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ECT 455 E-Commerce Web Site Engineering Lecture #2 Consumer Internet Commerce Agenda Market News Types of Consumers and Purchases Business Models and Value Propositions e-Commerce Value Chain Assignments – Website Analysis Project Deliverable B A Quick Poll:

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Ect 455 e commerce web site engineering l.jpg

ECT 455E-Commerce Web Site Engineering

Lecture #2

Consumer Internet Commerce

ECT 455 Susy Chan Ph.D.

Agenda l.jpg

  • Market News

  • Types of Consumers and Purchases

  • Business Models and Value Propositions

  • e-Commerce Value Chain

  • Assignments – Website Analysis

  • Project Deliverable B

ECT 455 Susy Chan Ph.D.

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A Quick Poll:

  • What types of shoppers are you?

  • How do you shop online?

ECT 455 Susy Chan Ph.D.

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Types of Consumers

  • Types of Buyers

    • Impulsive Buyers: quick purchasing

    • Patient Buyers: price comparison

    • Analytical Buyers: research first

  • Shopping Experiences

    • Utilitarian: task-completion and rational

    • Hedonic: involvement and entertainment

ECT 455 Susy Chan Ph.D.

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Types of Online Purchases

  • Specifically Planned Purchases

  • Generally Planned Purchases

  • Reminder Purchases

  • Unplanned Purchases

  • Implications for Strategies and Design?

ECT 455 Susy Chan Ph.D.

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  • How does Amazon site support different types of shoppers, purchases, and shopping behaviors?

ECT 455 Susy Chan Ph.D.

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Customer Expectations

  • Merchandize assortment

    • About the same number of products available as the retail store (21%)

    • About the same number of products plus specials (51%)

    • More online SKUs than store or catalog (39%)

(Global Online Retailing Report)

ECT 455 Susy Chan Ph.D.

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A Technographics View of New consumer Internet Adoption


Number of new online consumers

Early adopters



Forrester: Now or Never

ECT 455 Susy Chan Ph.D.

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Meeting Customer Expectations

  • Top 3 Reasons for Shopping Online

    • Good selection of items

    • Competitive pricing

    • Convenience

  • Shopping carts are frequently abandoned

    • Placed products in the cart but did not complete the purchase (78%) because:

      • Shipping cost too high (45%)

      • Price check (37%)

      • Changed mind (34%)

      • Price to high (24%)

      • Check out process was long/unclear (18%)

E&Y Global Retailing

ECT 455 Susy Chan Ph.D.

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User Profile: Information

GVU Web User Survey

ECT 455 Susy Chan Ph.D.

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The e-Commerce Value Cycle





ECT 455 Susy Chan Ph.D.

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The e-Commerce Value Chain

Get and keep

customer interest

Turn interest

into orders

Service customers

Manage orders












Order capture--

Shopping Cart




Customer service

Order tracking

ECT 455 Susy Chan Ph.D.

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Attract Customers (Marketing)

  • Purpose

    • Build brand awareness, attract customers, and entice them to buy

  • Merchandizing Methods

    • Advertising

    • Coupons

    • Sales and Promotions

    • Frequent buyer programs

    • 1:1 marketing

ECT 455 Susy Chan Ph.D.

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Beyond Price, Research and Brand

  • Fast Search – price

  • Long search – branding, delivery time, and other product characteristics

Brynjolfssor: Search and product differentiation at an Internet Shopbot. MITSloan School of Management, Dec 2004.

ECT 455 Susy Chan Ph.D.

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Interact with Customers (Sales)

  • Purpose

    • Turn interest into orders

    • Catalog, Product and Service

  • Techniques

    • Registration with Internet search engines

    • Hyperlinks

    • Onsite product search

    • Product and price comparison

    • Dynamic vs. static contents

    • Pricing

ECT 455 Susy Chan Ph.D.

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Act on Customer Instructions (Order Management)

  • Purpose: Manage order and shopping experience

  • Order Processing:

    • Shopping cart and order aggregation

    • Order validation; Application of coupons or discounts

    • Cross selling

    • Calculation of sales, taxes, shipping and delivery charges, rolled-up order

  • Payment: handle multiple payment methods (cash, credit, credit cards, debit cards)

  • Act – Fulfillment

    • Delivering the goods ordered to their destination

    • Transmission of order information to warehouse, packing or order assembly for shipping, shipping and delivery

ECT 455 Susy Chan Ph.D.

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React to Inquiries (Service)

  • Purpose: customer satisfaction, experience, and repeat visits

  • Methods

    • 24X7 service capacity

    • Proactive and Immediate feedback – voice and email

    • Access to status information

    • Self-help (FAQ)

    • Multi-language support

ECT 455 Susy Chan Ph.D.

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Online Retail –2004 Holiday Seasons

  • Revenue growth strong.  91% of retailers reported revenue growth for the 2004 online holiday season; 17% experiencing revenues doubled. Example: 113% growth $888m ->$1.9b

  • Customer satisfaction increases.  95% consumers were satisfied with online shopping experience; 89% in 2003, 84% in 2002

  • Free shipping remains the king of online marketing promotions (60%),Recommendations: 56% gift center, suggested items page (32%), clearance page (32%), featured sale item (31%)

  • Search engines and affiliate marketing help retailers find customers, remained the second (58%) and third (50%) most successful marketing vehicle for retailers.  “

  • Multi-channel strategies – 45% research on catalog  buy online; 21% research online  buy from catalog

  • 2004 eHoliday Mood study.– January 2005

ECT 455 Susy Chan Ph.D.

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  • How does Amazon site implement the e-commerce value chain?

    • Attract

    • Interact

    • Act

    • React

ECT 455 Susy Chan Ph.D.

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Value Propositions

  • For Consumers/Customers/Users

  • For the Firm/Organization

ECT 455 Susy Chan Ph.D.

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Value Proposition for Customers

  • Transform customer relationship from supplier-centered to customer-centered values

    • self service, 1:1; choices; delivery to customer location; customer needs; choice of service hours

  • Displace traditional source of values

    • Physical vs. digital value (information)

    • Economies of scale vs economy of scope

    • Mass produced vs mass customized

    • Information vs. knowledge value

    • Distribution as constraints vs. enabler

    • Local vs. global

ECT 455 Susy Chan Ph.D.

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Value Proposition for Firms

  • Ability to reach a global market

  • Reduced marketing and selling expense

  • Increased efficiency of operation

  • Ability to target consumers more precisely

  • Ability to convey more accurate product and availability information

ECT 455 Susy Chan Ph.D.

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Four Strategies

  • Channel Master (Cisco; Amazon)

  • Customer Magnet (Yahoo)

  • Value Chain Pirate (; e*trade)

  • Digital Distributor (

  • Disintermediation and reintermediation

ECT 455 Susy Chan Ph.D.

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Merchant Model

virtual merchants

Click & Brick


Shopping Malls

Advertising Model

Horizontal portal

Vertical portal

Personalized portal

Intermediary (Brokerage)

Buy/sell fulfillment

Buyer/demand aggregator

Virtual mall

Hypermediary (financial settlement)

Auction broker

Reverse auction

B2C Business Models: Generating Revenues

ECT 455 Susy Chan Ph.D.

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Merchant Models (virtual, C&B, MC, shopping malls)

  • Advantages:

    • Enables merchants to sell products on the Web

    • Conduct business 24-by-7,worldwide

  • An e-commerce storefront should include:

    • Online catalog of products

    • Order processing (robust shopping cart)

    • Secure online payment

    • Timely order fulfillment

  • C&B or MC – physical location, brand recognition, established customer base, cannibalization, channel integration

  • Virtual Merchant: avoid the cost of physical stores

ECT 455 Susy Chan Ph.D.

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Portal Model

  • Portal sites : Give visitors the chance to find almost everything they are looking for in one place

  • Horizontal portals:Portals that aggregate information on a broad range of topics

    • Yahoo!, AltaVista, Google

  • Vertical portals : Portals that offer more specific information within a single area of interest

    • WebMD, IMDB, FirstGov

  • Requires fresh and abundant content, and robust search engine to draw traffic

  • Heavy reliance on advertising revenue, decline in effectiveness of online advertising

ECT 455 Susy Chan Ph.D.

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Auction Model

  • Online auction sites

    • Act as forums through which Internet users can log-on and assume the role of either bidder or seller

    • Collect a commission on every successful auction

    • Sellers post items they wish to sell and wait for buyers to bid

  • Reserve price

    • The minimum price a seller will accept in a given auction

  • Reverse auctions

    • Allow the buyer to set a price as sellers compete to match or even beat it

ECT 455 Susy Chan Ph.D.

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Dynamic Pricing Models

  • The Web has changed the way products are priced and purchased

  • Comparison pricing model

    • Web sites using shopping bot technology to find the lowest price for a given item e.g.

  • Demand-sensitive pricing model

    • Group buying reduces price as volume of sales increase

  • Name-your-price model

    • Name-your-price for products and services

ECT 455 Susy Chan Ph.D.

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  • What are their customer value propositions?

  • What are their business value propositions?

  • What are their business models?

  • Who are their competitors?

ECT 455 Susy Chan Ph.D.

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The State of Retailing Online 7.0*

  • *Profitable online operations, 43 % (2000)  56% (2001) -> 70% (2002)  79% (2003)

  • Overall Operating margins  21%; catalogers 28%; online retailer  -1% (from -16% in 2002)

  • **Shoppers spent $51.3 b online in 2001, up 21% from 2000. $76 b in 2002, up 58% from 2001; expected to grow 26% in 2003 to $96 b.

  • Most popular product categories: computer HW/SW (40%), tickets (17%), books (12%)

  • **Marketing costs: Web based retailers ($10/per order), store-based ($5), and catalog-based ($7); shifting toward performance based affiliate marketing and search engine marketing (investment in operational efficiency)

  • * Overall marketing costs: $8/per order  $4/per order; Web-based ($10/order  $2/order)

  • **Customer acquisition costs $29 $14; repeat buyers 4%53% of revenue.

  • *Customer service costs $1.9 $2.3; fulfillment $6.3 $9.8

  • *24% of offline sales in 2003 were influenced by Web, up from 15% in 2002

Source: * Research, May 2004 ** 2003 report (6.0)

ECT 455 Susy Chan Ph.D.

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Transition of an E-Customer

Interactive Marketing Transaction Processing Online Relationship







Evaluate interest Allow comparison Support/Interact

present options Enable Transaction Develop relationship

Prove reliability Push Offers

Conversion rate is low

Gartner Group

ECT 455 Susy Chan Ph.D.

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Next Week

  • Review reading assignments

  • Deliverable B Due

  • Market News

ECT 455 Susy Chan Ph.D.