E-Commerce and Network Effects
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Questions and Answers

What is the definition of marginal cost?

The cost of producing one more unit of a good or service.

The marginal cost of digital goods is almost zero.

True

What is the formula for Metcalfe's Law?

V = N^2

What is a one-sided network effect?

<p>The value of a product or service increases as more users join the platform.</p> Signup and view all the answers

The customer experience for ordering from FoodPanda improves with shorter wait times if there are more available delivery drivers. This is an example of a two-sided network effect.

<p>True</p> Signup and view all the answers

Match the following terms with their definitions:

<p>Network effects = The value of a product or service increases as its number of users expands. Direct network effect = The no. of users on one side will impact the no. of user on the same side. Indirect network effect = The value of the product or service rises for a group of users if a different group joins the network. Positive network effect = The value of a product or service increases as more people use it. Negative network effect = The value of a product or service decreases as more people use it.</p> Signup and view all the answers

What are two types of switching cost?

<p>Monetary Costs, Time Costs</p> Signup and view all the answers

Which of these are examples of monetary switching costs? (Select all that apply)

<p>Early termination fees</p> Signup and view all the answers

Two-sided markets are defined as markets in which one or several platforms enable interactions between end-users and try to get the two (or multiple) sides “on board”.

<p>True</p> Signup and view all the answers

Which of these are examples of end-users in a two-sided market? (Select all that apply)

<p>Advertisers</p> Signup and view all the answers

What is a business model?

<p>A framework for finding a systematic way to unlock long-term value for an organization while delivering value to customers and capturing value through monetization strategies.</p> Signup and view all the answers

What is a digital business model?

<p>A model that leverages digital technologies to improve several aspects of an organization.</p> Signup and view all the answers

What are the six elements of a digital business model?

<p>Competitive Environment, Presence of Business, Revenue Strategy, Pricing Strategy, Marketing Strategy, Value Proposition</p> Signup and view all the answers

What are the three types of business models based on where the business operates? (Select all that apply)

<p>Hybrid</p> Signup and view all the answers

What are the five types of Revenue Strategy?

<p>Traditional sales, Transaction fees, Web/mobile advertising, Affiliate marketing, Subscription base</p> Signup and view all the answers

Which of these are examples of traditional sales? (Select all that apply)

<p>Selling digital products on a website</p> Signup and view all the answers

Versioning involves creating multiple versions of a digital product/service at minimal cost and selling them at different prices to different market segments..

<p>True</p> Signup and view all the answers

Bundling offers consumers two or more goods in one price, such as Microsoft Office Suite.

<p>True</p> Signup and view all the answers

Dynamic pricing involves adjusting prices according to demand, supply and other parameters, such as Uber.

<p>True</p> Signup and view all the answers

What are the two types of digital marketing channels?

<p>Organic and Paid</p> Signup and view all the answers

Which of these are examples of Organic digital marketing channels? (Select all that apply)

<p>Email marketing</p> Signup and view all the answers

What are the three main competitive advantages of Foundation Models?

<p>Performance, Productivity Gains, and Adaptability</p> Signup and view all the answers

Foundation models are generally considered more accurate than traditional models.

<p>True</p> Signup and view all the answers

What are some of the challenges of using foundation models? (Select all that apply)

<p>Limited ability to be fine-tuned for specific tasks</p> Signup and view all the answers

Match the following AI tools with their purpose:

<p>Vision Models = Generate images from text Code Assistance = Help developers write code efficiently Specialized Domains = Apply foundation models in areas like chemistry and climate change research</p> Signup and view all the answers

Study Notes

E-Commerce (I)

  • Digital goods have nearly zero marginal cost, meaning the cost to produce the first unit is almost the entire cost of the product.
  • Cost of delivery is low.
  • Price variability is high.
  • Marketing costs remain the same.
  • Network effects increase as the number of users expands.
  • Metcalfe's Law (V = N^2) quantifies network effects, where V = value and N = number of users.
  • Network effects provide a strategic competitive advantage.

Direct Network Effects

  • Value of a product/service increases as more users join the same side of the platform.
  • Example: social media platforms become more valuable as more users join, especially influencers with large followings.

Indirect Network Effects

  • Value of a product/service increases as more users join a different part of the network.
  • Example: customer experience for ordering from FoodPanda improves with shorter wait times if there are more delivery drivers.

Positive and Negative Network Effects

  • Positive network effects: Value increases as more people use the product/service (e.g., Facebook, Instagram).
  • Negative network effects: Value decreases as more people use it (e.g., overcrowded platforms, spam and noise).

Switching Cost

  • Defined as the costs incurred by customers to change a product or service.
  • Types of switching costs include monetary costs (cancellation fees), time costs (researching alternatives), emotional costs (attachment to a brand), and procedural costs (data transfer).

Platform-Centric Businesses

  • Multi-sided markets enable interactions between end-users.
  • Examples include consumer-product/service provider, logistics side, advertiser side.

The Long Tail Business Model

  • Focuses on selling a large number of niche products in small quantities, rather than a few blockbuster products.
  • Reduces storage and distribution costs.
  • Utilizes smart search and recommendation systems for customer product discovery.

E-Business Models

  • Digital business model leverages digital technologies to improve various organizational aspects.
  • Six elements of a business model that need to be aligned and reinforce each other: competitive environment, presence of the business, products and services offered, mode of business, physical, and virtual components.
  • Revenue models: traditional sales, transaction fees, advertising, affiliate marketing, and subscription-based models.
  • Pricing strategies: consider variable and fixed costs alongside the demand curve.

Digital Marketing

  • Social media: generates sales, improves reputation, and serves customers better.
  • SEO: uses organic strategies to appear in search engine results (free).
  • SEM: uses paid strategies to appear in search engine results (paid).

E-Commerce (II)

  • Artificial intelligence (AI) in e-commerce leads to personalized services, recommendations, and customer support.
  • The YOHO case study describes an e-commerce platform for selling electronics and home appliances following a first-party selling model (1P model).
  • Strength and weakness of e-commerce include high accessibility, convenience, cost efficiency, flexibility, but also issues including a lack of physical experience, delivery delays, security concerns, and limited personal interaction.
  • The online-merge-offline (OMO) model combines online and offline stores.
  • Porter's five forces model analyzes the threat of new entrants, bargaining power of buyers, bargaining power of suppliers, the threat of substitute products, and competitive rivalry within an industry.

CRM Software

  • Enables comprehensive customer management.
  • Includes partner relationship management (PRM), employee relationship management (ERM), sales force automation (SFA), and customer service capabilities.
  • Categorizes customer data based on sales, marketing, and service functions (operational and analytical).
  • Features, such as customer loyalty management roadmaps, show how data processing and analysis help provide valuable insights.

Customer Loyalty Management Roadmap

  • Operational and analytical CRM helps resolve customer service requests by identifying and understanding customer needs.
  • Analytical CRM (data warehouse) analyzes customer data and business values.

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IIMT2601 Final Exam E-Commerce (I) PDF

Description

Explore the principles of e-commerce, focusing on digital goods, pricing strategies, and the impact of network effects. Understand how both direct and indirect network effects influence the value of products and services in the marketplace. This quiz will enhance your grasp of competitive advantages in the digital economy.

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