disintermediated) take on new intermediary roles cyber mediation (electronic intermediation) hyper mediation The use of software (intelligent) agents to facilitate intermediation Extensive use of both human and electronic intermediation to provide assistance in all phases of an e-commerce venture Unbundling channel conflict

Situation in which an online marketing channel upsets the traditional channels due to real or perceived damage from competition


Chapter 4
Consumer Behavior, Market Research, and Advertisement


Learning Objectives:
1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. Describe the factors that influence consumer behavior online. Understand the decision-making process of consumer purchasing Describe how companies are building one-to-one relationships Explain how personalization is accomplished online. Discuss the issues of e-loyalty and e-trust in EC. Describe consumer market research in EC. Describe Internet marketing in B2B, including organizational Describe the objectives of Web advertising and its characteristics. Describe the major advertising methods used on the Web. Describe various online advertising strategies and types of Describe permission marketing, ad management, localization, and Understand the role of intelligent agents in consumer issues and

online. with customers.

buyer behavior.

promotions. other advertising-related issues. advertising applications.


Learning about Consumer Behavior Online:

A Model of Consumer Behavior Online

Independent (or uncontrollable) variables can be categorized Intervening (or moderating) variables are variables within

as personal characteristics and environmental characteristics

the vendors control. They are divided into market stimuli and EC systems

The decision-making process is influenced by the

independent and intervening variables. This process ends with the buyers decisions resulting from the decision-making process

The dependent variables describe types of decisions made by The independent variables Personal characteristics Environmental variables Social variables Cultural/community variables Other environmental variables



The intervening (moderating) variables Roles people A Generic Purchasingplay theThe dependent variables: the buying decisions in Decision Model decision-making 1. Need identification Consumer Decision-Making Process: process 2. Information search 3. Evaluation of Initiato alternatives, r 51 4. Purchase and Influen delivery cer

A Customer Decision Model in Web Purchasing Can be supported by both Consumer Decision Support System (CDSS) facilities and Internet and Web facilities

Mass Marketing, Market Segmentation, and One-to-One Marketing:

one-to-one marketing Mass Marketing

Marketing that treats each customer in a unique way

Marketing efforts traditionally were targeted to everyone Targeted marketingmarketing and advertising efforts

targeted to groups (market segmentation) or to individuals (one-toone)is a better approach market segmentation The process of dividing a consumer market into logical groups for conducting marketing research and analyzing personal information


Personalization, Loyalty, Trust, and Satisfaction in EC:

personalization The matching of services, products, and advertising content with individual consumers and their preferences The major strategies used to compile user profiles include the Solicit information directly from the user Observe what people are doing online Build from previous purchase patterns Make inferences following:

user profile

The requirements, preferences, behaviors, and demographic traits of a particular customer cookie


A data file that is placed on a users hard drive by a remote Web server, frequently without disclosure or the users consent, that collects information about the users activities at a site Customer Loyalty e-loyalty

Customer loyalty to an e-tailer or loyalty programs delivered online or supported electronically


The psychological status of willingness to depend on another person or organization How to increase trust in EC Affiliate with an objective third party Establish trustworthiness

Market Research for EC:

Methods for Conducting Market Research Online Market research that uses the Internet frequently is faster and more efficient and allows the researcher to access a more geographically diverse audience Web market researchers can conduct a very large study much What are marketers looking for in EC market research? What are the purchase patterns for individuals and What factors encourage online purchasing? How can we identify those who are real buyers from How does an individual navigatedoes the consumer groups (market segmentation)? more cheaply than with other methods

those who are just browsing? check information first or do they go directly to ordering?


What is the optimal Web page design?

Market research for one-to-one approaches Direct solicitation of information (surveys, focus groups) Observing what customers are doing on the Web Collaborative filtering


Observing Customers transaction log click stream behavior Web bugs

A record of user activities at a companys Web site

Customer movements on the Internet Tiny graphics files embedded in e-mail messages and in Web sites that transmit information about users and their movements to a Web server spyware


Software that gathers user information over an Internet connection without the users knowledge click stream data Data that occur inside the Web environment; they provide a trail of the users activities (the users click stream behavior) in the Web site collaborative filtering A market research and personalization method that uses customer data to predict, based on formulas derived from behavioral sciences, what other products or services a customer may enjoy; predictions can be extended to other customers with similar profiles Limitations of Online Market Research and How to To use data properly, one needs to organize, edit, condense, The solution to this problem is to automate the process by Overcome Them and summarize it, which is expensive and time consuming

using data warehousing and data mining known as business intelligence Biometric Marketing biometrics

An individuals unique physical or behavioral characteristics that can be used to identify an individual precisely (e.g., fingerprints) Organizational Buyer Behavior A Behavioral Model of Organizational Buyers

An organizational influences module is added to the

B2B model


Internet Marketing in B2B:

Methods for B2B Online Marketing Targeting customers Electronic wholesalers Other B2B marketing services Digital cement National systems Business town

Affiliate Programs Infomediaries Online Data Mining Services


Web Advertising:
interactive marketing Online marketing, facilitated by the Internet, by which marketers and advertisers can interact directly with customers and consumers can interact with advertisers/vendors

Some Internet Advertising Terminology ad views

The number of times users call up a page that has a banner on it during a specific period; known as impressions or page views click (click-through or ad click)


A count made each time a visitor clicks on an advertising banner to access the advertisers Web site CPM (cost per thousand impressions) The fee an advertiser pays for each 1,000 times a page with a banner ad is shown conversion rate click-through rate (or ratio) click-through ratio The percentage of clickers who actually make a purchase The percentage of visitors who are exposed to a banner ad and click on it The ratio between the number of clicks on a banner ad and the number of times it is seen by viewers; measures the success of a banner in attracting visitors to click on the ad hit visit A request for data from a Web page or file A series of requests during one navigation of a Web site; a pause of a certain length of time ends a visit unique visits A count of the number of visitors entering a site, regardless of how many pages are viewed per visit a site stickiness Characteristic that influences the average length of time a visitor stays in


Why Internet Advertising?

Precise targeting Interactivity Rich media (grabs attention) Cost reduction advertising networks Customer acquisition Personalization Timeliness Location-basis Linking Digital branding

Specialized firms that offer customized Web advertising, such as brokering ads and targeting ads to select groups of consumers

Online Advertising Methods:

banner On a Web page, a graphic advertising display linked to the advertisers Web page keyword banners Banner ads that appear when a predetermined word is queried from a search engine random banners banner swapping Banner ads that appear at random, not as the result of the users action An agreement between two companies to each display the others banner ad on its Web site banner exchanges Markets in which companies can trade or exchange placement of banner ads on each others Web sites

pop-up ad

An ad that appears in a separate window before, after, or during Internet surfing or when reading e-mail pop-under ad An ad that appears underneath the current browser window, so when the user closes the active window the ad is still on the screen interstitial An initial Web page or a portion of it that is used to capture the users attention for a short time while other content is loading E-Mail Advertising E-mail advertising management E-mail advertising methods and successes

Newspaper-Like and Classified Ads Search Engine Advertisement Improving a companys search-engine ranking (optimization) Paid search-engine inclusion associated ad display (text links)

An advertising strategy that displays a banner ad related to a key term entered in a search engine GoogleThe online advertising king

Advertising in Chat Rooms, Blogs, and Social Networks Other Forms of Advertising advertorial

An advertisement disguised to look like editorial content or general information Advertising in newsletters

Posting press releases online advergaming

The practice of using computer games to advertise a product, an organization, or a viewpoint

Advertising Strategies and Promotions Online:

affiliate marketing A marketing arrangement by which an organization refers consumers to the selling companys Web site

With the ads-as-a-commodity approach, people are paid for viral marketing

time spent viewing an ad Word-of-mouth marketing by which customers promote a product or service by telling others about it Webcasting A free Internet news service that broadcasts personalized news and information, including seminars, in categories selected by the user Online Events, Promotions, and Attractions Live Web Events Admediation admediaries

Third-party vendors that conduct promotions, especially largescale ones Selling space by pixels

Special Advertising Topics:


PERMISSION ADVERTISING spamming permission advertising (permission marketing)

Using e-mail to send unwanted ads (sometimes floods of ads) Advertising (marketing) strategy in which customers agree to accept advertising and marketing materials (known as optin) Advertisement as a Revenue Model Measuring Online Advertisings Effectiveness ad management

Methodology and software that enable organizations to perform a variety of activities involved in Web advertising (e.g., tracking viewers, rotating ads) localization The process of converting media products developed in one environment (e.g., country) to a form culturally and linguistically acceptable in countries outside the original target market Internet radio A Web site that provides music, talk, and other entertainment, both live and stored, from a variety of radio stations


Chapter 5
Electronic Payment Systems


A Critical Element in EC Support Services:

In the off-line world, consumers use cash, checks, and credit cards to make purchases. At a fast food restaurant, people usually pay with cash. If someone purchases an appliance at a discount store, they are likely to use a credit card. When people pay their bills, most use checks

How Do People Pay Online? Unfortunately, paying online with the same instruments that people

use off-line, namely cash, credit card, debit card, or paper check may be too slow, inefficient, or expensive for online payments. When a buyer places an order, the seller wants to make sure they will pay

E-payments: Payments made online The overwhelming majority of Web purchases are made This may change in the future with credit cards

Deficiencies of Credit Card Payments: Many people who will be on the Internet in 2004 Many of these users will come from countries outside have not even had their first Web experience the United States, where the use of credit cards is not as prevalent

Many users are also likely to be younger and have Many purchases they make will be micropayments 95 percent of all e-commerce are B2B transactions Electronic payments are more likely to involve Credit cards cannot be used for large sums of EFTs or electronic checks B2B transactions

less access to credit and debit cards

A large amount of fraud with online credit card

shopping occurs that results in chargeback's to the merchants

Chargeback Problema chargeback means that the

customer refuses to pay, claiming that the purchase was made by someone else Happens in Internet transactions: Four times more frequently than catalog sales Nine times more frequently than in brick-and-mortar sales

Electronic Payments - Best Practices:

Best Practices used by merchants when conducting credit card Implementing a firewall Using encryption and antivirus software Incorporating intercompany security practices


However, since 2002, e-tailers see credit card fraud as a Risk management techniques and fraud-prevention software The Merchant Fraud Squad provides education about fraud

solvable problem are widely available prevention techniques and encourages businesses selling online to adopt best practices and antifraud technologies

Electronic Payments :
nochargeback.com and combatfraud.org offer fraudMembers access the sites database of credit card numbers, eprotection services mail addresses, and postal addresses used for purchases that resulted in a chargeback Merchants check for deadbeats at this site and then refuse to accept charges from them

Electronic Payment Methods:

Electronic payment cards (credit, debit, charge) Virtual credit cards E-wallets (or e-purses) Smart cards Electronic cash (several variations) Wireless payments Stored-value card payments

Loyalty cards Person-to-person payment methods Payments made electronically at kiosks

E-payments for B2B Electronic checks Purchasing cards Electronic letters of credit Electronic funds transfer (EFT) Electronic benefits transfer (EBT) Other innovative methods,

including e-lines of credit

Five parties involved in e-payments: Customer/payer/buyer: The party is making the e-payment in Merchant/payee/seller: The party receiving the e-payment in Issuer: The banks or non-banking institutions that issue Regulator: Usually a government agency their regulations Automated Clearing House (ACH): An electronic network exchange for goods or services. exchange for goods and services

the e-payment instrument used to make the purchasing.

control the e-payment process. that transfers money between bank accounts


Automated Clearing House (ACH): Electronic network that

connects all U.S. financial institutions for the purpose of making funds transfers

Characteristics of successful e-payment methods

Independence: forms of e-payment require the seller or merchant Interoperability and portability: e-payment method must engage

to install specialized software to receive and authorize a payment.

with these existing systems and applications and be supported by standard computing platforms.

Security: if the risk for the payer is higher than the risk for the Anonymity: Unlike credit cards and checks special payment Divisibility: accepting credit cards for purchases within a

payee, then the method is not likely to be accepted. methods such as e-cash have to maintain anatomy

minimum and maximum range If the cost of the item is too small - a credit card will not do.

Ease of use: For B2B payments, the question is whether the online

e-payment methods can replace the existing off-line methods of procurement

Transaction fees: merchant pays a transaction fee of up to about 3

% of the items purchase price (above a minimum fixed fee). These fees make it prohibitive to support smaller purchases with credit cards, which leave room for alternative forms of payment.

Critical mass: acceptance rate of various e-payment methods has

been slow. Some areas online billing and presentment will see epayment make significant approach in the near future

Security for Electronic Payments:


Security for e-payments: questions on the issues of trust 1. Standards for e-paymentsit is necessary to have 1. 2. SSL Secure Socket Layer (TLS) Transport Layer SET generally accepted protocols Security


Other security measures 1. Both the funds that are being transferred and the consumer 1. 2. intelligent agents biometrics data must be protected

Electronic Cards and Smart Cards:


Payment card: Electronic card that contains information that can be 1. Credit cards: credit to make purchases up to a limited fixed Charge cards: Technically, the holder of a charge card

used for payment purposes by the card issuer


receives a loan for 30 to 45 days equal to the balance of their statement.


Debit cards: (called a demand-deposit account). The actual

transfer of funds takes place from the holder's account to the merchant's within 1 to 2 days

Card gateway: An online connection that ties a merchants systems Virtual credit card: An e-payment system in which a credit card

to the back-end processing systems of the credit card issuer

issuer gives a special transaction number that can be used online in place of regular credit card numbers Debit checking accounts debiting their checking accounts to pay for items ordered over the Web.

Electronic Wallets:
Electronic wallet (e-wallet): A software component in which a user stores credit card numbers and other personal information; when shopping online, the user simply clicks the e-wallet to automatically fill in information needed to make a purchase.

When shopping online, the user simply clicks the e-wallet to

automatically fill in information needed to make a purchase. When a user shops at a merchant who accepts the e-wallet, the user clicks the ewallet, which automatically fills in all the necessary information. Amazon.com has done with its "One-Click" shopping feature.

E-Wallets (cont.):
Digital Identity (digital ID): A set of digital information that is associated with a particular individual and is used to identify that individual for security purposes

E-wallet as an authenticator

The user contacts the merchant to place an order. The authentication/registry part of the e-wallet generates a pair of It encrypts one key with the user's public key that resides in the eIn addition, the e-wallet creates a message called a ticket that

keys called session keys.


includes a second session key and the user's name. The ticket is then encrypted with the merchant's public key. Both the encrypted session key and the message are sent to the user.

The user decrypts the first session key, using their private key.

The user then creates a new message, called the authenticator, which contains the user's name, and encrypts it with the first session key.

The user then sends the authenticator and the ticket to the merchant. The merchant decrypts the ticket, using its private key, retrieving

the user's name and the second session key. Using the second session key, the merchant unlocks the authenticator to find the user's name. If the name matches with that in the ticket, the merchant knows that the buyer is actually who they declare to be.


Security risks with credit cards

Stolen cards: someone steals a credit card and the valid

cardholder contests any charges made by the thief, the issuer will credit the cardholder's account and chargeback the merchant

Reneging by the customer: A customer can authorize a

payment and later deny it. If the central is believable to the issuer, the merchant will bear the loss. Merchants can avoid such situation by showing evidence that the cardholder confirmed the order and received the goods.

Theft of card details stored on the merchants computer: The

key to protecting this information is to isolate the computer or files storing this information so that it cannot be accessed directly from the Internet. Smart card: An electronic card containing an embedded microchip

that enables predefined operations or the addition, deletion, or manipulation of information on the card


Contact card:

A smart card containing a small gold plate on the face that when inserted in a smart-card reader makes contact and so passes data to and from the embedded microchip

Contactless (proximity) card:

A smart card with an embedded antenna, by means of which data and applications are passed to and from a card reader unit or other device without contact between the card and the card reader

Securing smart cards

Stored-value card: A card that has monetary value loaded onto it, and is usually rechargeable

Some smart cards show account numbers Most store the information in encrypted form Cost to the attacker so far exceeds the benefits of

hacking into these cards Applications of smart cards

Loyalty cards: Retailers are using smart cards to identify Financial applications: Multiple applications such as credit

their loyal customers and reward them

card, loyalty programs, digital identification, and electronic money are securely offered. Information technology cards: The technology will allow individuals to accept other people's smart cards (e.g., as payments), to pay from a PC, to download money value on a physical smart card, and more. Health and social welfare information cards Transportation Identification

Multipurpose cards February 2001, MasterCard International and Koreas Kookmin Card Corp. issued the first multipurpose smart card in the world It contains credit and debit card features, e-cash (from Mondex), and public transportation fares

E-Cash and Innovative Payment Systems:


E-cash: The digital equivalent of paper currency and coins, which

enables secure and anonymous purchase of low-priced items Inconvenience of opening an account and downloading software and the difficulty of obtaining a critical mass of users seems to have outweighed the benefits Here are examples of a few innovative methods. 4.

Wireless Payments Vodafone's m-pay bill system The m-pay bill system is based on reverse billing text message Qpass is used primarily to purchase content from participating

(SMS) like micropayments.


news services and periodicals such as the New York Times, Wall Street Journal, and Forbes. 7. Stored-value cards and other innovations

Visa Cash: A stored-value card designed to handle small Visa Bucks: prepaid card designed for teens Mondex: A stored-value card designed to handle small

purchases or micropayments; sponsored by Visa

2. 3.

purchases or micropayments; sponsored by Mondex, a subsidiary of MasterCard


Campus Cards: money value is not stored on the card,

but in an account equivalent to the cards ID number


E-loyalty and rewards programs:


Electronic script: A form of electronic money (or points),

issued by a third party as part of a loyalty program; can be used by consumers to make purchases at participating stores MyPoints-CyberGold (mypoints.com) Prepaid Stored-value Cards

The customer has a prepaid stored-value card, they are more likely to be loyal to the card sponsor, at least until the stored value runs out Telephone cards Starbucks

RocketCash (rocketcash.com) combines an online cash

account with a rewards program

Person-to-Person (P2P) payments: E-payment schemes (such

as PayPal) that enable the transfer of funds between two individuals PayPal (paypal.com) Citibank c2it (c2it.com) AOL QuickCash (aol.com) Bank Ones eMoneyMail Yahoo Pay Direct (paydirect.yahoo.com) Web Certificate (webcertificate.com)



Non-Internet EC payments Check yourself outconsumers can use kiosks to check Buying from vending machinesuse regular credit Paying with a check without writing itcheck is out (Sears, Kmart, Home Depot) cards at PepsiCo and Coca-Cola vending machines scanned, customers bank account is debited, the merchant account is credited (Wal-Mart, Costco)



E-check: The electronic version or representation of a paper check Eliminate the need for expensive process reengineering and taking advantage of the banking industry Can be used by all bank customers who have checking accounts


B2B Electronic Payments: Financial Supply Chains (FSC) FSC parallels the physical supply chain Follows a buyers transaction activities related to cash flow, which start with a purchase order and end in settlement with the seller Typical segments of the FCS: Segment 1: Examination of catalogs, electronic order entry Segment 2: Online negotiations, culminating in a preliminary agreement Segment 3: Credit check, seller validation, payment assurance, financing Segment 4: Invoice presentment, verification of delivery, trade service quote, and booking Segment 5: Data matching, discrepancy resolution, final payment calculation, buyer approval, currency exchange calculation (if needed), and arrangements for automatic payment Segment 6: Payment instructions, money transfer, debit and credit notices B2B payment solutions Purchasing cards: Special-purpose payment cards issued to a companys employees to be used solely for purchasing nonstrategic materials and services up to a preset dollar limit

Benefits accrued from the use of purchasing cards Productivity Gains Purchasing departments freed from day-to-day procurement activities; focus on relationships with suppliers Bill Consolidation Consolidated into a single invoice that can be paid electronically through EDI or EFT



Benefits to the buyers, agency where they work, and the merchant Payment reconciliation Expedited payments Management reports Control


Global B2B payments Letter of Credit (LC): A written agreement by a bank to pay the seller, on account of the buyer, a sum of money upon presentation of certain documents Benefits of LCs to the seller payment is highly assured if all the terms and conditions stipulated are met credit risk is reduced political/country risk is reduced when confirmed by a bank in the sellers country Benefits of LC's to the buyer

allows the buyer to negotiate for a lower purchase buyer may expand its sources of supply and bargaining power funds withdrawn from the buyers account only after the documents have been inspected giving the buyer a bit more time to hold its money Trade card payments in B2B global tracing Members of Trade card interact with each other via the Trade Card system Checks purchase orders for both parties Waits for a confirmation from a logistics company that deliveries have been made and received Authorizes payment to complete the financial transaction between the buyer and seller

Electronic Bill Presentment and Payment:

E-billing Presentment: The presentation and hosting on a specialized Web server of information that is typically printed on a bill Two models of presentment Common-biller direct


Third-party consolidators



Paying bills at ATMs Customer receives the bill Go to any ATM, slide in their bank card, enter a password, and go to bill payments on the menu Insert the account number of the biller and the amount to be paid Customer gets a printed receipt showing that the payment has been made Advantages of e-billing

For the billing firm: Reduction in expenses Enables better customer service Electronic ad inserts can be customized

Advantages of e-billing For the customer: Reduces customers expenses Simplifies and centralizes payment processing and provides better record keeping Customers review and pay bills at virtually any time, giving them direct control over the timing of the payment Check free (checkfree.com) leading third-party e-billing vendor Consolidates and aggregates all of a customers bills into a single presentment Set up payments with companies that do not offer electronic billing Alerts users to problems with any payments Users can export the transaction records to Quicken or Microsoft Money

Payment-Related Issues:
Tax calculation services for businesses DPC (salestax.com) licenses software that makes it simple to collect and report sales taxes

Tax-Related Issues:
Sales Tax Clearinghouse (STC) has a free online sales tax calculator for the U.S. and Canada (thestc.com/ratecalc.stm)

Tax-Related Issues (cont.):

Tax ware International (taxware.com) produces software that operates seamlessly with leading financial and accounting packages on multiple hardware platforms to accurately automate tax compliance

Implementing tax collection in the U.S. Streamlined Sales Tax Project (SSTP) designed to create uniformity in the way states administer sales and use taxes Merchants use the Internet to send sales transaction data in real time to any participating system How the systems works A consumer initiates an online purchase The e-business uses the Internet to access a trusted third-party tax service provider The provider calculates the tax on the purchase based on The Locations of the buyer and the seller Applicable State and local tax laws The third party makes a single monthly or quarterly tax payment to each relevant government tax authority. The tax authority then securely accesses a database, managed by the third party over the Web, to examine the transaction data for tax compliance

Special Payment-Related Issues:

Cyber Source: a comprehensive payment provider; services include: Electronic payments

Credit card fraud management Verification and compliance services

Financial services for B2B Credit reporting Risk analysis and financial matching Exchange insurance

Managerial Issues:
What B2C payment methods should we use? What B2B payment methods should we use? Should we use an in-house payment mechanism or our source? How secure are e-payments?

1. 2. 3. 4. Crucial factors determining the success of an e-payment method. Online credit card players and processes. Categories and potential uses of smart cards. Online alternatives to credit card payments.

Summary (cont.):
5. 6. 7. 8. E-check processes and involved parties. Payment methods in B2B, including global trade. Bill presentment and payment. Special payment methods.

Chapter 10

Dynamic Trading: E-Auctions, Bartering and Negotiations

Learning Objectives:
1. Define the various types of e-auctions and list their characteristics. 2. Describe forward and reverse auctions. 3. Describe the benefits and limitations of e-auctions. 4. Describe some unique e-auction models. 5. Describe the various services that support e-auctions. 6. Describe bartering and negotiating. 7. Describe the hazards of e-auction fraud and discuss possible countermeasures. 8. Describe e-auction deployment and implementation issues. 9. Analyze mobile and future directions of e-auctions.

Fundamentals of Dynamic Pricing and E-Auctions:


auction Market mechanism by which buyers make bids and sellers place offers; characterized by the competitive and dynamic nature by which the final price is reached electronic auctions (e-auctions) Auctions conducted online dynamic pricing Fluctuating prices that are determined based on supply and demand relationships at any given time One Buyer, One Seller One Seller, Many Potential Buyers forward auction An auction in which a seller offers a product to many potential buyers sealed-bid auction Auction in which each bidder bids only once; a silent auction, in which bidders do not know who is placing bids or what the bid prices are Vickrey auction Auction in which the highest bidder wins but pays only the second highest bid One Buyer, Many Potential Sellers reverse auction Auction in which the buyer places an item for bid (tender) on a request for quote (RFQ) system; potential suppliers bid on the job, with bid price reducing sequentially, and the lowest bid wins; used mainly in B2B and G2B e-commerce B2B reverse auctions C2C reverse auctions name-your-own-price model Auction model in which would-be buyers specify the price (and other terms) they are willing to pay to any willing seller; a C2B model pioneered by Priceline.com Many Sellers, Many Buyers vertical auction Auction that takes place between sellers and buyers in one industry or for one commodity auction vortals

Another name for a vertical auction vertical portal

Benefits, Limitations, and Strategic Uses of E-Auctions:

Benefits of E-Auctions Benefits to sellers Larger reach and increased revenues Optimal price setting Removal of expensive intermediaries Liquidation Lower transaction costs Lower administrative costs Better customer relationships Benefits to buyers Opportunities to Find Unique Items and Collectibles Lower prices Anonymity Convenience Entertainment Benefits to E-Auctioneers Higher repeat purchases A stickier Web site Expansion of the auction business Limitations of E-Auctions Possibility of fraud Limited participation Security Auction software Long cycle time Monitoring time Equipment for buyers Order fulfillment costs

The Name-Your-Own-Price C2B Model:

One of the most interesting e-commerce models is the nameyour-own-price model

This model enables consumers to achieve significant savings by naming their own price for goods and services The concept is that of a C2B reverse auction, in which vendors bid on a job by submitting offers and the lowest-priced vendor or the one that meets the buyers requirements gets the job

The Forward E-Auction Process and Software Support:

Phase 1: Searching and Comparing Auction aggregators and notification auction aggregators Companies that use software agents to visit Web auction sites, find information, summarize it, and deliver it to users Browsing site categories Basic and advanced searching Phase 2: Getting Started at an Auction Registration and participants profiles Listing and promoting Pricing Phase 3: Bidding Bid Watching and Multiple Bids sniping Entering a bid during the very last seconds of an auction and outbidding the highest bidder proxy bidding Use of a software system to place bids on behalf of buyers; when another bidder places a bid, the software (the proxy) will automatically raise the bid to the next level until it reaches the buyers predetermined maximum price Phase 4: Post auction Follow-Up Post auction activities Bidding notifications End-of-auction notices Seller notices Postcards and thank-you notes User communication

Chat groups Mailing lists Message boards Feedback and ratings Invoicing and billing Payment methods P2P transfer service Escrow service Credit card payment Shipping and postage

Double Auctions, Bundle Trading, and Pricing Issues:

Double Auctions single auction Auction in which at least one side of the market consists of a single entity (a single buyer or a single seller) double auction Auction in which multiple buyers and sellers may be making bids and offers simultaneously; buyers and their bidding prices and sellers and their asking prices are matched, considering the quantities on both sides bundle trading The selling of several related products and/or services together Prices in Auctions: Higher or Lower? Pricing strategies in online auctions

Bartering and Negotiating Online:

bartering The exchange of goods and services electronic bartering (e-bartering) Bartering conducted online, usually by a bartering exchange Consumer-to-consumer barter exchanges Negotiation and Bargaining online negotiation

A back-and-forth electronic process of bargaining until the buyer and seller reach a mutually agreeable price; sometimes supported by software (intelligent) agents P2P online negotiations

E-Auction Fraud and Its Prevention:

Types of E-Auction Fraud bid shielding Having phantom bidders bid at a very high price when an auction begins; they pull out at the last minute, and the real bidder who bid a much lower price wins shilling Placing fake bids on auction items to artificially jack up the bidding price Fake photos and misleading descriptions Improper grading techniques Bid siphoning Selling reproductions as originals Failure to pay Failure to pay the auction house High shipping costs and handling fees Failure to ship merchandise Loss and damage claims Fake escrow services Switch and return Other frauds

User identity Protecting against E-Auction Fraud:Appraisal services verification Authentication service Grading services Feedback forum Insurance policy Escrow services Nonpayment

Physical inspection Item verification Buyer protections Spoof (fraudulent) Web site protection eBay security center


Issues in E-Auction Implementation:

Strategic Issues Which items (services) to auction What type of auction to use Whether to do the auction in-house or to use an auctioneer (and which one) How long to run each auction How to set the initial prices How to accept a bid What increments to allow in the bidding What information to disclose to the participants Auctions in Exchanges Infrastructure for E-Auctions Building auction sites Auctions on Private Networks Pigs in Singapore and Taiwan Livestock auctions in Australia

Mobile E-Auctions and the Future of Auctions:

Benefits of Mobile Auctions Convenience and ubiquity Privacy Simpler and faster Limitations of Mobile Auctions Visual quality Memory capacity Security The Future of E-Auctions Global auctions Wireless auctions Selling art online in real-time auctions Strategic alliances


Chapter 14
E-Commerce Strategy And Global EC

Learning Objectives:
1. 2. Describe the strategic planning process. Describe the purpose and content of a business plan.

3. Understand how e-commerce impacts the strategic planning process. 4. Understand how to formulate, justify, and prioritize EC applications. 5. Describe strategy implementation and assessment, including the use of metrics. 6. Evaluate the issues involved in global EC. 7. Analyze the impact of EC on small and medium-sized businesses.

Organizational Strategy: Concepts and Overview:

strategy A broad-based formula for how a business is going to accomplish its mission, what its goals should be, and what plans and policies will be needed to carry out those goals Strategy and the Web Environment e-commerce strategy (e-strategy) The formulation and execution of a vision of how a new or existing company intends to do business electronically Strategy and the Web Environment strategic information systems planning (SISP) A process for developing a strategy and plans for aligning information systems (including e-commerce applications) with the business strategies of an organization The Strategic Planning Process Strategy initiation Strategy formulation Strategy implementation Strategy assessment

strategy initiation The initial phase of strategic planning in which the organization examines itself and its environment Specific outcomes initiation phase include: Company analysis and value proposition value proposition

The benefit that a companys products or services provide to a company and its customers Core competencies Forecasts Competitor (industry) analysis strategy formulation The development of strategies to exploit opportunities and manage threats in the business environment in light of corporate strengths and weaknesses Specific activities and outcomes from the formulation phase include: Business opportunities Cost-benefit analysis Risk analysis, assessment, and management Business plan strategy implementation The development of detailed, short-term plans for carrying out the projects agreed on in strategy formulation Specific activities and outcomes from the strategy implementation phase include: Project planning Resource allocation Project management strategy assessment The continuous evaluation of progress toward the organizations strategic goals, resulting in corrective action and, if necessary, strategy reformulation Strategic Planning Tools SWOT analysis A methodology that surveys external opportunities and threats and relates them to internal strengths and weaknesses competitor analysis grid A strategic planning tool that highlights points of differentiation between competitors and the target firm scenario planning A strategic planning methodology that generates plausible alternative futures to help decision makers identify actions that can be taken today to ensure success in the future balanced scorecard

A management tool that assesses organizational progress toward strategic goals by measuring performance in a number of different areas

Business Planning in E-Commerce:

business plan A written document that identifies the companys goals and outlines how the company intends to achieve those goals Outline of a business plan Executive Summary Business Description Operations Plan Financial Plan Marketing Plan Competitor Analysis Business Plan Fundamentals Purposes for business plan To acquire funding To acquire nonfinancial resources To obtain a realistic approach to the business business case A business plan for a new initiative or large, new project inside an existing organization

E-Strategy Formulation:
Selecting EC Opportunities Incorrect approaches to EC strategy selection: 1. Indiscriminately funding many projects and hoping for a few winners 2. Betting it all in a single, high-stakes initiative 3. Trend-surfing Productive approaches to EC strategy selection 1. Problem-driven strategy 2. Technology-driven strategy 3. Market-driven strategy 4. E-business maturity model

Determining an Appropriate EC Application Portfolio Mix The BCG model An Internet portfolio map for selecting applications

Risk Analysis and Management e-commerce (EC) risk The likelihood that a negative outcome will occur in the course of developing and operating an electronic commerce strategy Security issues Issues in Strategy Formulation How to handle channel conflict How to handle conflict between the off-line and online businesses Pricing strategy Price comparison is easier Buyers sometimes set the price Online and off-line goods are priced differently Differentiated pricing can be a pricing strategy versioning

Selling the same good, but with different selection and delivery characteristics

E-Strategy Implementation:
Create a Web Team project champion The person who ensures the EC project gets the time, attention, and resources required and defends the project from detractors at all times Start with a Pilot Project Allocate Resources Manage the Project Strategy Implementation Issues Application development Partners strategy outsourcing The use of an external vendor to provide all or part of the products and services that could be provided internally Business alliances and virtual corporations Virtual Corporation (VC) An organization composed of several business partners sharing costs and resources for the production or utilization of a product or service co-opetition Two or more companies cooperate together on some activities for their mutual benefit, even while competing against each other in the marketplace Redesigning business processes business process reengineering (BPR) A methodology for conducting a comprehensive redesign of an enterprises processes business process management (BPM) Method for business restructuring that combines workflow systems and redesign methods; covers three process categoriespeople-topeople, systems-to-systems, and systems-to-people interactions

E-Strategy and Project Assessment:

The Objectives of Assessment Measure the extent to which the EC strategy and ensuing projects are delivering what they were supposed to deliver Determine if the EC strategy and projects are still viable in the current environment Reassess the initial strategy in order to learn from mistakes and improve future planning Identify failing projects as soon as possible and determine why they failed Measuring Results and Using Metrics metric A specific, measurable standard against which actual performance is compared corporate (business) performance management (CPM, BPM) Advanced performance measuring and analysis approach that embraces planning and strategy Web analytics The analysis of click stream data to understand visitor behavior on a Web site

Global E-Commerce:
Benefits and Extent of Operations The major advantage of EC is the ability to do business at any time, from anywhere, and at a reasonable cost Barriers to Global EC Cultural issues Culture and language translation Administrative issues Geographic issues and localization Economic issues

Breaking Down the Barriers to Global EC Be strategic Know your audience Localize Think globally, act consistently Value the human touch Clarify, document, explain Offer services that reduce barriers

E-Commerce in Small and Medium-Sized Enterprises:

Advantages and Benefits of EC to Small and Medium-Sized Enterprises Inexpensive sources of information Inexpensive ways of advertising and conducting market research Competitor analysis is easier Inexpensive ways to build storefronts Less locked into legacy technologies Image and public recognition can be generated quickly An opportunity to reach worldwide customers Disadvantages and Risks of EC to Small and Medium-Sized Enterprises Lack of financial resources to fully exploit the Web Lack of technical staff or insufficient expertise in legal issues, advertising, etc. Less risk tolerance than a large company. Products not suitable for online sales Reduced personal contact with customers Inability to afford the advantages of digital exchanges Critical Success Factors for SMES Product is critical Payment methods must be flexible Electronic payments must be secure Capital investment should be kept to a minimum Inventory control is crucial Logistics services must be quick and reliable Critical Success Factors for SMES

Owner support High visibility on the Internet Join an online community A Web site should provide all the services needed by consumers Supporting SMES Government agencies Vendor service centers

Chapter 15
Economics and Justification Of Electronic Commerce

Learning Objectives:
1. Describe the need for justifying EC investments, how it is done, and how metrics are used to determine justification. 2. Understand the difficulties in measuring and justifying EC investments. 3. Recognize the difficulties in establishing intangible metrics and describe how to overcome them. 4. List and briefly describe traditional and advanced methods of justifying IT investments. 5. Understand how e-CRM, e-learning, and other EC projects are justified. 6. Describe some economic principles of EC. 7. Understand how product, industry, seller, and buyer characteristics impact the economics of EC. 8. Recognize key factors in the success of EC projects and the major reasons for failures. Why Justify E-Commerce Investments; How Can They Be Justified? Increased Demand for Financial Justification IT executives feel the demand for financial justification and planning from executives but: 65% of companies lack the knowledge or tools to do ROI calculations

75% have no formal processes or budgets in place for measuring ROI 68% do not measure how projects coincide with promised benefits six months after completion Other Reasons Why EC Justification Is Needed Companies realize that EC is not necessarily the solution to all problems A formal evaluation of requests for funding is mandated Companies need to assess the success of EC projects after completion, and later on a periodic basis The success of EC projects may be assessed in order to pay bonuses Specific benefits Cost reduction Productivity improvement Improved customer satisfaction Improved staffing levels Higher revenues Higher earnings Better customer Retention More return of equity Faster time-to-market

How Is an EC Investment Justified? cost-benefit analysis A comparison of the costs of a project against the benefits Business justification and business case Why Justify E-Commerce Investments; How Can They Be ustified?(Not needed) What Needs to Be Justified? When Should Justification Take Place? When the value of the investment is relatively small for the organization When the relevant data are not available, are inaccurate, or are too volatile

When the EC project is mandated

Using Metrics in EC Justification metric A specific, measurable standard against which actual performance is compared Using Metrics in EC Justification Metrics can: Define the value proposition of business models Communicate a business strategy to the workforce Increase accountability Align the objectives of individuals, departments, and divisions to the enterprises strategic objectives Track the performance of EC systems Assess the health of companies Metrics, measurements, and key performance indicators key performance indicators (KPI) The quantitative expression of critically important metrics

Difficulties in Measuring and Justifying E-Commerce Investments:


Difficulties in Measuring Productivity and Performance Gains Data and analysis issues EC productivity gains may be offset by losses in other areas Incorrectly defining what is measured Other difficulties Difficulties in Measuring Intangible Costs and Benefits Tangible costs and benefits Intangible costs and benefits Handling intangible benefits Handling uncertainties The Process of Justifying EC and IT Projects Lay an appropriate foundation for analysis with your vendor, and then conduct your ROI Conduct a good research on metrics and validate them Justify and document the cost and benefit assumptions Document and verify all figures used in the calculation Do not leave out strategic benefits Be careful not to underestimate cost and overestimate benefits Make figures as realistic as possible and include risk analysis Commit all partners, including vendors and top management

Methods and Tools for Evaluating and Justifying E-Commerce Investments:

Opportunities and Revenue Generated by EC Investment A major difficulty in assessing the EC value is the measurement of possible benefits that drive EC investment Some of these are opportunities that may or may not materialize, so there is only a certain probability for return on the EC investment known as the opportunity matrix Traditional Methods for Evaluating EC Investments ROI method Payback period

Net Present Value (NPV) Business ROI Technology ROI ROI calculator Calculator that uses metrics and formulas to compute ROI Internal rate of return (IRR) Break-even analyses total cost of ownership (TCO) A formula for calculating the cost of owning, operating, and controlling an IT system total benefits of ownership (TBO) Benefits of ownership that include both tangible and intangible benefits Economic value added Using several traditional methods

Examples of E-Commerce Project Justification:

E-PROCUREMENT E-procurement encompasses buying and selling, selecting suppliers, submitting formal requests for goods and services to suppliers, getting approval from buyers, processing purchase orders, fulfilling orders, delivering and receiving items, and processing payments The diversity of activities involved in e-procurement, the metrics used to measure the value of e-procurement must reflect how well each process is accomplished Customer Service and eCRM Only a small percentage of companies have demonstrated a significantly positive ROI for their eCRM investments CRM-based EC applications are most effective when they are part of a companys overall business plan and not just an EC investment


Justifying E-Training Projects End-user training that helps employees acquire or improve their EC and IT skills plays a key role in ensuring the smooth operation of organizations in the information economy Justifying Security Projects More than 85% of viruses enter business networks via email. Cleaning up infections is labor intensive, but antivirus scanning is not Employee security training is usually poorly done Calculating the Cost of the Sarbanes-Oxley Act

The Economics of E-Commerce:

Reducing Production Costs Product cost curves average-cost curve (AVC)

Behavior of average costs as quantity changes; generally, as quantity increases, average costs decline production function An equation indicating that for the same quantity of production, Q, companies either can use a certain amount of labor or invest in more automation agency costs Costs incurred in ensuring that the agent performs tasks as expected (also called administrative costs) transaction costs Costs that are associated with the distribution (sale) or exchange of products and services including the cost of searching for buyers and sellers, gathering information, negotiating, decision making, monitoring the exchange of goods, and legal fees Reducing Transaction Friction or Risk Organizations can increase the value of their products or services by using the unique capabilities of EC to reduce risks to consumers, such as those involving psychological relationships, quality concerns, delays, and financial transactions

Facilitating Product Differentiation product differentiation Special features available in products that make them distinguishable from other products. This property attracts customers that appreciate what they consider an added value EC Increases Agility agility An EC firms ability to capture, report and quickly respond to changes happening in the marketplace and business environment Markets versus E-Markets Even if the flow of physical goods does not decrease, the information provided in e-markets better informs participants and, therefore, allows them to make better decisions Valuation of EC Companies valuation

The fair market value of a business or the price at which a property would change hands between a willing buyer and a willing seller who are both informed and under no compulsion to act. For a publicly traded company, the value can be readily obtained by multiplying the selling price of the stock by the number of available shares

Factors that Determine E-Commerce Success:

Categories of EC Success Product characteristics Industry characteristics Seller characteristics Consumer characteristics

Opportunities for Success in E-Commerce and Avoiding Failure:

E-Commerce Failures Three economic phenomena suggest why: At a macroeconomic level, technological revolutions have had a boombustconsolidation cycle At a mid-economic level, failures are consistent with periodic economic downturns that have occurred in other areas over the years At a microeconomic level, the Web rush reflected an over-allocation of scarce resources and too many advertisingdriven business models E-Commerce Successes Strategies for EC success Thousands of brick-and-mortar companies are adding online channels with great success Existing firms can use organizational knowledge, brand, infrastructure, and other morphing strategies to migrate from the off-line marketplace to the online marketspace

Cultural Differences and EC EC-driven businesses must consider the cultural differences in this diverse global consumer base because without the broad acceptance of the EC channel, consumes may choose not to participate in online transactions EC in Developing Economies Developing economies often face power blackouts, unreliable telecommunications infrastructure, undependable delivery mechanisms, and the fact that only a few customers own computers and credit cards



Chapter 16
Launching a Successful Online Business and EC Projects

Learning Objectives:
1. Understand the fundamental requirements for initiating an online business. 2. Describe the process of initiating and funding a start-up e-business or large e-project. 3. Understand the process of adding EC initiatives to an existing business. 4. Describe the issues and methods of transforming an organization into an e-business. 5. Describe the process of acquiring Web sites and evaluating building versus hosting options. 6. Understand the importance of providing and managing content and describe how to accomplish this.

7. Evaluate Web sites on design criteria, such as appearance, navigation, consistency, and performance. 8. Understand how search engine optimization may help a Web site obtain high placement in search engines. 9. Understand how to provide some major support e-services. 10. Understand the process of building an online storefront. 11. Be able to build an online storefront with templates.

Starting a New Online Business:

An E-Start-Up Is a Start-Up An e-start-up is basically a start-up and, as such, must consider all the issues faced by a physical start up Guidelines to avoid dot-com failures: 1. The growth rate of the market you plan to enter 2. The timing of your market entry 3. The revenue flow 4. What cycle a market is in

Steps in Creating a New Company or Adding an Online Project


1. 2. 3.

Identify a consumer or business need in the marketplace Investigate the opportunity Determine the business owners ability to meet the need

Five secrets to help you come up with the next big thing: 1. Do your homework 2. Aim for excitement 3. Whittle, shape, iterate, repeat 4. Get real 5. Avoid creating a gizmo

Online Business Planning business plan A written document that identifies a companys goals and outlines how the company intends to achieve the goals and at what cost business case A document that justifies the investment of internal, organizational resources in a specific application or project Funding a New Online Business First round of initial funding angel investor A wealthy individual who contributes personal funds and possibly expertise at the earliest stage of business development incubator A company, university, or nonprofit organization that supports businesses in their initial stages of development Second round financing venture capital (VC) Money invested in a business by an individual, a group of individuals (venture capitalists), or a funding company in exchange for equity in the business Additional funding: A large partner The initial public offering (IPO)


Adding E-Commerce Initiatives or Transforming to an EBusiness:

Adding EC Initiatives to an Existing Business The most common additions are: A storefront A portal E-procurement Auctions and reverse auctions Other initiatives Transformation to an E-Business What is organizational transformation? How an organization can be transformed into an e-business Business process reengineering Business process management (BPM) Software tools for facilitating transformation to e-business Change management

business process management (BPM) Method for business restructuring that combines workflow systems and redesign methods; covers three process categoriespeople-topeople, systems-to-systems, and systems-to-people interactions

Building or Acquiring a Web Site:

Classification of Web Sites informational Web site A Web site that does little more than provide information about the business and its products and services interactive Web site A Web site that provides opportunities for the customers and the business to communicate and share information attractors

Web site features that attract and interact with visitors in the target stakeholder group transactional Web site A Web site that sells products and services collaborative Web site A site that allows business partners to collaborate Steps in Building a Web Site Select a Web host Register a domain name Create and manage content Design the Web site Construct the Web site and test Market and promote the Web site

Web Site Hosting and Obtaining a Domain Name:

Web Hosting Options storebuilder service A hosting service that provides disk space and services to help small and microbusinesses build a Web site quickly and cheaply A pure hosting service Web hosting service A dedicated Web site hosting company that offers a wide range of hosting services and functionality to businesses of all sizes mirror site An exact duplicate of an original Web site that is physically located on a Web server on another continent or in another country co-location A Web server owned and maintained by the business is given to a Web hosting service that manages the servers connection to the Internet ISP hosting service A hosting service that provides an independent, stand-alone Web site for small and medium-sized businesses self-hosting

When a business acquires the hardware, software, staff, and dedicated telecommunications services necessary to set up and manage its own Web site Registering a Domain Name domain name A name-based address that identifies an Internet-connected server. Usually, it refers to the portion of the address to the left of .com and .org, etc. domain name registrar A business that assists prospective Web site owners with finding and registering the domain name of their choice

Content Creation, Delivery, and Management

content The text, images, sound, and video that make up a Web page Categories and Types of Content dynamic Web content Content that must be kept up-to-date commodity content Information that is widely available and generally free to access on the Web Primary and secondary content Primary content is information about the product itself Secondary content offers marketing opportunities

Secondary content cross-selling Offering similar or complementary products and services to increase sales up-selling Offering an upgraded version of the product in order to boost sales and profit Promotion Comment Creation or Acquisition Buying content Buying from a syndicator

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 Web syndication A form of syndication in which a section of a Web site is made available for other sites to use RSS An XML format for syndicating and sharing Web content podcast A media file distributed over the Internet using syndication feeds. A collection of audio files in MP3 format Representative content-related vendors Content delivery networks personalized content Web content that matches the needs and expectations of the individual visitor Delivering content by e-newsletter e-newsletter A collection of short, informative articles sent at regular intervals by email to individuals who have an interest in the newsletters topic Writing effective content

Content Management and Maintenance content management The process of adding, revising, and removing content from a Web site to keep content fresh, accurate, compelling, and credible Content testing and updating Measuring content quality Pitfalls of content management Content removal Content management software

Catalog Content and Its Management For B2B buyers who aggregate suppliers catalogs on their own Web sites, content management begins with engaging suppliers and then collecting, standardizing, classifying, hosting, and continually updating their catalog data Content Maximization and Streaming Services Many companies provide media-rich content, such as video clips, music, or Flash media, in an effort to reach their target audience with an appealing marketing message

Web Site Design:

information architecture How the site and its Web pages are organized, labeled, and navigated to support browsing and searching throughout the Web site

Web Site Design Criteria Navigation:

Consistency Response time Appearance Quality Assurance Availability Interactivity Content Usability Security Scalability

site navigation Aids that help visitors find the information they need quickly and easily Site map and navigation Frame An HTML element that divides the browser window into two or more separate windows Performance Colors and Graphics

usability (of Web site) The quality of the users experience when interacting with the Web site Factors that measure usability: Ease of learning Efficiency of use Memorability Error frequency and severity Subjective satisfaction

Providing E-Commerce Support Services: Who Builds the Web Site? Payments: Accepting Credit Cards card-not-present (CNP) transaction A credit card transaction in which the merchant does not verify the customers signature

An online business that wants to accept credit cards must: Open a merchant account Purchase credit card processing software Integrate the credit card processing software into the transaction system

Web Site Promotion Internal Web site promotion signature file A simple text message an e-mail program automatically adds to outgoing messages search engine optimization (SEO) The application of strategies intended to position a Web site at the top of Web search engines Customer Relationship Management The first step to building customer relationships is to give customers good reasons to visit and return to the Web site The site should be rich in information and have more content than a visitor can absorb in a single visit The site should include not just product information but also value-added content from which visitors can get valuable information and services for free

Prepared By: Professor Dr. Eng. Ismail A. Taha