Chapter 12Economics, Global, and    Other Issues in Electronic Commerce        © Prentice Hall, 2000   1
Learning ObjectivesIdentify the major impacts of Web-based economicsDescribe the major components of Web-basedeconomicsAna...
Marketplace Vs. MarketspaceMarkets have three main functions  Matching buyers and sellers  Facilitating the exchange of in...
Marketplace Vs. Marketspace                   (cont.)Regular and EC economics are completelydifferent  EC involves gatheri...
The Components of             Digital (Virtual) Economics      Digital ProductsInformation and entertainment products that...
The Components ofDigital (Virtual) Economics (cont.)The Consumers— people worldwide that surf the Webare potential buyers ...
Competition in Electronic Commerce    Impacts on competition      Lower buyers’ search cost      Speedy comparisons      D...
Competition in Electronic        Commerce (cont.)Perfect competition  Enable many buyers and sellers to enter the  market ...
Competition in Electronic        Commerce (cont.)Observations regarding competitiveness  There will be many new entrants  ...
Cost CurvesCost                           Costper                            perunit                           unit       ...
The Need for a Critical Mass of Buyers  Reasons for the need for critical mass of buyers    Fixed cost of EC is high, need...
Quality Uncertainty and Quality           AssurancePrice is becoming the major factor influencingmany Web purchasesQuality...
Quality Uncertainty and Quality        Assurance (cont.)Solutions for quality uncertainty  Provide free samples     clear ...
Pricing on the InternetPrice Discovery  Electronic marketplaces enable new types of price  discovery    Web-based auctions...
Online Vs. Offline PricingHow to price the online Vs. the offline productsor services    Pacific Brokerage Services (www.t...
Contributors to Electronic Market             SuccessProduct characteristics  Digitizable products; low priced items; comp...
Impacts on Industry StructureTraditional market  Customers search out information (about the  products available and their...
Impacts on Industry Structure (cont.) Electronic markets   The search cost for consumers is reduced   Consumers can buy pr...
The Roles and Value of Brokers in       Electronic MarketsLimitations of Privately Negotiated Transactions    Search costs...
Potential Winners and Losers in ECWinners Proprietary network owners               Internet access providers Midsize manuf...
Potential Losers in EC  Most wholesalers,  especially small ones  Brokers  Salespeople  Non-differentiated  manufacturers ...
Virtual CommunitiesThe Internet Communities  Web is being transformed into a social Web of  communities  Types of communit...
Virtual Communities (cont.)    Ways to transform a community site into a    commerce site:  Understand a particular niche ...
Virtual Communities (cont.)The Expected Payback Customer loyalty increases Increased sales Customer participation and feed...
Virtual Communities (cont.)Creating economic value  Members input useful information in the form of  comments, feedback, e...
Global Electronic CommerceWhile geographical market boundaries maybe falling, global interest-based communitieswill spring...
Barriers to Global Electronic Commerce   Legal Issues     Uncoordinated actions must be avoided and an     international p...
Barriers to Global Electronic      Commerce (cont.)Other Issues  Identification of buyers and sellers  Trust  Security ( f...
The U.S. Policy Regarding  Global Electronic CommerceThe private sector should leadGovernments should avoid undue restrict...
The Advantage for Small Businesses Inexpensive source of information Inexpensive way of advertising Inexpensive way of con...
The Risks and Disadvantages for       Small BusinessesInability to use EDI, unless it is EDI/InternetLack of resources to ...
Success Factors for Small Businesses Niche products                        International products Small volume            ...
Research in Electronic CommerceBehavioral Issues  Consumer behavior  Building consumers behavioral profiles and  identify ...
Research in Electronic Commerce                        (cont.)Technical Issues  Methods that help customers find what they...
Managerial Research IssuesAdvertisement  measuring the effectiveness, integration and coordinationApplications  creating a...
The Future of Electronic CommerceInternet Usage— increase exponentially; access viacellphones!Opportunities for Buying— in...
The Future of Electronic Commerce                          (cont.)Technology Trends  Clients    thin client and embedded c...
Upcoming SlideShare
Loading in …5
×

Ecommerce Chap 12

629 views

Published on

Published in: Education
0 Comments
1 Like
Statistics
Notes
  • Be the first to comment

No Downloads
Views
Total views
629
On SlideShare
0
From Embeds
0
Number of Embeds
3
Actions
Shares
0
Downloads
10
Comments
0
Likes
1
Embeds 0
No embeds

No notes for slide

Ecommerce Chap 12

  1. 1. Chapter 12Economics, Global, and Other Issues in Electronic Commerce © Prentice Hall, 2000 1
  2. 2. Learning ObjectivesIdentify the major impacts of Web-based economicsDescribe the major components of Web-basedeconomicsAnalyze the impact of online markets on competitionDescribe the impacts and industry structure onintermediationDescribe the role and impact of virtual communitiesEvaluate the issues involved in global electroniccommerceAnalyze the impact of EC on small businessesUnderstand the research opportunities in ECDescribe the factors that will determine the future ofEC © Prentice Hall, 2000 2
  3. 3. Marketplace Vs. MarketspaceMarkets have three main functions Matching buyers and sellers Facilitating the exchange of information, goods, services and payments Providing an institutional infrastructureElectronic Marketplaces = Marketspaces Increase effectiveness Lower distribution costs ‘Friction-free’ markets © Prentice Hall, 2000 3
  4. 4. Marketplace Vs. Marketspace (cont.)Regular and EC economics are completelydifferent EC involves gathering, selecting, synthesizing, and distributing information Economics of EC starts with supply and demand, and ends with pricing and competition © Prentice Hall, 2000 4
  5. 5. The Components of Digital (Virtual) Economics Digital ProductsInformation and entertainment products that are digitized : •Paper-based documents : books, newspapers, magazines journals, newsletters •Product information : product specifications, catalogs, user manuals •Graphics : photographs, postcards, calendars, maps, posters, x-rays •Audio : music recordings, speeches, lectures, industrial voices •Software : programs,Symbols, tokens and games, development tools concepts : •Tickets and reservations : airlines, hotels, concerts, sport events, transportation •Financial instruments : checks, electronic currencies, credit cards, securitiesProcesses and services : •Government services : forms, benefits, and welfare payments, licenses •Electronic messaging : letters, faxes, telephone calls •Business value creation processes : ordering, bookkeeping, inventorying •Auction, bidding, bartering •Remote education, telemedicine, and other interactive services •Cybercafes interactive entertainment, virtual communities © Prentice Hall, 2000 5
  6. 6. The Components ofDigital (Virtual) Economics (cont.)The Consumers— people worldwide that surf the Webare potential buyers of goods and servicesThe Sellers— frontstores available on the Net,advertising and/or offering millions of itemsThe Infrastructure Companies— companies providethe hardware and software necessary to support ECThe Intermediaries— intermediaries of all kinds offertheir services on the WebThe Support Services— ranging from certification andtrust, which assures security to knowledge providersContent Creators— media-type companies create andperpetually update Web pages and sites © Prentice Hall, 2000 6
  7. 7. Competition in Electronic Commerce Impacts on competition Lower buyers’ search cost Speedy comparisons Differentiation Lower price Customer service Digital products lack normal wear and tear © Prentice Hall, 2000 7
  8. 8. Competition in Electronic Commerce (cont.)Perfect competition Enable many buyers and sellers to enter the market at little or no cost (no barriers to entry) Not allow any buyers and sellers to individually influence the market Make certain products homogeneous (no product differentiation) Supply buyers and sellers with perfect information about the products and the market participants and conditions © Prentice Hall, 2000 8
  9. 9. Competition in Electronic Commerce (cont.)Observations regarding competitiveness There will be many new entrants The bargaining power of buyers is likely to increase There will be more substitute products and services The bargaining power of suppliers may decrease The number of industry competitors in one location will increase © Prentice Hall, 2000 9
  10. 10. Cost CurvesCost Costper perunit unit Optimal Quantity Quantity Regular Products Digital Products © Prentice Hall, 2000 10
  11. 11. The Need for a Critical Mass of Buyers Reasons for the need for critical mass of buyers Fixed cost of EC is high, need many customers to cover it. Strong and fair competition can be developed Estimated Internet users worldwide : 150-200 million range (1999) Small number as compared with an estimated 1.3 billion TVs No need to wait a few years before starting EC Look at the microlevel segmentation of the market © Prentice Hall, 2000 11
  12. 12. Quality Uncertainty and Quality AssurancePrice is becoming the major factor influencingmany Web purchasesQuality is extremely important in manysituationsIssue of quality is related to issue of trustQuality assurance by a trusted 3rd party isneeded For example : Trust-e and Better Business Bureau (BBB) © Prentice Hall, 2000 12
  13. 13. Quality Uncertainty and Quality Assurance (cont.)Solutions for quality uncertainty Provide free samples clear signal that the vendor is confident about the quality Return if you are not satisfied providing a guarantee, or a full refund, for dissatisfied customers is facilitating EC returns not feasible for digital products • many digital products such as information, knowledge, or educational material, are fully consumed when they are viewed by consumers • returning a product or refunding a purchase price may be impractical due to transaction costs © Prentice Hall, 2000 13
  14. 14. Pricing on the InternetPrice Discovery Electronic marketplaces enable new types of price discovery Web-based auctions at Onsale.com and eBay.com Intermediaries such as Priceline (www.priceline.com) Agents such as Kasbah (ecomerce.medis.mit.edu/kasbah) The ability to The ability to customize price products discriminate © Prentice Hall, 2000 14
  15. 15. Online Vs. Offline PricingHow to price the online Vs. the offline productsor services Pacific Brokerage Services (www.tradepbs.com) • a discount broker • offered almost 50% commission discount for online services Banking Industry • most do not offer any discounts for going online • some even charge additional online fixed monthly service fee • some, whose strategy is to aggressively go online, provide discount Retailers • no clear strategy © Prentice Hall, 2000 15
  16. 16. Contributors to Electronic Market SuccessProduct characteristics Digitizable products; low priced items; computers; electronics, consumer products; and even carsIndustry characteristics The need for a transaction broker exists (e.g., stocks)Seller characteristics In oligopolistic situations, sellers can maintain an environment of lower volume, higher profit margin transactionsConsumer characteristics Patient and analytical consumers © Prentice Hall, 2000 16
  17. 17. Impacts on Industry StructureTraditional market Customers search out information (about the products available and their prices, quality, and features) from a wide range of sources Market Information Seller 1 Exchange Seller 1 Customer Seller 1 Information Product Distribution Network Product Traditional Market Industry Structure © Prentice Hall, 2000 17
  18. 18. Impacts on Industry Structure (cont.) Electronic markets The search cost for consumers is reduced Consumers can buy products for lower prices, intermediaries play new roles Seller 1 Seller 1 Electroni Customer c Market Seller 1 Product Distribution Network Information Product Industry Structure with an Electronic Market © Prentice Hall, 2000 18
  19. 19. The Roles and Value of Brokers in Electronic MarketsLimitations of Privately Negotiated Transactions Search costs for finding partners—high Lack of privacy; can not remain anonymous Incomplete information; a broker can get more Contracting risk of refusing to pay, poor quality products, etc. Pricing inefficiencies, opportunities may be missed © Prentice Hall, 2000 19
  20. 20. Potential Winners and Losers in ECWinners Proprietary network owners Internet access providers Midsize manufacturers Portal providers Technology suppliers A few large resellers Market makers EC software companies Online dedicated companies Conventional retailers that use online extensively Providers of diversified Internet services Advertisement and target marketing companies Security, special infrastructure, and payment systems providers © Prentice Hall, 2000 20
  21. 21. Potential Losers in EC Most wholesalers, especially small ones Brokers Salespeople Non-differentiated manufacturers © Prentice Hall, 2000 21
  22. 22. Virtual CommunitiesThe Internet Communities Web is being transformed into a social Web of communities Types of communities Communities of transactions • facilitate buying and selling Communities of interest • place for people to interact with each other on a specific topic Communities of relations • be organized around certain life experiences Communities of fantasy • place for participants to create imaginary environments © Prentice Hall, 2000 22
  23. 23. Virtual Communities (cont.) Ways to transform a community site into a commerce site: Understand a particular niche Build a site that provides that industry, its information needs, information, either through and the step-by-step process by partnerships with existing which it does the research publishers and information needed to do business. providers or by gathering it independently.Set up the site to mirror the steps a user goes through in the Build a community that relies on information-gathering and the site for decision support. decision-making process.Start selling products and services, such as sample chips to engineers, that fit into the decision-support process. © Prentice Hall, 2000 23
  24. 24. Virtual Communities (cont.)The Expected Payback Customer loyalty increases Increased sales Customer participation and feedback increases Increased repeat traffic to site Drive new traffic to the site © Prentice Hall, 2000 24
  25. 25. Virtual Communities (cont.)Creating economic value Members input useful information in the form of comments, feedback, elaborating their attitudes and beliefs, and information needs of the community The community brings together consumers of specific demographic and interest Communities charge members content fees for downloading certain articles, music, or pictures © Prentice Hall, 2000 25
  26. 26. Global Electronic CommerceWhile geographical market boundaries maybe falling, global interest-based communitieswill spring upMainly in support of business-to-businessfinancial and other repetitive, standardtransactions, e.g. EFT & EDIThe emergence of the Internet and theextranets resulted in an inexpensive andflexible infrastructure that can greatlyfacilitate global trade © Prentice Hall, 2000 26
  27. 27. Barriers to Global Electronic Commerce Legal Issues Uncoordinated actions must be avoided and an international policy of cooperation should be encouraged Market Access Issues Companies starting e-commerce need to evaluate bandwidth needs by analyzing the data required, time constraints, access demands, and user technology limitations Financial Issues Customs and taxation electronic payment systems © Prentice Hall, 2000 27
  28. 28. Barriers to Global Electronic Commerce (cont.)Other Issues Identification of buyers and sellers Trust Security ( for example, viruses) Cultural diversity International agreements (multi-lateral agreements) Role of government Purchasing in local currencies Language and translation © Prentice Hall, 2000 28
  29. 29. The U.S. Policy Regarding Global Electronic CommerceThe private sector should leadGovernments should avoid undue restrictions onelectronic commerceWhere government involvement is needed, itsaim should be to support and enforce apredictable minimalist, consistent and simplelegal environment for commerceGovernments should recognize the uniquequalities of the InternetElectronic commerce on the Internet should befacilitated on a global basis © Prentice Hall, 2000 29
  30. 30. The Advantage for Small Businesses Inexpensive source of information Inexpensive way of advertising Inexpensive way of conducting market research Inexpensive way to build (or rent) a storefront Lower transaction cost Niche market, specialty products (cigars, wines, sauces) are the best Image and public recognition can be accumulated fast Inexpensive way of providing catalogs Inexpensive way to reach worldwide customers © Prentice Hall, 2000 30
  31. 31. The Risks and Disadvantages for Small BusinessesInability to use EDI, unless it is EDI/InternetLack of resources to fully exploit the WebLack of expertise in legal issues,advertisementLess risk tolerance than a large companyDisadvantage when a commodity is theproduct (for example, CDs)No more personal contact which is a strongpoint of a small businessNo advantage being in a local community © Prentice Hall, 2000 31
  32. 32. Success Factors for Small Businesses Niche products International products Small volume Information Capital investment must be small Inventory should be minimal or non-existent Electronic payments schema exist Payment methods must be flexible Logistical services must be quick and reliable The Web site should be submitted to directory-based search engine services like Yahoo in a correct way Join an online service or mall and do banner exchange Design a Web site that is functional and provides all needed services to consumers © Prentice Hall, 2000 32
  33. 33. Research in Electronic CommerceBehavioral Issues Consumer behavior Building consumers behavioral profiles and identify ways to utilize them Seller’s behavior and motivation Issue-oriented research (e.g., trust, intermediaries) Internet usage pattern and willingness to buy Mental model of consumer product search process, comparison process, and negotiation How to build trust in the marketspace © Prentice Hall, 2000 33
  34. 34. Research in Electronic Commerce (cont.)Technical Issues Methods that help customers find what they want Models for extranet design and management Natural language processing and automatic language translation Matching smart card technology with payment mechanisms Integrating EC with existing corporate information systems, databases, etc. Retrieval of information from an electronic industry directory Establishing standards for international trade Building a mobile Internet distribution command system © Prentice Hall, 2000 34
  35. 35. Managerial Research IssuesAdvertisement measuring the effectiveness, integration and coordinationApplications creating a methodology of finding EC business applicationsStrategy designing strategic advantage strategy for EC initiating “Where to market” strategy finding way to Integrate EC into organizationsImpacts identify the necessary organization structure and culture integration with ERP and SCM © Prentice Hall, 2000 35
  36. 36. The Future of Electronic CommerceInternet Usage— increase exponentially; access viacellphones!Opportunities for Buying— increase rapidlyPurchasing Incentives— increase buyers’ advantagesIncreased Security and Trust— significant improvementEfficient Information Handing— accessible fromanywhereInnovative Organizations— restructured andreengineeredVirtual Communities— spreading rapidlyPayment Systems— ability to use e-cash cards andmake micropayments is getting close to realityBusiness-to-Business— continues to grow rapidly © Prentice Hall, 2000 36
  37. 37. The Future of Electronic Commerce (cont.)Technology Trends Clients thin client and embedded client Servers Windows NT Networks xDSL and wireless communication EC software and services availability of all types of EC software companies support auctions and multiple types of certifications EC knowledge the quantity and quality of EC knowledge is increasing rapidly © Prentice Hall, 2000 37

×