IIMT2601 Final Exam E-Commerce (I) PDF

Hil’s Notes ˚ʚ♡ɞ˚ IIMT2601 Final Exam 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...

Hil’s Notes ˚ʚ♡ɞ˚ IIMT2601 Final Exam 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 1  Hil’s Notes ˚ʚ♡ɞ˚ IIMT2601 Final Exam 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 2  Hil’s Notes ˚ʚ♡ɞ˚ IIMT2601 Final Exam 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 3  Hil’s Notes ˚ʚ♡ɞ˚ IIMT2601 Final Exam 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 4  Hil’s Notes ˚ʚ♡ɞ˚ IIMT2601 Final Exam 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 5  Hil’s Notes ˚ʚ♡ɞ˚ IIMT2601 Final Exam 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. 6  Hil’s Notes ˚ʚ♡ɞ˚ IIMT2601 Final Exam 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 7  Hil’s Notes ˚ʚ♡ɞ˚ IIMT2601 Final Exam E-Commerce (II) Artificial Intelligence (AI) in E-Commerce and Engaging Customers 1. The YOHO Case B2C E-Commerce Platform Electronics and home appliances retailer 2. First-Party Selling Model (1P Model) YOHO procures products directly from suppliers → Manages inventory and handle customer orders → Distribute products and provide after-sales services High Control Asset-heavy Model 3. E-commerce Landscape in Hong Kong Limited Adoption: ○ about ⅓ individuals aged 15+ shop online ○ about ⅓ enterprises had a web presence Impact of Covid-19 Pandemic: ○ Accelerated shift ○ Increase in digital payments ○ Online sales grew by 27% 4. Strength and Weakness of E-Commerce Strength Weakness High accessibility Lack of Physical Experience Convenience Delivery Delays Cost efficiency Security Concerns Flexible Business Models Limited Personal Interaction 5. Online-Merge-Offline Model (OMO) Online + Offline stores 6. Porter’s Five Forces Model The Threat of New Entrants - Low barriers of entry facilitates competitors and increasing market competition The Bargaining Power of Buyers - customers have significant power due to numerous choices - compelling business to offer competitive pricing and quality The Bargaining Power of Suppliers - many suppliers exist, generally lower their bargaining power and allow E-commerce firms to negotiate better terms The Threat of Substitute Products - high availability of substitutes increases competition, as customers can easily switch Competitive Rivalry within Industry - increase competition among established players lead to price wars and innovation pressures 8  Hil’s Notes ˚ʚ♡ɞ˚ IIMT2601 Final Exam 7. Generative (Gen) AI Foundation Models ○ Foundation models serve as a base for multiple applications, moving away from task-specific AI ○ They are trained on vast amounts of unstructured data, enabling them to perform diverse tasks Generative Capabilities ○ Generative Al models predict and generate content, such as predicting the next word in a sentence ○ With tuning and prompting, these models can adapt to specific natural language processing tasks with minimal labeled data Advantages of Foundation Models ○ Performance: Foundation models excel due to their extensive training on large datasets, outperforming traditional models ○ Productivity Gains: They require less labeled data for task- specific applications, thanks to their pre-training Disadvantages and Challenges ○ Compute Costs: Training and running these models can be expensive, posing challenges for smaller enterprises ○ Trustworthiness: Concerns arise from the unvetted, diverse data these models are trained on, leading to potential biases Applications Beyond Language ○ Vision Models: Technologies like DALL-E 2 generate images from text ○ Code Assistance: Tools like GitHub Copilot or ChatGPT help developers write code efficiently ○ Specialized Domains: IBM is applying foundation models in areas like chemistry and climate change research 8. Large Language Models LLMs are designed to generate human-like responses to text-based inputs and perform a wide range of natural language processing tasks, including language translation, text summarization, and sentiment analysis LLMs are distinguished by their massive size, with hundreds of millions to billions of parameters, and their ability to learn from vast amounts of data They utilize deep learning algorithms, such as transformers, to process and understand text data, enabling them to learn patterns, identify relationships, and generate accurate responses Performance Boost ○ Foundation models leverage vast datasets ○ Leading to superior performance in various applications compared to traditional models ○ Makes them attractive for businesses aiming for efficiency Generative Capabilities: ○ These models can generate new content, such as text or images ○ By predicting the next word or visual element ○ Opens up innovative possibilities in creative fields Adaptability: ○ Foundation models can be fine-tuned with minimal labeled data 9  Hil’s Notes ˚ʚ♡ɞ˚ IIMT2601 Final Exam ○ Making them versatile tools for specific natural language processing tasks ○ Saving time and resources Data Dependency: ○ Effectiveness of these models relies heavily on the quality and quantity of data they were trained on ○ Raising concerns about potential biases and reliability in outputs Cost Barrier: ○ High computational requirements for training and running large models can pose significant financial challenges for smaller companies ○ Limiting widespread adoption Trust Issues: ○ Uncurated nature of the training data can lead to ethical concerns ○ These models may inadvertently generate biased or harmful content Broad Application: ○ Beyond text, foundation models are being applied in multiple domains including visual content generation and scientific research ○ Showcasing their versatility and potential impact across industries 9. YOHO AI Assistant - Empowered By Generative AI Collaborated with OpenAI and Microsoft’s Azure OpenAI Functions: product search, recommendations, 24/7 customer services etc. Powerful business tool Insights from data patterns How could Gen AI help? ○ Boost visibility → Personalised Service → Increase sales → Stay competitive ○ Keep up with rapidly evolving AI technology ○ Enhance SEO with GAI to drive more traffic ○ Leverage GAI for tailored customer experiences from presales to aftersales ○ More traffic and better engagement lead to higher conversions 10. Customer Relationship Management Functions of CRM Systems i. Capture and integrate customer data from all over the organization ii. Consolidate and analyze customer data iii. Distribute customer information to various systems and customer touch points across enterprise iv. Provide single enterprise view of customers 10  Hil’s Notes ˚ʚ♡ɞ˚ IIMT2601 Final Exam CRM Software ○ From niche tools to large scale enterprise applications ○ More comprehensive packages have modules for: a. Partner relationship management (PRM) Integrating lead generation, pricing, promotions, order configurations, and availability Tools to assess partners’ performances b. Employee relationship management (ERM) Setting objectives, employee performance management, performance-based compensation, employee training CRM Software Capabilities ○ Sales Force Automation (SFA) Sales prospect and contact information Sales quote generation capabilities ○ Customer Service Assigning and managing customer service requests Web-based self-service capabilities ○ Marketing Capturing prospect and customer data, scheduling and tracking direct-marketing mailings or e-mail Cross-selling 11  Hil’s Notes ˚ʚ♡ɞ˚ IIMT2601 Final Exam Customer Loyalty Management Roadmap Operational and Analytical CRM Operational CRM Analytical CRM Customer-facing applications Based on data warehouses Sales force automation call center populated by operational CRM and customer service support systems and customer touch Marketing automation points Analyzes customer data (OLAP, data mining, etc.) Customer lifetime value (CLTV) 12  Hil’s Notes ˚ʚ♡ɞ˚ IIMT2601 Final Exam Analytical CRM Data Warehouse Business Value of CRM Systems Business value of CRM systems Churn rate Increased customer satisfaction Number of customers who stop Reduced direct-marketing costs using or purchasing products or More effective marketing services from a company Lower costs for customer Indicator of growth or decline of acquisition/retention firm’s customer base Increased sales revenue 13