E-Commerce (I) PDF

E-Commerce (I) 1. Digital goods (characteristics): Goods that can be delivered over a digital network Nearly 0 marginal cost (the cost of producing the first unit is almost the entire cost of product) Cost of delivery is low Price highly variable...

E-Commerce (I) 1. Digital goods (characteristics): Goods that can be delivered over a digital network Nearly 0 marginal cost (the cost of producing the first unit is almost the entire cost of product) Cost of delivery is low Price highly variable Marketing cost remains the same 2. Network effects Defined: the value of a product or service increase as its number of users expands Digital goods are subjected to network effects Quantifying network effects: Metcalfe’s Law: V = N^2 While V = value and N = no. of users Network effects is a strategic competitive advantage for digital businesses 3. Direct Network Effect (one-sided network effect) the no. of users on one side will impact the no. of user on the same side the value of a product or service increases as more users join the platform Eg. Social media platform such as X becomes more valuable as more users join and participate, especially “influencers” with large followings 4. Indirect Network Effect (two-sided/cross side network effect) the no. of users on one side will impact the no. on the other side the value of the product or service rises for a group of users if more users join a different group that is part of the network Eg. For instance, the customer experience for ordering from FoodPanda improves with shorter wait times if there are more available delivery drivers 5. Positive and Negative Network Effects Positive Network Effects Positive network effects occur when the value of a product or service increases as more people use it Social Media: Platforms like Facebook or Instagram become more  valuable as more users join because there are more connections, content, and interactions. Marketplaces: E-commerce sites like eBay benefit as more buyers attract more sellers, leading to a wider variety of products and competitive prices. Negative Network Effects Negative network effects occur when the value of a product or service decreases as more people use it. Overcrowded Platforms: In some cases, too many users can lead to a poorer experience, such as slower performance or difficulties in finding relevant content (e.g., congested online gaming servers). Spam and Noise: As more users join a communication platform, the likelihood of spam or irrelevant content increases, diminishing the overall user experience. 6. Switching cost Switching cost and network effects must go hand in hand Defined: Switching costs consist of the costs incurred by customers to change a product or service toward another similar product or service Types of switching cost: ○ Monetary Costs: Fees or penalties associated with canceling a service (e.g., early termination fees). ○ Time Costs: Time spent researching alternatives. ○ Emotional Costs: Attachment to a brand or product that makes switching feel risky or uncomfortable. ○ Procedural Costs: Effort needed to transfer data or accounts from one service provider to another. 7. Platform-centric Businesses (Multi-sided E-business platform) Two-sided (or more generally multi-sided) markets are roughly 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” and hopefully charging each side [market that enable interaction between multiple side of users] Eg. of sides: consumer, product/service provider side/ logistics side/ advertiser side 8. The Long Tail Business Model The Long Tail business model is a distribution strategy that focuses on selling a large number of niche products in small quantities, rather than only a few blockbuster products Allow customers to find products that meet their specific needs Reduce costs to store and distribute products Utilises smart search and recommendation systems to help customers discover niche products Market leaders using long tail business model: Netflix, Amazon, Spotify  9. E-Business Model Business Model: a framework for finding a systematic way to unlock long term value for an organisation while delivering value to customers and capture value through monetization strategies Digital Business Model: a model that leverages digital technologies to improve several aspects of an organisation Elements (6 elements): they must be aligned and reinforce each other Competitive Existing player in the market and the nature of the competition Environment Presence of what products and services we offer and the mode of business Business Brick and Mortar Click Only Hybrid: Click and Mortar Revenue 5 types of revenue model Strategy Traditional sales: consumer buys goods and services from the website/ physical store produced by the firm [Eg. Apple] Transaction fees: commission paid to the business for aiding in the transaction [eg. HKTVmall, Expedia, Agoda] Web/mobile advertising: advertising, promotion displayed on the website/ mobile apps [Eg. Facebook, Google] Affiliate marketing: paying business that bring or refer customers to another business [Eg. Trivago, Hotelscombined] Subscription base: users pay a recurring fee for the use of the product/ services [eg. Netflix] Pricing Traditionally price are based on: (i) fixed cost (ii) variable cost (iii) Strategy demand curve Now, there are more pricing strategies Versioning: create multiple versions of digital product/service at minimal cost and sell essentially the same product to different market segments at different prices [Eg. Ads vs Ads free/ time limit vs no time limit/ more space vs less space] Bundling: offers consumers two or more goods in one price [Eg. MS office suite] Dynamic Pricing: adjust prices according to demand/supply and other parameters [Eg. Uber] - having multiple price points  based on several factors, such as customer segments, peak times of service and time-based consumption Freemium: "free" and "premium" - get the basics at no cost but access to premium functions for a fee [eg. spotify, google drive] Free trial: allow a user to test a product or service for a limited time before buying the actual product Marketing Strategy Value how unique (sticky) is your business Proposition Pursuit of competitive advantages, uniqueness, stickiness Personalisation/ Customisation (user data, contents) Product differentiation - at least perceived to be different 10. Strategies for Competing for Digital Business Model Reasoning behind ○ Network markets experience early, fierce competition (cause by feedback loop (word-of-mouth) inherent in network effects) ○ Firms are aggressive in the early stages - once a leader product has emerged, new adopters tend to favour the leading product over rivals Platform operator Move early Subsidize product adoption Leverage viral promotion Expand by redefining the market to bring in new categories of users or through convergence Controversial example: Anticipatory package shipping… Anticipation: ○ Perfect every single step ○ Individualisation/ customisation ○ Analyse customer data ○ Give customers what they desire even before they ask for it 11. Digital Marketing Social media: generate sales, improve reputation, better serve customer New marketing toolkit ○ SEM - Search Engine Marketing - paid ○ SEO - Search Engine Optimisation - organic ○ CRM - Customer Relationship Management ○ Personalisation systems  12. E-Commerce B2C Business or transactions conducted directly between a company and consumers who are the end-users of its products or services Eg. Apple, Nike Reduces information asymmetry: buyers have much stronger bargaining power than sellers now Increased competition and reduced search and transaction cost Feasible to enhance market segmentation Extremely strong role on network effects Dis-intermediation Re-intermediation - Reintermediation consists in the process of introducing again an intermediary that had previously been cut out from the supply chain. Or perhaps by creating a new intermediary that once didn’t exist. Usually, as a market is redefined, old players get cut out, and new players within the supply chain are born as well. B2B Exchanges between two or more businesses (not consumers) Concentrates on business relationships at the wholesale level and the upstream of the supply chain Facilitate the transfer of raw materials, parts and components from which additional profit is derived Eg. Alibaba C2C Involves the electronically facilitated transactions between consumers and small businesses through third parties The third party generally charges a flat fee or commission Eg. Uber, Carousell O2O Online to Online Order and pay online, receive products/ services offline Eg. Taobao, Deliveroo, Uber Enjoy part of the experience offline (critical integration of online and offline experiences for total user experiences