Introduction to Electronic

Commerce

Objectives Objectives
• In this chapter, you will learn about: • How economic forces have created a business environment
• What electronic commerce is and how it is poised for a that is fostering a rebirth of electronic commerce How
second wave of growth and profitability businesses use value chains to identify electronic commerce
• Why business models have given way to revenue models opportunities
and the analysis of business processes as key elements of
electronic commerce initiatives • How businesses use SWOT analysis to analyze and evaluate
business opportunities

Objectives Electronic Commerce

• Electronic commerce (e-commerce)
• Why electronic commerce is international by its very nature – Businesses trading with other businesses and
and what challenges arise in doing global electronic internal processes
commerce • Electronic business (e-business)
– Term used interchangeably with e-commerce
– The transformation of key business processes
through the use of Internet technologies

Categories of Electronic Commerce Elements of Electronic Commerce

• Five general e-commerce categories

– Business-to-consumer
– Business-to-business
– Business processes
– Consumer-to-consumer
– Business-to-government
• Supply management or procurement
– Departments devoted to negotiating purchase
transactions with suppliers

Categories of Electronic Commerce (Continued) Electronic Commerce Categories

• Transaction
– An exchange of value
• Business processes
– The group of logical, related, and sequential
activities and transactions in which businesses
engage
• Telecommuting or telework
– Employee logs in to company computer through
Internet instead of traveling to office

1|Page
 The Development and Growth of Electronic The Development and Growth of Electronic
Commerce Commerce (Continued)
• Electronic funds transfers (EFTs) • Trading partners
• Also called wire transfers • Businesses that engage in EDI with each other
• Electronic transmissions of account exchange information • Value-added network (VAN)
over private communications networks • Independent firm
• Electronic data interchange (EDI) • Offers connection and transaction-forwarding services to
• Transmitting computer-readable data in a standard format buyers and sellers engaged in EDI
to another business

Actual and Estimated Online Sales in B2C and

The Second Wave of Electronic Commerce
B2B Categories
• Defining characteristics of first wave
– Dominant influence of U.S. businesses
– Extensive use of the English language
– Low bandwidth data transmission technologies
– Unstructured use of e-mail
– Overreliance on advertising as a revenue source

The Second Wave of Electronic Commerce Business Models, Revenue Models, and Business
(Continued) Processes
• As second wave begins • Business model
o Future of electronic commerce will be – A set of processes that combine to yield a profit
international in scope • Revenue model
o Language translation and handling currency – Used to
conversion problem will need to be solved • Identify customers
• Market to those customers
o E-mail will be used as an integral part of • Generate sales to those customers
marketing and customer contact strategies

Focus on Specific Business Processes Focus on Specific Business Processes (Continued)

• Merchandising • Shipping profile
– Combination of store design, layout, and product – Collection of attributes that affect how easily a
display knowledge
product can be packaged and delivered
• Commodity item
– Hard to distinguish from the same products or • High value-to-weight ratio
services provided by other sellers – Can make overall shipping cost a small fraction
– Features have become standardized and well
of the selling price
known

2|Page
 Advantages of Electronic Commerce Advantages of Electronic Commerce
(Continued)
• Can increase sales and decrease costs
• If advertising done well on the Web • Increases purchasing opportunities for buyer
– Can get a firm’s promotional message out to • Negotiating price and delivery terms is easier
potential customers in every country • The following cost less to issue and arrive securely and
• Using e-commerce sales support and order-taking quickly
processes, a business can – Electronic payments of tax refunds
– Reduce costs of handling sales inquiries – Public retirement
– Provide price quotes – Welfare support

Advantages of Electronic Commerce Disadvantages of Electronic Commerce

(Continued)
• Perishable grocery products are much harder to sell online
• Increases purchasing opportunities for buyer • Difficult to
• Negotiating price and delivery terms is easier – Calculate return-on-investment
• The following cost less to issue and arrive securely and – Integrate existing databases and transaction-
quickly processing software into software that enables e-
• Electronic payments of tax refunds commerce
• Public retirement • Cultural and legal obstacles also exist
• Welfare support

Economic Forces and Electronic Commerce Transaction Costs

• Economics • Total costs that a buyer and seller incur
– Study of how people allocate scarce resources • Significant components of transaction costs
• Two conditions of a market – Cost of information search and acquisition
– Potential sellers of a good come into contact with – Investment of seller in equipment or in the hiring
potential buyers of skilled employees to supply product or service
– A medium of exchange is available to buyer

The Role of Electronic Commerce Network Economic Structures

• Businesses and individuals • Network economic structure

– Can use electronic commerce to reduce – Companies coordinate their strategies, resources,

transaction costs by and skill sets

• Improving flow of information • Strategic alliances (strategic partnerships)

• Increasing coordination of actions – Relationships created within the network

economic structure

3|Page
 Network Economic Structures (Continued) Network Effects
• Virtual companies • Law of diminishing returns
– Strategic alliances that occur between or among – Most activities yield less value as the amount of
companies operating on the Internet consumption increases
• Network effect
• Strategic partners
– As more people or organizations participate in a
– Come together as a team for a specific project or network
activity • Value of network to each participant
increases

Value Chains in Electronic Commerce Strategic Business Unit Value Chains

• Strategic business unit • Value chain
– One particular combination of product, – A way of organizing the activities that each
distribution channel, and customer type strategic business unit undertakes
• Firm • Primary activities
– Multiple business units owned by a common set – Design, produce, promote, market, deliver, and
of shareholders support the products or services it sells
• Industry • Supporting activities
– Multiple firms that sell similar products to similar – Human resource management and purchasing
customers

Industry Value Chains

Value Chain for a Strategic Business Unit
• Value system

– Larger stream of activities into which a particular

business unit’s value chain is embedded
– Also referred to as industry value chain

SWOT Analysis: Evaluating Business Unit SWOT Analysis Questions

Opportunities
• SWOT analysis
– Analyst first looks into the business unit to
identify its strengths and weaknesses
– Analyst then reviews operating environment and
identifies opportunities and threats

4|Page
 Results of Dell’s SWOT Analysis Language Issues
• To do business effectively in other cultures
– Must adapt to culture
• Researchers have found that
– Customers are more likely to buy products and
services from Web sites in their own language
• Localization
– Translation that considers multiple elements of
local environment

Infrastructure Issues
Culture Issues
• Internet infrastructure includes
• Important element of business trust – Computers and software connected to Internet
– Anticipate how the other party to a transaction – Communications networks over which message
will act in specific circumstances packets travel
• Culture • Organization for Economic Cooperation and Development’s
– Combination of language and customs (OECD)
– Varies across national boundaries – Statements on Information and Communications
– Varies across regions within nations Policy
• Deal with telecommunications
infrastructure development issues

Infrastructure Issues (Continued) Parties Involved in a Typical International Trade

• Flat-rate access system
Transaction
– Consumer or business pays one monthly fee for
unlimited telephone line usage
– Contributed to rapid rise of U.S. electronic
commerce
• Targets for technological solutions
– Paperwork and processes that accompany
international transactions

Summary Summary
• Commerce • Using electronic commerce, businesses have
– Negotiated exchange of goods or services – Created new products and services
• Electronic commerce – Improved promotion, marketing, and delivery of
– Application of new technologies to conduct existing offerings
business more effectively • Global nature of electronic commerce
• First wave of electronic commerce
– Ended in 2000 – Leads to many opportunities and few challenges
• Second wave of electronic commerce • To conduct electronic commerce across international borders
– New approaches to integrating Internet – You must understand the trust, cultural, and
technologies into business processes language legal issues

5|Page
 Technology Infrastructure : The
Internet and the World Wide Web

Objectives Objectives
In this chapter, you will learn about: • How HTML tags and links work on the World Wide Web

• The origin, growth, and current structure of the Internet • The differences among internets, intranets, and extranets

• How packet-switched networks are combined to form the • Options for connecting to the Internet, including cost and
Internet bandwidth factors

• How Internet protocols and Internet addressing work • About Internet2 and the Semantic Web

• The history and use of markup languages on the Web, including

SGML, HTML, and XML

The Internet and the World Wide Web Emergence of the World Wide Web
• Computer network • The Web
– Any technology that allows people to connect – Software that runs on computers connected to the
computers to each other Internet
• The Internet • Vannevar Bush
– A large system of interconnected computer networks – Speculated that engineers would eventually build a
spanning the globe memory extension device (the Memex)
• World Wide Web • In the 1960s
– A subset of computers on the Internet – Ted Nelson described a similar system called
hypertext

Emergence of the World Wide Web (Continued) Packet-Switched Networks

• Tim Berners-Lee • Local area network (LAN)
– Developed code for hypertext server program – Network of computers located close together
• Hypertext server • Wide area networks (WANs)
– Stores files written in hypertext markup language – Networks of computers connected over greater
– Lets other computers connect to it and read files distances
• Hypertext Markup Language (HTML) • Circuit
– Includes set of codes (or tags) attached to text – Combination of telephone lines and closed switches
that connect them to each other

Packet-Switched Networks (Continued) Routing Packets

• Circuit switching • Routing computers
– Centrally controlled, single-connection model – Computers that decide how best to forward packets
• Packets • Routing algorithms
– Files and e-mail messages on a packet-switched – Rules contained in programs on router computers that
network that are broken down into small pieces determine the best path on which to send packet
– Travel from computer to computer along the – Programs apply their routing algorithms to
interconnected networks until they reach their information they have stored in routing tables
destinations

6|Page
 Router-based Architecture of the Internet Routing Packets
• Protocol
– Collection of rules for formatting, ordering, and error-
checking data sent across a network
• Rules contributing to success of Internet
– Independent networks should not require any internal
changes to be connected to the network
– Packets that do not arrive at their destinations must be
retransmitted from their source network
– Router computers act as receive-and-forward devices
– No global control exists over the network

TCP/IP IP Addressing
• TCP • Internet Protocol version 4 (IPv4)
– Controls disassembly of a message or a file into – Uses a 32-bit number to identify computers connected
packets before transmission over Internet to the Internet
– Controls reassembly of packets into their original • Base 2 (binary) number system
formats when they reach their destinations – Used by computers to perform internal calculations
• IP • Subnetting
– Specifies addressing details for each packet – Use of reserved private IP addresses within LANs and
WANs to provide additional address space

IP Addressing (Continued) Domain Names

• Private IP addresses • Sets of words assigned to specific IP addresses
– Series of IP numbers not permitted on packets that • Top-level domain (or TLD)
travel on the Internet – Rightmost part of a domain name
• Network Address Translation (NAT) device
• Internet Corporation for Assigned Names and Numbers
– Used in subnetting to convert private IP addresses
(ICANN)
into normal IP addresses
• Internet Protocol version 6 (IPv6) – Responsible for managing domain names and
– Protocol that will replace IPv4 coordinating them with IP address registrars
– Uses a 128-bit number for addresses

Top-level Domain Names Web Page Request and Delivery Protocols

• Web client computers
– Run software called Web client software or Web
browser software
• Web server computer
– Runs software called Web server software
• Client/server architecture
– Combination of client computers running Web client
software and server computers running Web server
software

7|Page
 Web Page Request and Delivery Protocols Electronic Mail Protocols
(Continued)
• Electronic mail (e-mail)
• Hypertext Transfer Protocol (HTTP) – Must also be formatted according to common set
– Set of rules for delivering Web page files over of rules
the Internet • E-mail server
• Uniform Resource Locator (URL) – Computer devoted to handling e-mail
– Combination of the protocol name and domain • E-mail client software
name – Used to read and send e-mail
– Allows user to locate a resource (the Web page) – Example: Microsoft Outlook, Netscape
on another computer (the Web server) Messenger

Electronic Mail Protocols (Continued)

• Simple Mail Transfer Protocol (SMTP) Markup Languages and the Web
– Specifies format of a mail message
• Text markup language
• Post Office Protocol (POP)
– Specifies set of tags that are inserted into text
– POP message can tell the e-mail server to
• Standard Generalized Markup Language (SGML)
• Send mail to user’s computer and delete it – Older and complex text markup language
from e-mail server
– A meta language
• Send mail to user’s computer and not delete • World Wide Web Consortium (W3C)
it
– Not-for-profit group that maintains standards for the
• Simply ask whether new mail has arrived
Web
– Provides support for Multipurpose Internet Mail
Extensions (MIME)

Hypertext Markup Language (HTML) Hypertext Markup Language (HTML) (Continued)

• Prevalent markup language used to create documents on the • Scripting languages and style sheets
– Most common scripting languages
Web today • JavaScript, JScript, Perl, and VBScript
• HTML tags – Cascading Style Sheets (CSS)
– Interpreted by Web browser and used by it to format • Sets of instructions that give Web developers more
the display of the text control over the format of displayed pages
• HTML Links • Style sheet
– Usually stored in a separate file
– Linear hyperlink structure – Referenced using the HTML style tag
– Hierarchical hyperlink structure

Extensible Markup Language (XML) Intranets and Extranets

• Uses paired start and stop tags • Intranet
• Includes data management capabilities that HTML cannot – Interconnected network that does not extend beyond
provide organization that created it
• Differences between XML and HTML • Extranet
– XML is not a markup language with defined tags – Intranet extended to include entities outside
– XML tags do not specify how text appears on a Web boundaries of organization
page – Connects companies with suppliers, business
partners, or other authorized users

8|Page
 Public and Private Networks Virtual Private Network (VPN)
• Public network • Extranet that uses public networks and their protocols
– Any computer network or telecommunications • IP tunneling
network available to the public – Effectively creates a private passageway through the
• Private network public Internet
– A private, leased-line connection between two
• Encapsulation
companies that physically connects their intranets
• Leased line – Process used by VPN software
– A permanent telephone connection between two • VPN software
points – Must be installed on the computers at both ends of the
transmission

Internet Connection Options Broadband Connections

• Bandwidth • Operate at speeds of greater than 200 Kbps

– Amount of data that can travel through a • Asymmetric digital subscriber (ADSL)
communication line per unit of time – Transmission bandwidth is from 100 to 640 Kbps
• Net bandwidth upstream and from 1.5 to 9 Mbps downstream
– Actual speed that information travels • Cable modems
• Symmetric connections – Provide transmission speeds between 300 Kbps and 1
– Provide same bandwidth in both directions Mbps
• Asymmetric connections • DSL
– Provide different bandwidths for each direction – Private line with no competing traffic

Leased-Line Connections Wireless Connections

• DS0 (digital signal zero) • Bluetooth

– Telephone line designed to carry 1 digital signal – Designed for personal use over short distances
• T1 line (also called a DS1) – Low-bandwidth technology, with speeds of up to 722
– Carries 24 DS0 lines and operates at 1.544 Mbps Kbps
• Fractional T1 – Networks are called personal area networks (PANs)
– Provides service speeds of 128 Kbps and upward in or piconets
128-Kbps increments – Consumes very little power
• T3 service (also called DS3) – Devices can discover each other and exchange
– Offers 44.736 Mbps information automatically

Wireless Ethernet (Wi-Fi or 802.11b) Wireless Ethernet (Wi-Fi or 802.11b)

(Continued)
• Most common wireless connection technology for use on LANs
• Wireless access point (WAP) • 802.11a protocol
– Device that transmits network packets between Wi- – Capable of transmitting data at speeds up to 54 Mbps
Fi-equipped computers and other devices • 802.11g protocol
– Has 54 Mbps speed of 802.11a
• Has potential bandwidth of 11 Mbps and range of about 300 feet
– Compatible with 802.11b devices
• Devices are capable of roaming • 802.11n
– Expected to offer speeds up to 320 Mbps

9|Page
 Cellular Telephone Networks Internet2 and the Semantic Web
• Third-generation (3G) cell phones • Internet2
– Combine latest technologies available today – Experimental test bed for new networking
• Short message service (SMS) technologies
– Protocol used to send and receive short text messages – Has achieved bandwidths of 10 Gbps and more on
• Mobile commerce (m-commerce) parts of its network
– Describes the kinds of resources people might want – Used by universities to conduct large collaborative
to access using wireless devices research projects

Internet2 and the Semantic Web (Continued) Summary

• Semantic Web • TCP/IP
– Project by Tim Berners-Lee – Protocol suite used to create and transport
– If successful information packets across the Internet
• Would result in words on Web pages being • POP, SMTP, and IMAP
tagged (using XML) with their meanings
– Protocols that help manage e-mail
• Resource description framework (RDF)
– Set of standards for XML syntax • Languages derived from SGML
• Ontology – Hypertext Markup Language (HTML)
– Set of standards that defines relationships among – Extensible Markup Language (XML)
RDF standards and specific XML tags

Summary
• Intranets
– Private internal networks
• Extranet
– Used when companies want to collaborate with
suppliers, partners, or customers
• Internet2
– Experimental network built by a consortium of
research universities and businesses

10 | P a g e
 Selling on the Web: Revenue Models
and Building a Web Presence

Objectives Objectives
In this chapter, you will learn about:

• Revenue models • Creating an effective business presence on the Web

• How some companies move from one revenue model to • Web site usability
another to achieve success
• Communicating effectively with customers on the Web
• Revenue strategy issues that companies face when selling
on the Web

Revenue Models Computers and Consumer Electronics

• Revenue model of selling goods and services on the Web • Apple, Dell, Gateway, and Sun Microsystems
– Based on mail order catalog revenue model that
predates the Web – Have had great success selling on the Web
• Mail order or catalog model • Dell
– Proven to be successful for wide variety of consumer
items – Created value by designing entire business around
• Web catalog revenue model offering high degree of configuration flexibility to its
– Taking the catalog model to the Web customers

Books, Music, and Videos Luxury Goods

• Retailers using the Web catalog model to sell books,
• People are still reluctant to buy through a Web site
music, and videos
– Among the most visible examples of electronic • Web sites of Vera Wang and Versace
commerce
• Jeff Bezos – Constructed to provide information to shoppers,
not to generate revenue
– Formed Amazon.com
• Jason and Matthew Olim • Web site of Evian
– Formed online music store they called CDnow
– Used the Web catalog revenue model – Designed for a select, affluent group of
customers

11 | P a g e
 Clothing Retailers Flowers and Gifts
• Lands’ End • 1-800-Flowers
– Pioneered idea of online Web shopping assistance – Created online extension to its telephone order
with its Lands’ End Live feature in 1999 business
• Personal shopper • Chocolatier Godiva
– Intelligent agent program that learns customer’s – Offers business gift plans on its site
preferences and makes suggestions
• Virtual model
– Graphic image built from customer measurements

Digital Content Revenue Models Advertising-Supported Revenue Models

• Firms that own intellectual property • Broadcasters provide free programming to an audience along
– Have embraced the Web as a new and highly efficient with advertising messages
distribution mechanism • Success of Web advertising hampered by
• Lexis.com – No consensus has emerged on how to measure and
– Provides full-text search of court cases, laws, patent charge for site visitor views
databases, and tax regulations • Stickiness of a Web site: ability to keep
• ProQuest visitors and attract repeat visitors
– Sells digital copies of published documents – Very few Web sites have sufficient visitors to interest
large advertisers

Web Portals Advertising-Subscription Mixed Revenue Models

• Web directory • Subscribers
– A listing of hyperlinks to Web Pages
• Portal or Web portal – Pay a fee and accept some level of advertising
– Site used as a launching point to enter the Web – Typically subjected to much less advertising
– Almost always includes a Web directory and search
engine • Used by
– Example: Yahoo, AOL, Altavista
– The New York Times and The Wall Street Journal

Advertising-Subscription Mixed Revenue Models Fee-for-Transaction Revenue Models

(continued)
• Businesses offer services and charge a fee based on number or
• Business Week size of transactions processed

– Offers some free content at its Business Week online • Disintermediation

site
– Removal of an intermediary from value chain
– Requires visitors to buy subscription to Business
• Reintermediation
Week print magazine
– Introduction of a new intermediary

12 | P a g e
 Fee-for-Service Revenue Models Fee-for-Service Revenue Models (Continued)

• Fee based on value of service provided • Concerts and films

– As more households obtain broadband access to the
• Services
Internet
– Range from games and entertainment to financial
• Companies are providing streaming video
advice of concerts and films to paying subscribers
• Online games • Professional Services
– Growing number of sites include premium games in – State laws
their offerings • One of the main forces preventing U.S.
– Site visitors must pay to play these premium games professionals from extending their
practices to the Web

Strategic Alliances and Channel Distribution Creating an Effective Web Presence

Management • An organization’s presence
• Strategic alliance – The public image it conveys to its stakeholders
– When two or more companies join forces to undertake
an activity over a long period of time • Stakeholders of a firm
• Account aggregation services
– Include its customers, suppliers, employees,
– Increase propensity of customers to return to the site
• Channel distribution managers stockholders, neighbors, and the general public
– Companies that take over responsibility for a
particular product line within a retail store

Achieving Web Presence Goals

Achieving Web Presence Goals (Continued)
• Objectives of the business
• Objectives of the business
– Attracting visitors to the Web site – Creating an impression consistent with the
organization’s desired image
– Making the site interesting enough that visitors stay
– Building a trusting relationship with visitors
and explore
– Reinforcing positive images that the visitor might
– Convincing visitors to follow the site’s links to obtain already have about the organization
information – Encouraging visitors to return to the site

Profit-Driven Organizations Not-for-Profit Organization

• Toyota site • Key goal for the Web sites
– A good example of an effective Web presence – Information dissemination
– Provides links to • Key element on any successful electronic commerce Web site
• Detailed information about each vehicle – Combination of information dissemination and a two-
model way contact channel
• A dealer locator page
• Information about the company and the
financing services it offers

13 | P a g e
 Web Site Usability Web Site Usability (Continued)
• Motivations of Web site visitors • Motivations of Web site visitors
– Learning about products or services that the company – Obtaining financial information for making an
offers investment or credit granting decision
– Buying products or services that the company offers – Identifying the people who manage the company or
– Obtaining information about warranty, service, or organization
repair policies for products they purchased – Obtaining contact information for a person or
– Obtaining general information about the company or department in the organization
organization

Making Web Sites Accessible

Making Web Sites Accessible (Continued)
• One of the best ways to accommodate a broad range of visitor
needs • Goals that should be met when constructing Web sites
– Build flexibility into the Web site’s interface – Offer easily accessible facts about the organization
• Good site design – Allow visitors to experience the site in different ways
– Lets visitors choose among information attributes and at different levels
• Web sites – Sustain visitor attention and encourage return visits
– Can offer visitors multiple information formats by – Offer easily accessible information
including links to files in those formats

Trust and Loyalty

Usability Testing
• Studies by business researchers
– A 5 percent increase in customer loyalty can yield • Companies that have done usability tests
profit increases between 25% and 80% – Conduct focus groups
• Repetition of satisfactory service – Watch how different customers navigate through a
– Can build customer loyalty series of Web site test designs
• Customer service • Cost of usability testing
– A problem for many electronic commerce sites – Low compared to total cost of a Web site design or
overhaul

Customer-Centric Web Site Design Customer-Centric Web Site Design (Continued)

• Putting the customer at the center of all site designs • Guidelines
• Guidelines – Avoid using business jargon and terms that
– Design site around how visitors will navigate the visitors might not understand
links – Be consistent in use of design features and colors
– Allow visitors to access information quickly – Make sure navigation controls are clearly
– Avoid using inflated marketing statements labeled
– Test text visibility on smaller monitors
– Conduct usability tests

14 | P a g e
 Connecting With Customers Connecting With Customers (Continued)

• Personal contact model • Addressable media

– Firm’s employees individually search for, qualify, – Advertising efforts directed to a known addressee
and contact potential customers – Also called mass media
• Prospecting • One-to-many communication model
– Personal contact approach to identifying and reaching – Communication flows from one advertiser to many
customers potential buyers
• Mass media approach • One-to-one communication model
– Firms prepare advertising and promotional materials – Both buyer and seller participate in information
about the firm and its products exchange

Summary
Summary
• Firms
• Models used to generate revenue on the Web – Must understand how the Web differs from other
– Web catalog, digital content sales media
– Advertising-supported • Enlisting help of users when building test versions of the Web
– Advertising-subscription mixed site
– Fee-for-transaction and fee-for-service – A good way to create a site that represents the
• Companies undertaking electronic commerce initiatives to organization well
– Form strategic alliances • Firms must also
– Contract with channel distribution managers – Understand nature of communication on the Web

15 | P a g e
 Marketing on the Web

Objectives
Objectives
In this chapter, you will learn about:
• E-mail marketing
• When to use product-based and customer-based marketing
• Technology-enabled customer relationship management
strategies
• Creating and maintaining brands on the Web
• Communicating with different market segments
• Search engine positioning and domain name selection
• Customer relationship intensity and the customer relationship
life cycle
• Using advertising on the Web

Web Marketing Strategies Product-Based Marketing Strategies

• Four Ps of marketing • When creating a marketing strategy
– Product
– Managers must consider both the nature of their
• Physical item or service that company is
selling products and the nature of their potential customers
– Price • Most office supply stores on the Web
• Amount customer pays for product – Believe customers organize their needs into product
– Promotion categories
• Any means of spreading the word about
product
– Place
• Need to have products or services available
in different locations

Customer-Based Marketing Strategies Communicating with Different Market Segments

• Good first step in building a customer-based marketing strategy • Identifying groups of potential customers
– Identify groups of customers who share common – The first step in selling to those customers
characteristics • Media selection
• Customer-based marketing approaches – Can be critical for an online firm
– More common on B2B sites than on B2C sites • Challenge for online businesses
• B2B sellers – Convince customers to trust them
– More aware of the need to customize product and
service offerings to match their customers’ needs

Customer-Based Marketing Strategies Trust and Media Choice

• Good first step in building a customer-based marketing strategy • The Web
• Identify groups of customers who share common characteristics – An intermediate step between mass media and
• Customer-based marketing approaches personal contact
• More common on B2B sites than on B2C sites • Cost of mass media advertising
• B2B sellers – Can be spread over its audience
• More aware of the need to customize product and service • Companies can use the Web
offerings to match their customers’ needs – To capture some of the benefits of personal contact,
yet avoid some of the costs inherent in that approach

16 | P a g e
 Trust in Three Information Dissemination Models Market Segmentation
• Targeting specific portions of the market with advertising
messages

• Segments

– Usually defined in terms of demographic

characteristics

• Micromarketing

– Targeting very small market segments

Market Segmentation (Continued) Market Segmentation (Continued)

• Geographic segmentation • Psychographic segmentation

– Creating different combinations of marketing efforts – Groups customers by variables such as social class,
for each geographical group of customers personality, or their approach to life

• Demographic segmentation

– Uses age, gender, family size, income, education,

religion, or ethnicity to group customers

Beyond Market Segmentation: Customer Behavior Behavior-Based Categories

and Relationship Intensity • Simplifiers
• Behavioral segmentation – Users who like convenience
– Creation of separate experiences for customers based • Surfers
on their behavior – Use the Web to find info and explore new ideas
• Occasion segmentation • Bargainers
– When behavioral segmentation is based on things that – In search of a good deal
happen at a specific time • Connectors
• Usage-based market segmentation – Use the Web to stay in touch with other people
– Customizing visitor experiences to match the site • Routiners
usage behavior patterns of each visitor – Return to the same sites over and over again

Customer Relationship Intensity and Life-Cycle Five Stages of Customer Loyalty

Segmentation
• One goal of marketing
– To create strong relationships between a company
and its customers
• Good customer experiences
– Can help create intense feeling of loyalty
• Touchpoints
– Online and offline customer contact points
• Touchpoint consistency
– Goal of providing similar levels and quality of service
at all touchpoints

17 | P a g e
 Acquisition, Conversion, and Retention of Customer Acquisition, Conversion, and Retention:
Customers The Funnel Model
• Acquisition cost • Marketing managers
– Money a site spends to draw one visitor to site – Need to have a good sense of how their companies
• Conversion acquire and retain customers
– Converting first-time visitor into a customer
• Funnel model
• Conversion cost
– Cost of inducing one visitor to make a purchase, sign – Used as a conceptual tool to understand the overall
up for a subscription, or register nature of a marketing strategy
• Retained customers – Very similar to the customer life-cycle model
– Customers who return to the site one or more times
after making their first purchases

Funnel Model of Customer Acquisition, Conversion, Advertising on the Web

and Retention
• Banner ad
– Small rectangular object on a Web page
• Interactive marketing unit (IMU) ad formats
– Standard banner sizes that most Web sites have
voluntarily agreed to use
• Banner exchange network
– Coordinates ad sharing
• Banner advertising network
– Acts as a broker between advertisers and Web sites
that carry ads

Advertising on the Web (Continued) Other Web Ad Formats

• Cost per thousand (CPM) • Pop-up ad
– Pricing metric used when a company purchases mass – Appears in its own window when the user opens or
media advertising closes a Web page
• Trial visit • Ad-blocking software
– First time a visitor loads a Web site page – Prevents banner ads and pop-up ads from loading
• Page view • Interstitial ad
– Each page loaded by a visitor counts – When a user clicks a link to load a page, the interstitial
• Impression ad opens in its own browser window
– Each time the banner ad loads

Site Sponsorships E-Mail Marketing

• Give advertisers a chance to promote products, services, or • Sending one e-mail message to a customer
brands in a more subtle way – Can cost less than one cent if the company already has
the customer’s e-mail address
• Helps build brand images and develop reputation rather than
• Conversion rate
generate immediate sales
– The percentage of recipients who respond to an ad or
promotion
• Opt-in e-mail
– Practice of sending e-mail messages to people who
request information on a particular topic

18 | P a g e
 Creating and Maintaining Brands on the Web Emotional Branding vs. Rational Branding
• Key elements of a brand • Brands
– Differentiation – Can lose value if environment in which they have
• Company must clearly distinguish its become successful changes
product from all others
• Emotional appeals
– Relevance
• Degree to which product offers utility to a – Difficult to convey on the Web
potential customer • Rational branding
– Perceived value – Relies on the cognitive appeal of the specific help
• Key element in creating a brand that has offered, not on a broad emotional appeal
value

Elements of a Brand Affiliate Marketing Strategies

• Affiliate marketing
– One firm’s Web site includes descriptions, reviews,
ratings, or other information about a product that is
linked to another firm’s site
• Affiliate site
– Obtains the benefit of the selling site’s brand in
exchange for the referral
• Cause marketing
– Affiliate marketing program that benefits a charitable
organization

Viral Marketing Strategies Search Engine Positioning and Domain Names

• Relies on existing customers • Search engine
– To tell other people about products or services they – Web site that helps people find things on the Web
have enjoyed using – Spider, crawler, or robot
• Example • Program that automatically searches the
Web
– Blue Mountain Arts
• Index or database
• Electronic greeting card company – Storage element of a search engine
• Purchases very little advertising, but is one • Search utility
of the most-visited sites on the Web – Uses terms provided to find Web pages that match

Search Engine Positioning and Domain Names Search Engine Positioning and Domain Names
(Continued) (Continued)
• Nielsen//Net Ratings • Search engine positioning or search engine optimization

– Frequently issues press releases that list most – Combined art and science of having a particular URL
frequently visited Web sites listed near the top of search engine results

• Search engine ranking

– Weighting factors used by search engines to decide

which URLs appear first on searches

19 | P a g e
 Paid Search Engine Inclusion and Placement Web Site Naming Issues
• Paid placement • Domain names

– Option of purchasing a top listing on results pages for – Companies often buy more than one
a particular set of search terms – Reason for additional domain names
– Rates vary • To ensure that potential site visitors who
misspell the URL will still be redirected to
• Search engine placement brokers
intended site
– Companies that aggregate inclusion and placement • Example: Yahoo! owns the name
rights on multiple search engines Yahow.com

Domain Names that Sold for more than $1 million URL Brokers and Registrars
• URL brokers
– Sell, lease, or auction domain names
• ICANN
– Maintains a list of accredited registrars
• Domain name parking
– Permits purchaser of a domain name to maintain a
simple Web site so that domain name remains in use

Summary Summary
• Four Ps of marketing • Technology-enabled customer relationship management
– Product, price, promotion, and place – Can provide better returns for businesses on the Web
• Market segmentation • Firms on the Web
– Using geographic, demographic, and psychographic – Can use rational branding instead of emotional
information can work well on the Web branding techniques
• Types of online ads • Critical for many businesses
– Pop-ups, pop-behinds, and interstitials – Successful search engine positioning and domain
name selection

20 | P a g e