Online Retail and Services PDF

Chapter 9 Online Retail and Services Online retail or online shopping refers to a form of electronic commerce where consumers directly buy goods or services from a seller via the Internet rather than physically entering...

Chapter 9 Online Retail and Services Online retail or online shopping refers to a form of electronic commerce where consumers directly buy goods or services from a seller via the Internet rather than physically entering a brick-and-mortar store. Customers usually visit the company's website, select a product, enter payment information and shipping details, and then order the product. Copyright © 2013 Pearson Education, Inc.  Major Trends in Online Retail, 2012–2013 Mobile commerce nearly doubles Rapid growth in social commerce Online retail still the fastest growing retail channel Buying online a normal, mainstream experience Selection of goods increases, includes luxury goods Informational shopping for big-ticket items expands Specialty retail sites show rapid growth Integration of multiple retailing channels Copyright © 2013 Pearson Education, Inc. Slide 9-2  Major Trends in Online Retail, 2020–2024 The major trends in online retail from 2020 to 2024: E-commerce growth accelerated due to the COVID-19 pandemic. Mobile shopping continued to dominate, with increased use of smartphones and tablets. Omnichannel retailing integrated online and offline channels for a seamless shopping experience. Personalization and customer experience were prioritized through tailored recommendations and promotions. Copyright © 2013 Pearson Education, Inc. Slide 9-3  Major Trends in Online Retail, 2020–2024 The major trends in online retail from 2020 to 2024: Social commerce and influencer marketing gained prominence. Sustainability and ethical consumerism influenced purchasing decisions. Augmented Reality (AR) and Virtual Reality (VR) enhanced the online shopping experience. Voice commerce expanded through voice-activated assistants and smart speakers. Same-day and fast delivery options became more common. Data security and privacy measures were strengthened to protect consumer information. Copyright © 2013 Pearson Education, Inc. Slide 9-4  The Retail Sector Most important theme in online retailing is effort to integrate online and offline operations U.S. retail market accounts for $11.1 trillion (71%) of total GDP Personal consumption:  Services: 66%  Nondurable goods: 23%  Durable goods: 11% “Goods” vs. “services” ambiguity Copyright © 2013 Pearson Education, Inc. Slide 9-5  The Retail Industry 7 segments (clothing, durable goods, etc.)  For each, uses of Internet may differ Information vs. direct purchasing General merchandisers vs. specialty retailers Mail order/telephone order (MOTO) sector most similar to online retail sector  Sophisticated order entry, delivery, inventory control systems Copyright © 2013 Pearson Education, Inc. Slide 9-6  E-commerce Retail: The Vision 1. Reduced search and transaction costs; customers able to find lowest prices 2. Lowered market entry costs, lower operating costs, higher efficiency 3. Traditional physical store merchants forced out of business 4. Some industries would be disintermediated Few of these assumptions were correct—the structure of the retail marketplace has not been revolutionized Internet has created new venues for multi-channel firms and supported a few pure-play merchants Copyright © 2013 Pearson Education, Inc. Slide 9-7  The Online Retail Sector Today Smallest segment of retail industry (5–6%) Growing at faster rate than offline segments Revenues have resumed growth Around 72% of Internet users bought online in 2012 Primary beneficiaries:  Established offline retailers with online presence (e.g., Staples)  First mover dot-com companies (e.g., Amazon) Copyright © 2013 Pearson Education, Inc. Slide 9-8  Multi-channel Integration Integrating Web operations with traditional physical store operations  Provide integrated shopping experience  Leverage value of physical store Types of integration  Online order, in-store pickup  Web promotions to drive customers to stores  Gift cards usable in any channel Increasing importance of mobile devices, social commerce, and tablets Copyright © 2013 Pearson Education, Inc. Slide 9-9  Analyzing the Viability of Online Firms Economic viability:  Ability of firms to survive as profitable business firms during specified period (i.e., 1–3 years) Two business analysis approaches:  Strategic analysis Focuses on both industry as a whole and firm itself  Financial analysis How firm is performing Copyright © 2013 Pearson Education, Inc. Slide 9-10  Strategic Analysis Factors Key industry strategic factors  Barriers to entry  Power of suppliers  Power of customers  Existence of substitute products  Industry value chain  Nature of intra-industry competition Firm-specific factors  Firm value chain  Core competencies  Synergies  Technology  Social and legal challenges Copyright © 2013 Pearson Education, Inc. Slide 9-11  Financial Analysis Factors Statements of Operations  Revenues  Cost of sales  Gross margin  Operating expenses  Operating margin  Net margin Pro forma earnings—EBITDA Balance sheet  Assets, current assets  Liabilities, current liabilities, long-term debt  Working capital Copyright © 2013 Pearson Education, Inc. Slide 9-12  E-tailing Business Models Virtual merchant  Amazon Bricks and clicks  Walmart, J.C. Penney, Sears Catalog merchant  Lands’ End, L.L. Bean, Victoria’s Secret Manufacturer-direct  Dell Copyright © 2013 Pearson Education, Inc. Slide 9-13  E-commerce in Action: Amazon.com Vision:  Earth’s biggest selection, most customer-centric Business model:  Retail, Third-Party Merchants, and Amazon Web Services (merchant and developer services) Financial analysis:  Continued explosive revenue growth, profitable Strategic analysis/business strategy:  Maximize sales volume, lower costs and cut prices, acquisitions, mobile shopping, Kindle Strategic analysis/competition:  Online and offline general merchandisers, Web services Copyright © 2013 Pearson Education, Inc. Slide 9-14  E-commerce in Action: Amazon.com Strategic analysis/technology:  Largest, most sophisticated collection of online retailing technologies available Strategic analysis/social, legal:  Sales tax, patent lawsuits Future prospects:  In 2011, net sales grew 40%, and significant gains thus far in 2013  Ranks among top five in customer service, speed, accuracy Copyright © 2013 Pearson Education, Inc. Slide 9-15  Common Themes in Online Retailing Online retail fastest growing channel on revenue basis Profits for startup ventures have been difficult to achieve Disintermediation has not occurred Established merchants need to create integrated shopping experience to succeed online Growth of online specialty merchants, e.g. Blue Nile Extraordinary growth of social, local, and mobile e- commerce Copyright © 2013 Pearson Education, Inc. Slide 9-16 The Service Sector: Offline and Online Service sector:  Largest and most rapidly expanding part of economies of advanced industrial nations  Concerned with performing tasks in and around households, business firms, and institutions Includes doctors, lawyers, accountants, business consultants, etc.  Employs 4 out of 5 U.S. workers  75% of economic activity Copyright © 2013 Pearson Education, Inc. Slide 9-17  Service Industries Major service industry groups:  Finance  Insurance  Real estate  Travel  Professional services—legal, accounting  Business services—consulting, advertising, marketing, etc.  Health services  Educational services Copyright © 2013 Pearson Education, Inc. Slide 9-18  Service Industries Two categories  Transaction brokers  Hands-on service providers Features:  Knowledge- and information-intense Makes them uniquely suited to e-commerce applications  Personalization and customization Level differs depending on type of service, e.g., medical vs. financial Copyright © 2013 Pearson Education, Inc. Slide 9-19  Online Financial Services Example of e-commerce success story, but success is somewhat different from what had been predicted Brokerage industry transformed 62% of customers prefer online banking Effects less powerful in insurance, real estate Multi-channel, established financial services firms continue to show growth Copyright © 2013 Pearson Education, Inc. Slide 9-20  Financial Service Industry Trends Two important global trends Industry consolidation Financial Reform Act of 1998 amended Glass- Steagall Act and allows banks, brokerages, and insurance firms to merge Movement toward integrated financial services Financial supermarket model Copyright © 2013 Pearson Education, Inc. Slide 9-21  Industry Consolidation and Integrated Financial Services Figure 9.3, Page 605 Copyright © 2013 Pearson Education, Inc. Slide 9-22  Online Financial Consumer Behavior Consumers attracted to online financial sites because of desire to save time and access information rather than save money Most online consumers use financial services firms for mundane financial management  Check balances  Pay bills Number of people using mobile devices for financial services is surging Copyright © 2013 Pearson Education, Inc. Slide 9-23  Online Banking and Brokerage Online banking pioneered by NetBank and Wingspan; no longer in existence Established brand-name national banks have taken substantial lead in market share 107 million people use online banking; expected to rise to 116 million by 2014 Early innovators in online brokerage (E*Trade) have been displaced by established brokerages (Fidelity, Schwab) Copyright © 2013 Pearson Education, Inc. Slide 9-24  Multi-channel vs. Pure Online Financial Service Firms Online consumers prefer multi-channel firms with physical presence Multi-channel firms  Growing faster than pure online firms  Lower online customer acquisition costs Pure online firms  Cannot provide all services that require face-to-face interaction Copyright © 2013 Pearson Education, Inc. Slide 9-25  Financial Portals and Account Aggregators Financial portals  Comparison shopping services, independent financial advice, financial planning  Revenues from advertising, referrals, subscriptions  e.g., Yahoo! Finance, Quicken.com, MSN Money Account aggregation  Pulls together all of a customer’s financial data at a personalized Web site  e.g., Yodlee: provides account aggregation technology  Privacy concerns; control of personal data, security, etc. Copyright © 2013 Pearson Education, Inc. Slide 9-26  Online Mortgage and Lending Services Early entrants hoped to simplify and speed up mortgage value chain Three kinds of online mortgage vendor today  Established online banks, brokerages, and lending organizations  Traditional mortgage vendors  Pure online mortgage firms Online mortgage industry has not transformed process of obtaining mortgage  Complexity of process Copyright © 2013 Pearson Education, Inc. Slide 9-27  Online Insurance Services Online term life insurance:  One of few online insurance with lowered search costs, increased price comparison, lower prices  Commodity Most insurance not purchased online Online industry geared more toward  Product information, search  Price discovery  Online quotes  Influencing the offline purchasing decision Copyright © 2013 Pearson Education, Inc. Slide 9-28  Online Real Estate Services Early vision: Disintermediation of a complex industry However, major impact is influencing of purchases offline  Impossible to complete property transaction online  Main services are online property listings, loan calculators, research and reference material, with mobile apps increasing Despite revolution in available information, there has not been a revolution in the industry value chain Copyright © 2013 Pearson Education, Inc. Slide 9-29  Online Travel Services One of the most successful B2C e-commerce segments Online travel bookings declined slightly due to recession but expected to grow to $150 billion in 2016 For consumers: More convenience than traditional travel agents For suppliers: A singular, focused customer pool that can be efficiently reached through onsite advertising Copyright © 2013 Pearson Education, Inc. Slide 9-30  Online Travel Services (cont.) Travel an ideal service/product for Internet  Information-intensive product  Electronic product—travel arrangements can be accomplished for the most part online  Does not require inventory  Does not require physical offices with multiple employees  Suppliers are always looking for customers to fill excess capacity  Does not require an expensive multi-channel presence Copyright © 2013 Pearson Education, Inc. Slide 9-31  Insight on Business: Class Discussion Zipcar Shifts into High Gear What is the Zipcar business model? How does it make money? How does Zipcar use the Internet? Does Zipcar compete with traditional car rental firms? Will Zipcar work only in urban markets? Can it expand to the suburbs? Copyright © 2013 Pearson Education, Inc. Slide 9-32  The Online Travel Market Four major sectors:  Airline tickets  Hotel reservations  Car rentals  Cruises/tours 57% purchase airline tickets from airline’s Web site, 22% from travel booking Web site (e.g., Expedia) Corporate online-booking solutions (COBS) Copyright © 2013 Pearson Education, Inc. Slide 9-33  Online Travel Industry Dynamics Intense competition among online providers Price competition difficult Industry consolidation Industry impacted by meta-search engines  Commoditize online travel Mobile applications are also transforming industry Social media content, reviews have an increasing influence on travel purchases Copyright © 2013 Pearson Education, Inc. Slide 9-34  Online Career Services Top sites generate over $1 billion annually Two main players: CareerBuilder, Monster Traditional recruitment tools:  Classified, print ads, career expos, on-campus recruitment, staffing firms, internal referral programs Online recruiting  More efficient, cost-effective, reduces total time-to-hire  Enables job hunters to more easily distribute resumes while conducting job searches  Ideally suited for Web due to information-intense nature of process Copyright © 2013 Pearson Education, Inc. Slide 9-35  It’s Just Information: The Ideal Web Business? Recruitment ideally suited for the Web  Information-intense process  Initial match-up doesn’t require much personalization Saves time and money for both job hunters and employers One of most important functions:  Ability to establish market prices and terms (online national marketplace) Copyright © 2013 Pearson Education, Inc. Slide 9-36  Online Recruitment Industry Trends Consolidation Diversification: Niche employment sites Localization:  Local vs. national, Craigslist Job search engines/aggregators:  “Scraping” listings Social networking:  LinkedIn; Facebook apps Mobile Web sites and apps Copyright © 2013 Pearson Education, Inc. Slide 9-37  Chapter 8 Ethical, Social, and Political Issues in E-commerce Copyright © 2013 Pearson Education, Inc. People Resource  Technology-literate knowledge worker – knows how and when to apply technology  Information-literate knowledge worker  Can define information needs  Knows how and where to obtain information  Understands information  Acts appropriately based on information  Ethics – principles and standards that guide our behavior toward other people 1-2 People Resource - Ethics You always want your actions to fall in Quadrant I – both ethical and legal. 1-3  Understanding Ethical, Social, and Political Issues in E-commerce Internet, like other technologies, can:  Enable new crimes  Affect environment  Threaten social values Costs and benefits must be carefully considered, especially when there are no clear-cut legal or cultural guidelines Copyright © 2013 Pearson Education, Inc. Slide 8-4  A Model for Organizing the Issues Issues raised by Internet and e-commerce can be viewed at individual, social, and political levels Four major categories of issues:  Information rights  Property rights  Governance  Public safety and welfare Copyright © 2013 Pearson Education, Inc. Slide 8-5  Basic Ethical Concepts Ethics  Study of principles used to determine right and wrong courses of action Responsibility Accountability Liability  Laws permitting individuals to recover damages Due process  Laws are known, understood  Ability to appeal to higher authorities to ensure laws applied correctly Copyright © 2013 Pearson Education, Inc. Slide 8-6  Analyzing Ethical Dilemmas Process for analyzing ethical dilemmas: 1. Identify and clearly describe the facts 2. Define the conflict or dilemma and identify the higher-order values involved 3. Identify the stakeholders 4. Identify the options that you can reasonably take 5. Identify the potential consequences of your options Copyright © 2013 Pearson Education, Inc. Slide 8-7  Candidate Ethical Principles Golden Rule Universalism Slippery Slope Collective Utilitarian Principle Risk Aversion No Free Lunch The New York Times Test The Social Contract Rule Copyright © 2013 Pearson Education, Inc. Slide 8-8  Privacy and Information Rights Privacy  Moral right of individuals to be left alone, free from surveillance, or interference from other individuals or organizations Information privacy  Subset of privacy  Claims: Certain information should not be collected at all Individuals should control the use of whatever information is collected about them Copyright © 2013 Pearson Education, Inc. Slide 8-9  Privacy and Information Rights (cont.) Copyright © 2013 Pearson Education, Inc. Slide 8-10  Information Collected at E-commerce Sites Data collected includes  Personally identifiable information (PII)  Anonymous information Types of data collected  Name, address, phone, e-mail, social security  Bank and credit accounts, gender, age, occupation, education  Preference data, transaction data, clickstream data, browser type Copyright © 2013 Pearson Education, Inc. Slide 8-11  Social Networks and Privacy Social networks  Encourage sharing personal details  Pose unique challenge to maintaining privacy Facebook’s facial recognition technology and tagging Personal control over personal information vs. organization’s desire to monetize social network Copyright © 2013 Pearson Education, Inc. Slide 8-12  Mobile and Location-based Privacy Issues Smartphone apps  Funnel personal information to mobile advertisers for targeting ads  Track and store user locations 42% of users say privacy a concern Mobile Device Privacy Act  Not yet passed  Requires informing consumers about data collection Copyright © 2013 Pearson Education, Inc. Slide 8-13  Profiling and Behavioral Targeting Profiling  Creation of digital images that characterize online individual and group behavior  Anonymous profiles  Personal profiles Advertising networks  Track consumer and browsing behavior on Web  Dynamically adjust what user sees on screen  Build and refresh profiles of consumers Google’s AdWords program Copyright © 2013 Pearson Education, Inc. Slide 8-14 Profiling and Behavioral Targeting (cont.) Deep packet inspection Business perspective:  Increases effectiveness of advertising, subsidizing free content  Enables sensing of demand for new products and services Critics’ perspective:  Undermines expectation of anonymity and privacy  Consumers show significant opposition to unregulated collection of personal information Copyright © 2013 Pearson Education, Inc. Slide 8-15  The Internet and Government Invasions of Privacy Various laws strengthen ability of law enforcement agencies to monitor Internet users without knowledge and sometimes without judicial oversight  CALEA, USA PATRIOT Act, Cyber Security Enhancement Act, Homeland Security Act Government agencies are largest users of private sector commercial data brokers Retention by ISPs and search engines of user data Copyright © 2013 Pearson Education, Inc. Slide 8-16  Legal Protections In United States, privacy rights explicitly granted or derived from:  Constitution First Amendment—freedom of speech and association Fourth Amendment—unreasonable search and seizure Fourteenth Amendment—due process  Specific statutes and regulations (federal and state)  Common law Copyright © 2013 Pearson Education, Inc. Slide 8-17  Informed Consent U.S. firms can gather and redistribute transaction information without individual’s informed consent  Illegal in Europe Informed consent:  Opt-in  Opt-out  Many U.S. e-commerce firms merely publish information practices as part of privacy policy or use opt-in as default Copyright © 2013 Pearson Education, Inc. Slide 8-18  The FTC’s Fair Information Practices Guidelines (not laws)  Used to base assessments and make recommendations  Sometimes used as basis for law (COPPA) Fair Information Practice principles  Notice  Choice  Access  Security  Enforcement  Restricted collection Copyright © 2013 Pearson Education, Inc. Slide 8-19  The FTC’s Fair Information Practices New privacy framework (2010)  Scope  Privacy by design  Simplified choice  Greater transparency 2012 Report: Industry best practices  Do not track  Mobile privacy  Data brokers  Large platform providers  Development of self-regulatory codes Copyright © 2013 Pearson Education, Inc. Slide 8-20  The European Data Protection Directive Privacy protection much stronger in Europe than United States European approach:  Comprehensive and regulatory in nature European Commission’s Directive on Data Protection (1998):  Standardizes and broadens privacy protection in European Union countries Department of Commerce safe harbor program:  For U.S. firms that wish to comply with directive Copyright © 2013 Pearson Education, Inc. Slide 8-21  Private Industry Self-Regulation Safe harbor programs:  Private policy mechanism to meet objectives of government regulations without government involvement  Privacy seal programs  TRUSTe Industry associations include:  Online Privacy Alliance (OPA)  Network Advertising Initiative (NAI) CLEAR Ad Notice Technical Specifications Privacy advocacy groups Emerging privacy protection business Copyright © 2013 Pearson Education, Inc. Slide 8-22  Technological Solutions Spyware blockers Pop-up blockers Secure e-mail Anonymous remailers, surfing Cookie managers Disk/file erasing programs Policy generators Privacy Policy Reader—P3P Public key encryption Copyright © 2013 Pearson Education, Inc. Slide 8-23  Intellectual Property Rights Intellectual property:  All tangible and intangible products of human mind Major ethical issue:  How should we treat property that belongs to others? Major social issue:  Is there continued value in protecting intellectual property in the Internet age? Major political issue:  How can Internet and e-commerce be regulated or governed to protect intellectual property? Copyright © 2013 Pearson Education, Inc. Slide 8-24  Intellectual Property Protection Three main types of protection:  Copyright  Patent  Trademark law Goal of intellectual property law:  Balance two competing interests—public and private Maintaining this balance of interests is always challenged by the invention of new technologies Copyright © 2013 Pearson Education, Inc. Slide 8-25  Copyright Protects original forms of expression (but not ideas) from being copied by others for a period of time “Look and feel” copyright infringement lawsuits Fair use doctrine Digital Millennium Copyright Act, 1998  First major effort to adjust copyright laws to Internet age  Implements WIPO treaty that makes it illegal to make, distribute, or use devices that circumvent technology-based protections of copyrighted materials Copyright © 2013 Pearson Education, Inc. Slide 8-26  Patents Grant owner 20-year monopoly on ideas behind an invention  Machines  Man-made products  Compositions of matter  Processing methods Invention must be new, non-obvious, novel Encourages inventors Promotes dissemination of new techniques through licensing Stifles competition by raising barriers to entry Copyright © 2013 Pearson Education, Inc. Slide 8-27  E-commerce Patents 1998 State Street Bank & Trust vs. Signature Financial Group  Business method patents Most European patent laws do not recognize business methods unless based on technology Patent reform  Patent trolls  2011 America Invents Acts Copyright © 2013 Pearson Education, Inc. Slide 8-28  Trademarks Identify, distinguish goods, and indicate their source Purpose  Ensure consumer gets what is paid for/expected to receive  Protect owner against piracy and misappropriation Infringement  Market confusion  Bad faith Dilution  Behavior that weakens connection between trademark and product Copyright © 2013 Pearson Education, Inc. Slide 8-29  Trademarks and the Internet Cybersquatting  Anticybersquatting Consumer Protection Act (ACPA) Cyberpiracy  Typosquatting Metatagging Keywording Linking and deep linking Framing Copyright © 2013 Pearson Education, Inc. Slide 8-30  Governance Primary questions  Who will control Internet and e-commerce?  What elements will be controlled and how? Stages of governance and e-commerce  Government Control Period (1970–1994)  Privatization (1995–1998)  Self-Regulation (1995–present)  Government Regulation (1998–present) Copyright © 2013 Pearson Education, Inc. Slide 8-31  Who Governs E-commerce and the Internet? Mixed mode environment  Self-regulation, through variety of Internet policy and technical bodies, co-exists with limited government regulation ICANN : Domain Name System Internet can be easily controlled, monitored, and regulated from a central location Copyright © 2013 Pearson Education, Inc. Slide 8-32  Taxation Non-local nature of Internet commerce complicates governance and jurisdiction issues Sales taxes MOTO retailing tax subsidies Internet Tax Freedom Act Unlikely that comprehensive, integrated rational approach to taxation issue will be determined for some time to come Copyright © 2013 Pearson Education, Inc. Slide 8-33  Net Neutrality Neutrality: All Internet activities charged the same rate, regardless of bandwidth used Differentiated pricing strategies Cap pricing (tiered plans) Speed tiers Usage metering Congestion pricing Highway (“toll”) pricing Comcast slows users for certain traffic FCC’s 2010 “compromise” net neutrality rules Copyright © 2013 Pearson Education, Inc. Slide 8-34  Public Safety and Welfare Protection of children and strong sentiments against pornography  Passing legislation that will survive court challenges has proved difficult Efforts to control gambling and restrict sales of drugs and cigarettes  Currently, mostly regulated by state law  Unlawful Internet Gambling Enforcement Act Copyright © 2013 Pearson Education, Inc. Slide 8-35  Chapter 6 E-commerce Marketing Concepts: Social, Mobile, Local Copyright © 2013 Pearson Education, Inc.  Consumers Online: The Internet Audience and Consumer Behavior Around 75% (89 million) U.S. households have Internet access in 2012 Growth rate has slowed Intensity and scope of use both increasing Some demographic groups have much higher percentages of online usage than others  Gender, age, ethnicity, community type, income, education Copyright © 2013 Pearson Education, Inc. Slide 6-2  Consumers Online (cont.) Broadband vs. dial-up audiences, new mobile audience Neighborhood effects Lifestyle and sociological impacts  Use of Internet by children, teens  Use of Internet as substitute for other social activities Media choices  Traditional media competes with Internet for attention  Television viewing has increased with Internet usage Copyright © 2013 Pearson Education, Inc. Slide 6-3  Consumer Behavior Models Study of consumer behavior  Attempts to explain what consumers purchase and where, when, how much, and why they buy Consumer behavior models  Predict wide range of consumer decisions  Based on background demographic factors and other intervening, more immediate variables Copyright © 2013 Pearson Education, Inc. Slide 6-4  Background Demographic Factors Culture: Affects entire nations Subculture  Subsets formed around major social differences (ethnicity, age, lifestyle, geography) Social networks and communities  Direct reference groups  Indirect reference groups  Opinion leaders  Lifestyle groups Psychological profile Copyright © 2013 Pearson Education, Inc. Slide 6-5  The Online Purchasing Decision Psychographic research  Combines demographic and psychological data  Divides market into various groups based on social class, lifestyle, and/or personality characteristics Stages in consumer decision process:  Awareness of need  Search for more information  Evaluation of alternatives  Actual purchase decision  Post-purchase contact with firm Copyright © 2013 Pearson Education, Inc. Slide 6-6  A Model of Online Consumer Behavior Decision process similar for online and offline behavior General online behavior model  Consumer skills  Product characteristics  Attitudes toward online purchasing  Perceptions about control over Web environment  Web site features: latency, usability, security Clickstream behavior Copyright © 2013 Pearson Education, Inc. Slide 6-7  A Model of Online Consumer Behavior (cont.) Clickstream factors include:  Number of days since last visit  Speed of clickstream behavior  Number of products viewed during last visit  Number of pages viewed  Supplying personal information  Number of days since last purchase  Number of past purchases Clickstream marketing  Developed dynamically as customers use Internet Copyright © 2013 Pearson Education, Inc. Slide 6-8  Shoppers: Browsers and Buyers Shoppers: 88% of Internet users  72% buyers  16% browsers (purchase offline) One-third of offline retail purchases influenced by online activities Online traffic also influenced by offline brands and shopping E-commerce and traditional commerce are coupled: Part of a continuum of consuming behavior Copyright © 2013 Pearson Education, Inc. Slide 6-9  What Consumers Shop for and Buy Online Big ticket items  Travel, computer hardware, electronics  Consumers now more confident in purchasing costlier items Small ticket items ($100 or less)  Apparel, books, office supplies, software, etc.  Sold by first movers on Web Physically small items High margin items Copyright © 2013 Pearson Education, Inc. Slide 6-10  How Consumers Shop How shoppers find online vendors  Search engines—59%  Marketplaces (Amazon, eBay)—28%  Direct to retail sites—10%  Other methods—3% Online shoppers are highly intentional StumbleUpon Recommender systems Copyright © 2013 Pearson Education, Inc. Slide 6-11  Trust, Utility, and Opportunism in Online Markets Two most important factors shaping decision to purchase online:  Utility: Better prices, convenience, speed  Trust: Asymmetry of information can lead to opportunistic behavior by sellers Sellers can develop trust by building strong reputations for honesty, fairness, delivery Copyright © 2013 Pearson Education, Inc. Slide 6-12  Basic Marketing Concepts Marketing  Strategies and actions to establish relationship with consumer and encourage purchases  Addresses competitive situation of industries and firms  Seeks to create unique, highly differentiated products or services that are produced or supplied by one trusted firm Unmatchable feature set Avoidance of becoming commodity Copyright © 2013 Pearson Education, Inc. Slide 6-13  The Digital Commerce Marketing Platform Multi-channel marketing plan  Web site  Traditional online marketing Search engine, display, e-mail, affiliate  Social marketing Social networks, blogs, video, game  Mobile marketing Mobile/tablet sites, apps  Offline marketing Television, radio, newspapers Copyright © 2013 Pearson Education, Inc. Slide 6-14  Strategic Issues and Questions Which part of the marketing plan should you focus on first? How do you integrate the different platforms for a coherent message? How do you allocate resources?  How do you measure and compare metrics from different platforms?  How do you link each to sales revenues? Copyright © 2013 Pearson Education, Inc. Slide 6-15  Can Brands Survive the Internet? Brands and Price Dispersion Vision: “Law of One Price, ”end of brands Instead:  Consumers still pay premium prices for differentiated products  E-commerce firms rely heavily on brands to attract customers and charge premium prices  Price dispersion  Large differences in price sensitivity for same product  “Library effect” Copyright © 2013 Pearson Education, Inc. Slide 6-16  Online Segmenting, Targeting, and Positioning Segmenting: Allows firms to differentiate products to fit consumer needs and charge different prices Types of segmentation  Behavioral  Demographic  Psychographic  Technical  Contextual  Search Copyright © 2013 Pearson Education, Inc. Slide 6-17  The Digital Commerce Marketing Platform: Strategies and Tools Internet marketing (vs. traditional)  More personalized  More participatory  More peer-to-peer  More communal The most effective Internet marketing has all four features Copyright © 2013 Pearson Education, Inc. Slide 6-18  Customer Engagement Customer conversations about:  Products and services  Customer experience with products  Customer likes and dislikes Conversations conducted through:  Web site feedback  Blogs  Facebook  Twitter Copyright © 2013 Pearson Education, Inc. Slide 6-19  Establishing the Customer Relationship Web site functions to:  Establish brand identity and customer expectations Differentiating product  Inform and educate customer  Shape customer experience  Anchor the brand online Central point for all marketing messages Copyright © 2013 Pearson Education, Inc. Slide 6-20  Traditional Online Marketing Tools Search engine marketing (SEM)  Sponsored links  Search result display ads  Keywords  Search engine optimization (SEO) Display ad marketing  Advertising networks  Ad exchanges, real-time bidding Copyright © 2013 Pearson Education, Inc. Slide 6-21  Traditional Online Marketing Tools (cont.) E-mail marketing  Very inexpensive  3% click-throughs in targeted campaigns  Permission marketing Affiliate marketing Lead-generation marketing Sponsorship marketing Copyright © 2013 Pearson Education, Inc. Slide 6-22  Social Marketing Fastest growing type of online marketing Long-term prospects unknown Four features driving growth Social sign-on Collaborative shopping Network notification Social search (recommendation) Copyright © 2013 Pearson Education, Inc. Slide 6-23  Twitter Marketing Real-time interaction with consumers 50% companies with 100+ employees using Twitter Twitter marketing products  Promoted Tweets  Promoted Trends  Promoted Accounts Copyright © 2013 Pearson Education, Inc. Slide 6-24  Blog Marketing 43% of all U.S. companies use blogs for marketing Ideal for starting viral campaigns Can use blogs for both branding messages and advertisements Blog advertising networks Brand advocacy blogs Copyright © 2013 Pearson Education, Inc. Slide 6-25  Viral Marketing Form of social marketing Customers pass along marketing message to friends, family, coworkers Referred customers cost less to acquire and keep Venues are e-mail, social networks, video and game sites Copyright © 2013 Pearson Education, Inc. Slide 6-26  Mobile Marketing 7% of online marketing, growing rapidly Major formats:  Messaging (SMS)  Display  Search  Video Other formats:  Quick Response (QR) codes  Couponing Copyright © 2013 Pearson Education, Inc. Slide 6-27  App Marketing Revenue sources  Pay-per-app  In-app purchase  Subscriptions  Advertising Most popular types of apps  Social network, banking, search, news Retailer’s apps  Browsing and purchasing Copyright © 2013 Pearson Education, Inc. Slide 6-28  Local Marketing Marketing geared to user’s geographic location Local searches:  20% of all searches  40% of mobile searches Most common local marketing tools  Geotargeting with Google Maps  Display ads in hyperlocal publications Copyright © 2013 Pearson Education, Inc. Slide 6-29  Multi-Channel Marketing Average American spends 24% of media time on Internet, rest on other channels Television, radio, newspapers, and magazines Consumers also multitask, using several media Internet campaigns strengthened by using other channels Copyright © 2013 Pearson Education, Inc. Slide 6-30  Other Online Marketing Strategies Brand leveraging Customer retention strategies  Personalization and one-to-one marketing  Customization and customer co-production  Customer service FAQs Real-time customer chat systems Automated response systems Copyright © 2013 Pearson Education, Inc. Slide 6-31  Net Pricing Strategies Pricing  Integral part of marketing strategy  Traditionally based on: Fixed cost Variable costs Demand curve Price discrimination  Selling products to different people and groups based on willingness to pay Copyright © 2013 Pearson Education, Inc. Slide 6-32  Net Pricing Strategies (cont.) Free and freemium  Can be used to build market awareness Versioning  Creating multiple versions of product and selling essentially same product to different market segments at different prices Bundling  Offers consumers two or more goods for one price Dynamic pricing:  Auctions  Yield management  Flash marketing Copyright © 2013 Pearson Education, Inc. Slide 6-33  Long-Tail Marketing Internet allows for sales of obscure products with little demand Substantial revenue because Near zero inventory costs Little marketing costs Search and recommendation engines Copyright © 2013 Pearson Education, Inc. Slide 6-34  Channel Management Strategies Channels:  Different methods by which goods can be distributed and sold Channel conflict:  When new venue for selling products or services threatens or destroys existing sales venues  e.g., online airline/travel services and traditional offline travel agencies Some manufacturers are using partnership model to avoid channel conflict Copyright © 2013 Pearson Education, Inc. Slide 6-35  The Revolution in Internet Marketing Technologies Internet’s main impacts on marketing:  Scope of marketing communications broadened  Richness of marketing communications increased  Information intensity of marketplace expanded  Always-on mobile environment expands marketing opportunities Internet marketing technologies:  Web transaction logs  Tracking files  Databases, data warehouses, data mining  Hadoop and Big Data  Customer relationship management systems Copyright © 2013 Pearson Education, Inc. Slide 6-36  Web Transaction Logs Built into Web server software Record user activity at Web site Provides much marketing data, especially combined with:  Registration forms  Shopping cart database Answers questions such as:  What are major patterns of interest and purchase?  After home page, where do users go first? Second? Copyright © 2013 Pearson Education, Inc. Slide 6-37  Tracking Files Users browsing tracked as they move from site to site Four types of tracking files  Cookies Small text file placed by Web site Allows Web marketers to gather data  Flash cookies  Beacons (“bugs”)  Apps Copyright © 2013 Pearson Education, Inc. Slide 6-38  Insight on Society: Class Discussion Every Move You Make, Every Click You Make, We’ll Be Tracking You Are beacons innocuous? Or are they an invasion of personal privacy? Do you think your Web browsing should be known to marketers? What are the Privacy Foundation guidelines for Web beacons? Should online shopping be allowed to be a private activity? Copyright © 2013 Pearson Education, Inc. Slide 6-39  Databases Database: Stores records and attributes Database management system (DBMS):  Software used to create, maintain, and access databases SQL (Structured Query Language):  Industry-standard database query and manipulation language used in a relational database Relational database:  Represents data as two-dimensional tables with records organized in rows and attributes in columns; data within different tables can be flexibly related as long as the tables share a common data element Copyright © 2013 Pearson Education, Inc. Slide 6-40  Data Warehouses and Data Mining Data warehouse:  Collects firm’s transactional and customer data in single location for offline analysis by marketers and site managers Data mining:  Analytical techniques to find patterns in data, model behavior of customers, develop customer profiles Query-driven data mining Model-driven data mining Rule-based data mining Copyright © 2013 Pearson Education, Inc. Slide 6-41 Hadoop and the Challenge of Big Data “Big data”  Web traffic, e-mail, social media content Traditional DBMS unable to process the volumes—petabytes and exabytes Hadoop  Open-source software solution  Distributed processing among inexpensive servers Copyright © 2013 Pearson Education, Inc. Slide 6-42  Customer Relationship Management (CRM) Systems Create customer profiles:  Product and usage summary data  Demographic and psychographic data  Profitability measures  Contact history  Marketing and sales information Customer data used to:  Develop and sell additional products  Identify profitable customers  Optimize service delivery, etc. Copyright © 2013 Pearson Education, Inc. Slide 6-43  The E-commerce Security Environment Overall size and losses of cybercrime unclear  Reporting issues 2011 CSI survey: 46% of respondent firms detected breach in last year Underground economy marketplace:  Stolen information stored on underground economy servers Copyright © 2013 Pearson Education, Inc. Slide 5-1  What Is Good E-commerce Security? To achieve highest degree of security  New technologies  Organizational policies and procedures  Industry standards and government laws Other factors  Time value of money  Cost of security vs. potential loss  Security often breaks at weakest link Copyright © 2013 Pearson Education, Inc. Slide 5-2  The E-commerce Security Environment Figure 5.1, Page 266 Copyright © 2013 Pearson Education, Inc. Slide 5-3  The Tension Between Security and Other Values Ease of use  The more security measures added, the more difficult a site is to use, and the slower it becomes Public safety and criminal uses of the Internet  Use of technology by criminals to plan crimes or threaten nation-state Copyright © 2013 Pearson Education, Inc. Slide 5-4  Security Threats in the E-commerce Environment Three key points of vulnerability in e-commerce environment: 1. Client 2. Server 3. Communications pipeline (Internet communications channels) Copyright © 2013 Pearson Education, Inc. Slide 5-5 Most Common Security Threats in the E-commerce Malicious code Environment  Viruses  Worms  Trojan horses  Drive-by downloads  Backdoors  Bots, botnets  Threats at both client and server levels Copyright © 2013 Pearson Education, Inc. Slide 5-6  Most Common Security Threats (cont.) Potentially unwanted programs (PUPs)  Browser parasites  Adware  Spyware Phishing  E-mail scams  Social engineering  Identity theft Copyright © 2013 Pearson Education, Inc. Slide 5-7  Most Common Security Threats (cont.) Hacking  Hackers vs. crackers  Types of hackers: White, black, grey hats  Hacktivism Cybervandalism:  Disrupting, defacing, destroying Web site Data breach  Losing control over corporate information to outsiders Copyright © 2013 Pearson Education, Inc. Slide 5-8  Most Common Security Threats (cont.) Credit card fraud/theft  Hackers target merchant servers; use data to establish credit under false identity Spoofing (Pharming) Spam (junk) Web sites Denial of service (DoS) attack  Hackers flood site with useless traffic to overwhelm network Distributed denial of service (DDoS) attack Copyright © 2013 Pearson Education, Inc. Slide 5-9  Most Common Security Threats (cont.) Sniffing  Eavesdropping program that monitors information traveling over a network Insider attacks Poorly designed server and client software Social network security issues Mobile platform security issues  Same risks as any Internet device Cloud security issues Copyright © 2013 Pearson Education, Inc. Slide 5-10  Technology Solutions Protecting Internet communications  Encryption Securing channels of communication  SSL, VPNs Protecting networks  Firewalls Protecting servers and clients Copyright © 2013 Pearson Education, Inc. Slide 5-11  Encryption Encryption  Transforms data into cipher text readable only by sender and receiver  Secures stored information and information transmission  Provides 4 of 6 key dimensions of e-commerce security: Message integrity Nonrepudiation Authentication Confidentiality Copyright © 2013 Pearson Education, Inc. Slide 5-12  Symmetric Key Encryption Sender and receiver use same digital key to encrypt and decrypt message Requires different set of keys for each transaction Strength of encryption  Length of binary key used to encrypt data Advanced Encryption Standard (AES)  Most widely used symmetric key encryption  Uses 128-, 192-, and 256-bit encryption keys Other standards use keys with up to 2,048 bits Copyright © 2013 Pearson Education, Inc. Slide 5-13  Public Key Encryption Uses two mathematically related digital keys  Public key (widely disseminated)  Private key (kept secret by owner) Both keys used to encrypt and decrypt message Once key used to encrypt message, same key cannot be used to decrypt message Sender uses recipient’s public key to encrypt message; recipient uses private key to decrypt it Copyright © 2013 Pearson Education, Inc. Slide 5-14  Public Key Encryption using Digital Signatures and Hash Digests Hash function:  Mathematical algorithm that produces fixed-length number called message or hash digest Hash digest of message sent to recipient along with message to verify integrity Hash digest and message encrypted with recipient’s public key Entire cipher text then encrypted with recipient’s private key—creating digital signature—for authenticity, nonrepudiation Copyright © 2013 Pearson Education, Inc. Slide 5-15  Digital Envelopes Address weaknesses of:  Public key encryption Computationally slow, decreased transmission speed, increased processing time  Symmetric key encryption Insecure transmission lines Uses symmetric key encryption to encrypt document Uses public key encryption to encrypt and send symmetric key Copyright © 2013 Pearson Education, Inc. Slide 5-16  Digital Certificates and Public Key Infrastructure (PKI) Digital certificate includes:  Name of subject/company  Subject’s public key  Digital certificate serial number  Expiration date, issuance date  Digital signature of CA Public Key Infrastructure (PKI):  CAs and digital certificate procedures  PGP Copyright © 2013 Pearson Education, Inc. Slide 5-17  Limits to Encryption Solutions Doesn’t protect storage of private key  PKI not effective against insiders, employees  Protection of private keys by individuals may be haphazard No guarantee that verifying computer of merchant is secure CAs are unregulated, self-selecting organizations Copyright © 2013 Pearson Education, Inc. Slide 5-18  Securing Channels of Communication Secure Sockets Layer (SSL) and Transport Layer Security (TLS)  Establishes a secure, negotiated client-server session in which URL of requested document, along with contents, is encrypted Virtual Private Network (VPN):  Allows remote users to securely access internal network via the Internet Copyright © 2013 Pearson Education, Inc. Slide 5-19  Protecting Networks Firewall  Hardware or software  Uses security policy to filter packets  Two main methods: Packet filters Application gateways Proxy servers (proxies)  Software servers that handle all communications originating from or being sent to the Internet Copyright © 2013 Pearson Education, Inc. Slide 5-20  Protecting Servers and Clients Operating system security enhancements  Upgrades, patches Anti-virus software:  Easiest and least expensive way to prevent threats to system integrity  Requires daily updates Copyright © 2013 Pearson Education, Inc. Slide 5-21  Management Policies, Business Procedures, and Public Laws Worldwide, companies spend $60 billion on security hardware, software, services Managing risk includes  Technology  Effective management policies  Public laws and active enforcement Copyright © 2013 Pearson Education, Inc. Slide 5-22 A Security Plan: Management Policies Risk assessment Security policy Implementation plan  Security organization  Access controls  Authentication procedures, including biometrics  Authorization policies, authorization management systems Security audit Copyright © 2013 Pearson Education, Inc. Slide 5-23  The Role of Laws and Public Policy Laws that give authorities tools for identifying, tracing, prosecuting cybercriminals:  National Information Infrastructure Protection Act of 1996  USA Patriot Act  Homeland Security Act Private and private-public cooperation  CERT Coordination Center  US-CERT Government policies and controls on encryption software  OECD, G7/G8, Council of Europe, Wassener Arrangement Copyright © 2013 Pearson Education, Inc. Slide 5-24  Types of Payment Systems Cash  Most common form of payment  Instantly convertible into other forms of value  No float Checking transfer  Second most common payment form in United States Credit card  Credit card associations  Issuing banks  Processing centers Copyright © 2013 Pearson Education, Inc. Slide 5-25  Types of Payment Systems (cont.) Stored value  Funds deposited into account, from which funds are paid out or withdrawn as needed  Debit cards, gift certificates  Peer-to-peer payment systems Accumulating balance  Accounts that accumulate expenditures and to which consumers make period payments  Utility, phone, American Express accounts Copyright © 2013 Pearson Education, Inc. Slide 5-26  Payment System Stakeholders Consumers  Low-risk, low-cost, refutable, convenience, reliability Merchants  Low-risk, low-cost, irrefutable, secure, reliable Financial intermediaries  Secure, low-risk, maximizing profit Government regulators  Security, trust, protecting participants and enforcing reporting Copyright © 2013 Pearson Education, Inc. Slide 5-27  E-commerce Payment Systems Credit cards  44% of online payments in 2012 (U.S.) Debit cards  28% online payments in 2012 (U.S.) Limitations of online credit card payment  Security, merchant risk  Cost  Social equity Copyright © 2013 Pearson Education, Inc. Slide 5-28  Alternative Online Payment Systems Online stored value systems:  Based on value stored in a consumer’s bank, checking, or credit card account  e.g., PayPal Other alternatives:  Amazon Payments  Google Checkout  Bill Me Later  WUPay, Dwolla, Stripe Copyright © 2013 Pearson Education, Inc. Slide 5-29  Mobile Payment Systems Use of mobile phones as payment devices established in Europe, Japan, South Korea Near field communication (NFC)  Short-range (2”) wireless for sharing data between devices Expanding in United States  Google Wallet Mobile app designed to work with NFC chips  PayPal  Square Copyright © 2013 Pearson Education, Inc. Slide 5-30  Digital Cash and Virtual Currencies Digital cash  Based on algorithm that generates unique tokens that can be used in “real” world  e.g., Bitcoin Virtual currencies  Circulate within internal virtual world  e.g., Linden Dollars in Second Life, Facebook Credits Copyright © 2013 Pearson Education, Inc. Slide 5-31  Electronic Billing Presentment and Payment (EBPP) Online payment systems for monthly bills 50% of all bill payments Two competing EBPP business models:  Biller-direct (dominant model)  Consolidator Both models are supported by EBPP infrastructure providers Copyright © 2013 Pearson Education, Inc. Slide 5-32