Ch2 (#6) - Discussion Board

1. Ch2 (#6) - Discussion Board • The "name-your-own-price" model is considered a reverse auction. However, this model does not include RFQs or consecutive bidding. Why is it called a reverse auction? • Answer:It is considered a reverse auction because it changes the normal roles of a traditional auction. In this auction, buyers indicate the goods and prices that they are interested in purchasing. Sellers then evaluate this information and decide to either provide the good at a specified price or to forego the bid.

2. Case 2.2 Diamonds Forever – Online (p.45) • The age-old business of gem buying is very inefficient: Several layers of intermediaries can jack up the price of a gem 1,000% between wholesale and final retail prices

3. Case 2.2 Diamonds Forever Online (cont.) • American Don Kogen made his fortune in Chanthaburi (Thailand)—one of the world’s leading centers for processing gems • He started by purchasing low-grade gems from sellers that arrived early in the morning and then selling them for a small profit to dealers who arrived late in the day • This quick turnover of inventory helped him build up his capital resources • He reached the U.S. gem market using advertising

4. Case 2.2 Diamonds Forever Online (cont.) • Using faxes, he shortened the order time • In 1998, Kogen decided to use the Internet—establishing thaigem.com and sold his first gem online • By 2001, the revenue from his online business reached $4.3 million, and it more than doubled (to $9.8 million) in 2002 • Online sales account for 85 percent of the revenue • The buyers are mostly dealers or retailers such as Wal-Mart or QVC

5. Diamonds Forever Online (cont.) • He buys raw or refined gems from all over the world, some online, catering to the demand of his customers • Thaigem’s competitive edge is low prices • The proximity to gem processing factories and the low labor cost enable prices significantly lower than his online competitors • Unsatisfied customers can return merchandise within 30 days, no questions asked • Delivery to any place in the world is made via Federal Express, at about $15 per shipment

6. Questions 1. Describe Thaigem’s business model, including the revenue model. How are logistics and payments organized? (Visit thaigem.com to find more details.) The model is B2B (selling to distributors). The revenue model is made as an intermediary, increasing the prices he paid manufacturers before selling to buyers. Logistics appear to be handled internally from Asia. Payments appear to be made on account or through a merchant system. 2. Compare this entrepreneurial business to click-and-mortar gem businesses, such as Tiffany’s online business (tiffany.com). Visit the two sites and comment on the differences. Student responses will vary. Thaigem appears to be more focused on selling to distributors, while Tiffany targets individual buyers.

7. Questions 3. During the 2000-2002 shakeout of dot-coms Thaigem.com was prospering. Why do you think it was not affected by the dot-com downturn? Thaigem’s business model was as a distributor, and it did not rely on some of the less stable business models used by dot-coms. 4. Of the $40 billion annual sales in the gem industry, only about 2 percent are done online. Do you think that selling gems online will grow to more than 2 percent? Why or why not? Student answers will vary. Students will debate between the benefits of EC for businesses and the desire to examine gems before purchase. 5.Go to gemcentral.com and compare it with thaigem.com. Please note, gemcentral.com is not a working URL at this time.

8. Real-World Case: Rosenbluth International – A New Way to Compete (p.75) 1. Describe the strategy the company uses to counter disintermediation. The company is providing additional value to customers by focusing on one market, and then deploying EC applications to assist them. 2. Explain how EC facilitated the strategy. The company has embraced EC and uses a variety of IT/EC applications to assist clients.

9. Real-World Case: Rosenbluth International – A New Way to Compete (p.75) 3. Analyze the competitive solution using Porter’s five forces model. Barriers to entry – large threat, Internet-based travel services can be easily deployed (note Rosenbluth’s use of proprietary systems to counter this) Substitutes – marginal threat, customers need to travel (note use of IP conferencing as a threat) Suppliers – large threat, significant power of the airlines to set price and commissions Buyers – large threat, can bypass the channel Rivalry – large threat, as many companies compete for smaller profits • Check carlson.com to find its EC initiatives. Compare these to Rosenbluth’s. Both firms provide corporate travel management services.  This outsourcing is what was done internally in some companies.  Both companies focus on corporations, and provide a wide variety of EC enabled services.

11. Case 2.4 Reverse Mortgage Auctions in Singapore (p.54) • Homebuyers in Singapore, find the lowest mortgage rates at Dollardex (dollarDEX.com) • Reverse auctions are combined with “group purchasing” saving: • $20,000 over the life of a mortgage for each homeowner • $1,200 in waived legal fees

12. Case 2.4 Reverse Mortgage Auctions in Singapore (cont.) • Dollardex’s first project: • The site invited potential buyers in three residential properties in Singapore to join the service • Applications, including financial credentials, were made on a secure Web site • Seven lending banks were invited to bid on the loans

13. Case 2.4 Reverse Mortgage Auctions in Singapore (cont.) • In a secure “electronic room,” borrowers and lenders negotiated final terms • After 2 days of negotiations of interest rates and special conditions, the borrowers voted on one bank • 18 borrowers on the United Overseas Bank (UOB), paying about 0.5 percent less than the regular mortgage interest rate as well as the waiver of the legal fees

14. Case 2.4 Reverse Mortgage Auctions in Singapore (cont.) • UOB generated $10 million of business • Dollardex allows customers to participate in an individual reverse auction if they do not want to join a group • Flexibility is high; in addition to interest rates, banks are willing to negotiate down payment size and the option of switching from a fixed-rate to variable-rate loan

15. Case 2.4 Reverse Mortgage Auctions in Singapore (cont.) • On average, there are 2.6 bank bids per customer • As of summer 2003 Dollardex.com also offers car loans, insurance policies, and travel services • Allows comparisons of mutual funds that have agreed to give lower front-end fees

16. Case 2.4 Reverse Mortgage Auctions in Singapore (cont.) • Provides unit trusts in which you want to invest • Sets up a gift registry page for your wedding and invite your givers to place funds in them • Reports and advice are also available online as well as face-to-face

17. Questions (p.54) 1. How is the group purchasing organized at dollardex.com? What services are offered? Group purchasing is organized around a reverse auction process. This process allows homeowners to negotiate favorable rates on home mortgages in addition to waiving legal fees. 2. Why does a reverse auction take place? A reverse auction takes place because the traditional auction roles have been reversed. In this auction, the banks are bidding for the customers' business. 3. Can this model exist without an intermediary? It would be very difficult for this model to exist without an intermediary. The intermediary in this model creates groups of purchasers, solicits banks and assists negotiation.

19. Case 2.3 Electronic Catalogs at Boise Cascade (p.49) • Boise Cascade Office Products • $4-billion office products wholesaler customer base includes over 100,000 large corporate customers and 1 million small ones • 900-page paper catalog used to be mailed to customers once each year • Boise also sent mini-catalogs tailored to customers’ individual needs based on past buying habits and purchase patterns

20. Case 2.3 Electronic Catalogs at Boise Cascade (Cont.;p.49) • In 1996, the company placed its catalogs online • Customers view the catalog at boiseoffice.com and can order straight from the site or submit orders by e-mail • The orders are shipped the next day • Customers are then billed • In 1997, the company generated 20 percent of its sales through the Web site

21. Case 2.3 Electronic Catalogs at Boise Cascade (Cont.;p.49) • Boise expects the Internet business to generate 80 percent of its total sales by 2004 • Boise prepares thousands of individualized catalogs for its customers • paper customer catalog, primarily because As of 2002, the company has been sending paper catalogs only when specifically requested • It used to take about 6 weeks to produce a single of the time involved in pulling together all the data

22. Case 2.3 Electronic Catalogs at Boise Cascade (Cont.;p.49) • Now the process of producing a Web catalog that is searchable, rich in content, and available in a variety of formats takes only 1 week • One major advantage of customized catalogs is pricing • Boise estimates that electronic orders cost approximately 55 percent less to process than paper-based orders

23. Electronic Catalogs at Boise Cascade (cont.)

24. Questions 1. What are the advantages of the electronic catalog to Boise Cascade? To its customers? For Boise Cascade the benefits of the electronic catalog include: decreased costs to produce catalogs, quicker turnaround time in production, ease in creation of differentiated pricing and lower sales processing costs. The company's customers also benefit. They receive their catalogs more quickly with a customized selection of products. 2. How are the customized catalogs created by Boise Cascade? Existing catalog and product information are digitized and stored in a database. Specific products and groups of products are selected for the customer and added to that customer’s customized catalog. This catalog can then be delivered through print or through the Web.