Transcript ELECTRONIC COMMERCE - ConsumerPsychologist.com

ELECTRONIC COMMERCE
Potential roles of e-commerce ● Economics of online sales ● Collaborative Filtering
● Search Engine Optimization ● Micro Payments ● “Bricks-and-Clicks” ●
Social Media
Learning Objectives
• Understanding
– Opportunities to use ecommerce
– Circumstances when ecommerce is more
appropriate
– Influences on a site’s rank
on major search engines
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Some Potential Ways to Make Money
Online
• Sales of tangible and/or electronic products
(including services)
• Advertising revenue—message can be targeted to
– Demographics/characteristics of web visitors to this site
– Individual web surfer
• Subscription revenue (difficult to collect in practice
due to the prevalence of free online content)
• Referral fees/commissions
– Links to sites selling product
– “Affiliate” marketing
• Online research data collected and sold to clients
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Basic Internet Economics
• In most markets, online merchants
tend to have HIGHER costs than do
conventional retailers
– Much more of the work is done by the
merchant rather than by the
customer.
• Intermediaries usually add value through
specialization of labor and consolidation
of tasks. Eliminating intermediaries
usually results in higher costs.
• Customers do a lot of the work when
they select, aggregate, bring for checkout, and carry away their products.
Employees of e-commerce companies
and their transportation services have
to be paid to do this work!
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Considerations in Evaluating E-Commerce
Potential
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Value-to-bulk ratio. High value,
low weight/volume items can be
more readily handled and
shipped.
Absolute margin. Even if the
percentage margin on a high
price item is low (e.g., 15%), the
absolute margin can cover
considerable expenses (e.g.,
0.15x$1,000=$150)
Ability of consumer to
evaluate quality and fit
through online description.
Standard branded items from a
trusted source can be more
easily evaluated than items that
need to be examined up close.
Convenience to the customer
and willingness to pay for this
convenience. Some
consumers may be willing to pay
more for door-to-door delivery. It
is usually more expensive to buy
groceries online.
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Customer sensitivity to
delayed delivery.
Extent of customization
needed—highly customized
items—e.g., insurance, plane
tickets, personalization—allow
the customer to do much of
the work (i.e., data entry).
Geographic dispersal of
consumers—even if direct-toconsumer sales are not
efficient, this may be the only
cost effective way to reach
customers who are widely
dispersed (e.g., bee keepers,
Civil War buffs, tall people).
Extent of inventory value
decline over time. A
computer can be distributed to
consumers at a lower price
through retailers, but the
process takes longer and
computer parts lose value
fast.
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The Case of Dell Computer
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Customizing computers for each customer probably does
NOT save money. It is probably cheaper to provide a limited
number of computers that offer each consumer a little bit MORE
than what he or she would have wanted in a customized unit.
Prices for “upgrades” to default models tend to be very
high—e.g., additional RAM often costs more than twice as much
as the “street” price for the components. “Base” models usually
have low prices, but the final prices paid tend to be high.
Although the percentage margins on computers tends to be
low due to competition (e.g., 10-25%), absolute margins can
be significant—e.g., 10% of $1,500=$150. That margin can
pay for a lot of work.
It would probably be cheaper to ship directly to an efficient
retailer—e.g., Wal-Mart may take in hundreds of computers and
a number of other materials at one time. These items are put
out on floors using fork lifts and other efficient transportation
methods. The customer does much of the work.
However, because computer parts may lose as much as 1.5% in
value per week. Thus, reducing distribution lag time by five
weeks may “rescue” 7.5%.
If Dell claims to have an inventory turnover time of 48
hours, someone else—probably a supplier—has to carry the
needed “buffer” inventory to accommodate fluctuations in
demand.
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ELECTRONIC COMMERCE
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How Suitable For Internet Commerce?
Are There Differences Among Segments?
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Estimated Margins—Costco Pearl
Earrings
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Books
40%+ discount required to
be competitive in this
market
Discount NOT needed to be
competitive in this market
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ELECTRONIC COMMERCE
Lars Perner, Instructor
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“Collaborative Filtering”
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Comparing purchases by a customer to others who have made “similar”
purchases to identify additional products of potential interest
Largely a matter of “brute force” computer analysis
Often a more effective way to identify additional items of interest if it is
difficult to conceptually compare items to identify others like them
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E.g., favorite songs: What drives the preference? Sound, lyrics, singer characteristics?
E.g., books: Which authors are “similar?”
“Win-win” deal: Merchant has the opportunity to sell more items; the
customer finds value that he or she would otherwise have been less likely
to find
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ELECTRONIC COMMERCE
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How Suitable For Internet Commerce?
Are There Differences Among Segments?
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Reality of Online Competition
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Intense competition for large market products
(large quantity demanded attracts many sellers)
Use of large demand products as loss leaders
(e.g., Amazon.com bestsellers)
Competition will force reduced costs—if any—to
be passed on to customers. Even if there is a cost
advantage to selling online in a particular market,
you will NOT be competing just against “brickand-mortar” stores but also against those who
have the same cost advantage in selling to
customers. In the long run, you can probably
make NORMAL profits but not above market level
profits.
Competition makes charging for shipping and
handling difficult. This is often more expensive
than traditional distribution.
Less competition on specialty products  greater
margins
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“Bricks-and-Clicks”
• Traditional retail chains and online
presence tend to have synergy
– Online access to store information—hours,
locations, directions
– Checking on “in stock” status on local
stores
– Online orders with store pickup
– Online orders with delivery; store return
option
• Brand equity
• Volume purchasing power
• Inventory assortment warranted by
combined store and online sales
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Micro-payments: Opportunities and costs
• Considerable online content and
services could be made profitably
available for a small charge (e.g., 1¢$2.00)
• However, collecting small amounts of
money can be
– Costly—credit card firms or debit
processing firms may charge a
significant per transaction fee
– Inconvenient—the customer may
not be willing to enter much
information
• Mobile technology—with active login—
may be helpful for the higher end (e.g.,
50¢+)
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SEARCH ENGINE OPTIMIZATION
• Search engines
• Search engine rankings
• Optimizing for rankings
– Content
– Reciprocal linking
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Search Engines
• Search engine market
dominated by Google
• Microsoft’s new BING
search engine—the
“decision engine”
– Reported to match
search results to user IP
address  local results
possible
– Deals with Facebook
and Twitter for better
“real time” access
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Search engines
• Use an algorithm to identify the most
optimal links
• Algorithms may involve
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Usage of keywords
“Popularity” (number of links pointing inward)
Other criteria—often proprietary
“Click-through” rates from the respective search
engine (NOT overall traffic volume on the site)
• Historically, key word repetition was the
most important factor. Today, on Google,
quality links appear to be more
important than key words.
• Internet consultants will make
recommendations for a fee. Many have
strong opinions on “what works.” Most are
short on evidence that they are correct.
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Lars Perner, Instructor
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Search Engine Optimization: Reciprocal
Linking
• Linking from highly rated
web sites greatly increases
the ranking of a site
• Linking from low rated sites
does not appear to help
much
• The weight of a link may be
determined by the number
of links at that page—one
link among many is worth
less
• Linking to “spamming” sites
may be penalized
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Search Engine Optimization: Text
• Credible repetition of key words
– Frequently greater credit for
• Bolded words
• Words early in the
document
• Identification of desirable key
words
– Analysis of competing sites
– Customer interviews
• Misspellings
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Search Engine Optimization: Other
• Domain names
– If the domain name features the keyword, more
weight is given
– Google considers the underscore a space—e.g.,
Marketing_Tips.com .
• Listing in the Open Directory Project
(http://www.DMOZ.org) .
• Most search engines no longer rely
significantly on meta tags—”invisible”
information from webmasters about the site—
since these can be manipulated. Using meta
tags, however, tells your competitors what
you are trying to accomplish.
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ELECTRONIC COMMERCE
Lars Perner, Instructor
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M-commerce: Mobile phone/PDA/
“gadget” access and sales
• High growth in mobile technology with
Internet access
• .mobi domain is intended for web sites
optimized for small screens
• Google Android project is intended to
increase uniformity of display across
cell phone models
• Many countries are running ahead of
the U.S.
• Useful in making “micro-payments”—
buying a soda or other low cost item
• Current advertisements for mobile
phone banking
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ELECTRONIC COMMERCE
Lars Perner, Instructor
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Social Media
• “Word-of-mouth” or
“word-of-click
campaigns”
• Targeting of specific
demographics 
efficiency
• Exposure through
online games
• Credibility of known
individuals and their
friends
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Facebook
• Targeting by
demographics
• Online presences
through
– Applications
– “Managed” (“Fan”)
pages
• “Viral” potential
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