E-Supply Chain Management

E-commerce Business Model

Name: Akshata Solanki

PRN: 201802258

Establishing an E-commerce Business Model.

Introduction :
The Internet has changed the way the world does business. Buyers and suppliers around the
globe can now network with the click of a mouse. Information — from terms and conditions of
service to specifications to complete, in-depth product catalogs — can be accessed in real-time.
And electronic commerce is affordable for even the smallest home office.

There are tremendous advantages in doing business on the Internet. It can:

Drastically increase sales

Improve efficiencies and lower operating costs

Enhance customer service and communication

Expand marketing opportunities

Provide the venue for growing operations from local to global

One of the greatest advantages of doing business on the Web is that it allows businesses to save
money and time. For example, the Internet can considerably reduce the costs associated with
customer service, says F.C. Brigham, director of inbound marketing for Tempe, Arizona Insight,
and a national keynote speaker on e-commerce topics.But how do you get to this "Promised
Land"? It's not enough to use your current business model on the Web. Businesses must rethink
the issues of marketing, supply chain management, inventory and customer support, then
formulate a Web-oriented business plan. It's a new way of doing business. In essence, your
existing business model has to be adapted to meet the technological requirements and
advantages of this new landscape.

Establishing an E-commerce Business Model :

According to Anthony Cospito, founder and CEO of Lynn, Mass. Power Generation, Inc., a
provider of strategic marketing and e-commerce consulting to high growth, Web focused
organizations, the core of any e-commerce business model is built on the following five areas:
Service :
Ask Nordstrom executives how important service is to their business, and you'll get an earful,
because it is truly the key to the company's success. For that matter, all good retailers — and
retailers — realize the critical role that quality customer service plays in their success.
However, there's a strong dichotomy between what the brick-and-mortar retailer knows about
customer service and what the online retailer knows. Many e-commerce sites view transactions
as technical processes and not as interactions between people. As more companies realize that
the buying experience and what follows after the sale are just as important — if not more so —
as technology, e-commerce sites will reach new highs in sales and popularity. Take
Amazon.com, for example: With personalized recommendations, online and off-line customer
service, and strong postal follow up, they've created one of the most successful e-commerce
sites on the Web.

Selection :
As with any off-line experience, e-retailers need to offer customers the right mix and quantity of
products. On the Web, this equates to building a site with personalization and partnering with
suppliers that can scale. Streamline.com is a good example of both extensive selection and
targeted offerings. Streamline's food-shopping service offers the same amount of product
selection you would find in a brick-and-mortar environment. Through personalization, the site
also offers products that shoppers are more likely to buy based on previous clickstreams and
purchase behavior. Streamline also allows customers to compare nutritional information with
the click of a button, creating a positive user experience that is based on real-world shopper
activities.

Emotion :
Emotion speaks to the overall user experience: How do customers feel as they are navigating
the site? Do they feel as if they are taking a leisurely stroll through one of their favorite stores?
Or, do they feel like they are confused by the shopping experience? It's important for the type of
products and target audience to match the design and level of intimacy.
Forrester Research says that 46 percent of Web users currently research purchases online, and
that 14 percent will conduct transactions online by the year 2000. This behavior change will put
e-marketers closer to a consumer's purchase decision than traditional media. This also brings
them closer to the "emotional three feet" that manufacturers have dealt with for years, which is
defined as the short distance between a consumer buying your product instead of the
competitor's. Today, that emotional three feet isn't just a movement to the left or right on the
supermarket shelf, but a simple click of a mouse. Because of this, brand loyalty and user
experiences need to be that much stronger.
Efficiency

When it comes to efficiency, think of the express lane in a grocery store. Can you imagine what
would happen if every store had 1,000 lanes and no waiting? It is possible online, where
customers want to move through the transaction process as quickly and as painlessly as
possible. This means not having to input the same information twice in one visit; it means
offering one-click ordering; it means tying inventory into the real-time database systems so
customers can check quickly to see if a product can be shipped immediately. Efficiency is
especially important now, in the initial stage of e-commerce, as the majority of consumers are
purchasing for the first time. The goal is to have them come away from the transaction thinking,
Hey, that wasn't so bad, and then telling their friends they've just made a purchase on your site.

Cost :
While cost is always important, there is a reason that it is last on this list — at least for now.
Saving money is not one of the top reasons why consumers are currently shopping on the Web.
The most important aspect is convenience, and if your site is extremely convenient, consumers
will be willing to pay a little more for your products. Of course, as online competition heats up,
price will become more important as the majority of products become commodities. For now,
the bottom line of the cost issue is this: Charge as little as possible, but still be able to maximize
cash flow enough to fund the technical improvements on the back end to deliver a powerful and
convenient user experience.

When You Already Have a Business :

Existing companies are turning to the Web as an additional low-cost way to reach customers.
But since their businesses are not "Web-centric," they must develop a strategy to determine
what role the Web will play. Does the Web completely eliminate the need for brick-and-mortar
locations? Or does the Web simply expand market share possibilities? As an example, a specialty
Greek deli in Boston has a Web site that features their best selling products. The site is
promoted in the store, so that when tourists come in and fall in love with their breads and
cheeses, they can continue to buy them whether they live in Oregon or Oshkosh.

Starting From Scratch :

If your company is originating on the Web, it's not alone. Each day, thousands of entrepreneurs
launch successful, viable business entities in cyberspace. Whether they're working from home or
running their operations from an office or warehouse, it makes no difference to the consumer.
PowerGeneration, Inc. developed the following Venture Capital Acid Test TM to assist in
analyzing the viability of an e-commerce concept:
Give an example of where this model has worked with this target audience.
What are the sizes of your nearest three competitors?
What competitors have failed in this space?
Are you doing something that has never been done?
What is your unfair advantage?
What contracts do you have in place? How much are they worth?
What is your current valuation?
How do you know people want this product/service?
What is your personal background?
What experience does your executive team bring to the table?
How many employees do you have now? Next year?
What are your customer acquisition costs?
How much do you depend on alliances?
What are you doing to drive traffic to your site?
What are you doing to attract business?
What is the lifetime value of a customer?
How will you build the brand?
How defendable is your market position?
Why are you better?
Explain why your model will scale
What could cripple your business?

Defining Your Online Niche :

Finding your business' unique niche in, say, a small town atmosphere, is relatively easy. It works
like this: A new business owner simply discovers what's missing in their town — a pizza place,
for example — then builds one. But online, nearly every business in the world is represented,
and with a simple mouse click, consumers can get their hands on products and services from
across the world, not just in their backyards. When Royal P. Farros, CEO of iPrint in Redwood
City, Calif., sat down to figure out what his company's niche would be, he thought of all of the
people in print shops across the country, trying to figure out what their business cards would
really look like when delivered. The traditional process forced them to create visual items in a
non-visual way, he says. He knew there had to be a better way. Because pictures can be
digitized, they can be sent over the Internet — a more efficient means of distribution for
companies producing corporate materials, often under tight deadline pressures. At the same
time, Farros also discovered his firm's core competency: It allows users to see exactly what
they're creating and proof it right on the spot.

Aligning With Reliable Suppliers :

All e-commerce sites that rely on vendors to supply their products must give strong
consideration to buying from the best possible suppliers in each product category. Issues like
shipping times, condition of products and "best price" all come into play when a company
chooses to act as distributor, and it is vital that vendors understand the importance of keeping
customers happy — especially online, where a simple click can send them to another, similar
site on the Web. An example of an online company that chooses its suppliers with care is
GreatFood.com. Founded in 1996, the Seattle firm has been recognized nationally for its high
quality, diverse product offering, as well as ease of use and a secure online-ordering system. The
Biz Rate Guide ranked the site as the top gourmet food site, as well as one of the Top 25
shopping sites. The company scours the world and fancy food shows looking for unique "best of
category" products, which are then put through rigorous taste testing prior to being sold on the
site.

Adding Value :
"Adding value" is a term being used across all industries. It simply means giving customers more
than just a product in a box, whether it's through convenient ordering systems, excellent
product support or money back guarantees. For example, elimination of the middleman — a
phenomenon that is fully utilized through a direct selling channel like the Internet — can add
value in terms of money and time (delivery) savings. "Middlemen will need to have a keen
understanding of the shifts taking place in how technology affects their role," says Cospito.
"Those who 'get it' will find their role changing as they add value in new ways. Those who hide
their head in the sand will be disintermediated in a heartbeat."

Convenience Is King :
Today, an increasing number of customers are being lured by the convenience of shopping
online. And while products seem like the most logical attraction for consumers who want to
shop from the comfort of their own homes, service-oriented companies are also benefiting from
the e-commerce boom. Whether a firm is involved in selling health care, legal or graphic design
services, the Internet serves as a viable sales channel, as well as a great way to "get the word
out" about a company.

Thinking Globally :
The Internet forces companies to think globally because, unlike the real world of brick-and-
mortar stores, sites online are inevitably going to attract international customers. At that point,
companies have to either branch out with a site that allows customers worldwide to conduct
business with them, or they must decide to stay focused on domestic business. Either way,
Brigham advises making the decision up front and clearly spelling out what your intentions are
in this realm.

Designing a Site That Drives Traffic to Your Door :

Some businesses looking to expand into e-commerce get so dazzled by the potential that they
forget the basics. Even the smallest site on the Web demands an advanced business, marketing
and advertising plan to attract visitors. Sites need regular maintenance and fresh content to
keep customers coming back. If you don't have a site that makes people want to visit it, then
you won't have repeat visitors — or repeat business.

Where to Go for Help :

Company managers and owners who are looking for help in getting started on the Web would
be wise to take a peek at what the competition is already doing. Cospito also advises going to
Forrester Research's site to review information on successful strategies to launch Web-based
initiatives. Check out the industry publications, like E-commerce Times, Business 2.0 and The
Industry Standard, and vendor sites, like Open Market, ICOMS and CyberCash, which are helpful
in general terms of understanding the concepts (but are biased toward their own products, he
warns).

Conclusion :

New technology is beginning to turn the Web into the dynamic selling environment that experts
have been buzzing about since it first emerged. Both startups and existing businesses of all sizes
are launching their e-commerce ventures in droves to cash in on the power of the virtual selling
machine.
But before you attempt to take the e-commerce challenge, you must first create a business
model that will work in cyberspace. Then, use the tools in this IBT to determine your best online
strategy, and be sure to consider important points like how you will add value to your products
and services; whether or not you're ready to sell globally; how you will design an attractive,
user-friendly site; and how you will create "sticky" customers who keep coming back for more.
Overall, when it comes to choosing an effective business model, the bottom line is that it must
be based on providing a great shopping experience for the customer. "E-commerce is all about
the customer experience," says Brigham. "If a company is making it difficult for a customer to
conduct a transaction, then it doesn't matter what kind of business model the company has or
exactly what company it is, I don't think that customer is going to come back. E-commerce is
really all about setting up an extremely pleasurable online experience."
 E-Supply Chain Management

Which Visits Lead to Purchases? Dynamic

Conversion Behavior at e-Commerce Sites

Name: Akshata Solanki

PRN: 201802258
 Which Visits Lead to Purchases? Dynamic Conversion Behavior at e-
Commerce Sites .

1. Introduction
As it is virtually costless for Internet shoppers to visit an e-commerce site, many online
merchants experience large volumes of visitor traffic. Amazon, for example, had approximately
21 million unique visitors at their site just in the month of December 2000, according to Media
Metrix, while Victoria’s Secret occasionally experiences huge surges in traffic -- as many as 1000
visitors per second (Quick 1998). Consequently, an important issue facing e-commerce
managers is how best to handle the large numbers of shoppers given limited server capacity.
One solution is to invest in server capacity, since too little capacity results in congested server
traffic and provides users with a poor shopping experience. But too much capacity is expensive,
and large investments in server capacity are poorly rewarded, since conversion rates of visits to
purchases are uniformly low across the industry. Forrester (1999) reported that over 70% of
online retailers experienced less than a 2% overall purchase conversion rate. In other
words, over 98% of the visits that e-commerce sites must serve do not result in purchase
transactions. Should e-commerce sites invest to ensure that the 2% of the visits resulting in
purchases will be positive shopping experiences or invest less and hope that 2% of the visits will
still result in a purchases despite any potential negative shopping experiences? One way e-
commerce sites have chosen to deal with this dilemma is to “manage” visitor traffic. For
example, Victoria’s Secret re-directs purchasing visits to faster servers while mere browsing
visits are hosted by their less efficient and often congested servers (Quick 1998). But purchasing
visits are only identified after the shopper places an item in the shopping cart. The shopping
experience leading up to that event is still hosted by the slower server. The ability to
identify purchasing visits at the start of the session rather than after the customer has finished
shopping and begun to complete the transaction, would offer a better overall shopping
experience for the more promising visits, and therefore might increase the number of visits that
proceed towards a successful purchase transaction.Because of the low returns to serving the
large volume of visitor traffic, a related issue is how best to allocate marketing resources in
order to improve conversion rates. Many e commerce sites hold the philosophy that every visit
is a buying opportunity and therefore try to induce purchases with promotions and discounts.
However, offering promotions and discounts for all visits is inefficient. Many purchasers are
likely to initiate a transaction without the added incentive of a promotion; offering these
shoppers a promotion would be a poor use of resources. A more efficient option is to limit
promotional offerings to those who were unlikely to buy rather than to extend an offer to all
shoppers and reducing margins for the likely buyers.The key in both of these applications is the
ability to predict purchasing probabilities for a given visit. Those visits that are likely to result in
a purchase need to be identified and the visitors possibly re-directed to a server that will
provide a better shopping experience and increase the visitors’ likelihood of buying. Those visits
that are less likely to result in a purchase, without any added incentive, may be identified as
targets for promotion.With these (and other) resource allocation decisions in mind, we develop
a model of conversion behavior that predicts each customer’s probability of purchasing at a
given visit based on that individual’s observed history of visits and purchases. We offer an
individual-level model that allows for customer heterogeneity in a very flexible way. We discuss
and allow for the fact that visits may play very different roles in the purchasing process. For
example, some visits are motivated by planned purchases while others are simply browsing
visits. The Conversion Model developed in this paper has the flexibility to accommodate a
variety of visit-to-purchase relationships. Finally, customers’ shopping behavior may evolve
over time as a function of past experiences.

Model Development :

Conversion Model Framework. There are four key components of the Conversion Model that
allow us to accommodate the variety of nonstationary visit and purchase effectsdiscussed in the
previous section:
1. Baseline probability of purchasing. For each individual, there is a baseline probability
of purchase at each visit. This baseline reflects the extent to which visits are purchase-directed
and likely to result in purchasing regardless of any effects from past visits or purchases.
2. Positive visit effect on purchasing. Each visit has its own stochastic impact (assumed to be
non-negative), and as the effects of these visits accumulate, the probability of purchase
increases over time. In other words, as a shopper makes more visits, she will be increasingly
likely to purchase in subsequent visits, depending on the magnitude of these visit effects on
purchasing. If and when a purchase occurs, this “bank” of visit effects is reset to zero, and visit
effects begin to build up again upon the next visit opportunity. However, incremental visit
effects may also be zero. In this case, there is no accumulated visit effect, and purchasing is
driven primarily by the baseline effect.
3. Negative purchasing threshold effect. Purchasing propensity is negatively affected by
an individual’s level of purchase-related anxiety toward a given retailer. For example, shoppers
new to a site may be risk averse and reluctant to provide personal information, such as credit
card numbers, home addresses, etc., to an unknown vendor as part of the transaction process.
In effect, shoppers have a threshold that must be overcome before a purchase will occur.
Therefore, as a shopper visits a store, the associated visit effects are measured against a
purchasing threshold construct which varies across individuals. When the accumulated effect of
visits becomes high relative to this threshold, purchase occurs.
4. Evolving effects over time. The expected magnitudes of both visit effects and
purchasing threshold may evolve over time, as the customer gains experience with the shopping
environment. For example, subsequent visits to a website may have smaller effects on
purchasing as the shopper gets used to the environmental stimuli and becomes less persuaded
by content that has been seen repeatedly in the past. Therefore, our Conversion Model will
allow for and provide a measure to characterize the trends that may be affected by past visiting.
Additionally, purchasing thresholds may also evolve as a function of past purchasing
experiences.
Estimation :

Two key components determine an individual’s purchasing probability at a given visit,

(1) the net effect of past visits and (2) purchasing thresholds. Both of these components are
assumed to be gamma-distributed random variables to account for heterogeneity.

Data :
We use clickstream panel data collected by Media Metrix, Inc. Media Metrix maintains a panel
of approximately 10,000 households whose Internet behavior is recorded over time. The data
contains information regarding when each household visits a given site. Additionally, the data
include the precise day and time when a specific URL was viewed. To consolidate the data, we
aggregate visits to the daily level. Any session in which the individual views a URL with the on-
line store’s domain name is considered a visit to that store. If a given household visited a store
multiple times in a single calendar day, that is coded as one visit on the day in which the session
began. For our purposes, we examine the panel’s shopping behavior at a leading online
bookstore, Amazon.com. From March 1, 1998 through October 31, 1998, there were 4,379
panelists who made at least one visit making a total of 11,301 visits. Purchase is defined as any
visit during which a purchase occurred. For many online stores, buyers are linked to a specific
web page that acts as a receipt or purchase confirmation after an order has been submitted,
including “one-click” purchases. Those visits in which the panelist saw the “confirm-order” page
of the store’s website were identified as purchase visits. The number of units purchased and the
total amount spent were not considered in this analysis.
Of the 4,379 panelists who visited the store in our data period, only 851 households
boughtduring that time, but they made a total of 1,573 purchases. This results in an overall
conversion rate of 13.92% (1,573/11,301) -- a very high conversion rate for online retailers who
tend to have conversion rates below 5% in most circumstances. However, this overall
conversion rate says nothing about how buying propensities differ across shoppers or how it
changes over time for a given shopper. Because average conversion rates tend to be so low, it is
vital to identify those visits (and visitors) with higher likelihoods of conversion.

Results :
As a start, the full six-parameter Conversion Model was estimated on the entire eight
months of bookstore data. From the model results, there are three main dynamics we are
looking to identify. First is the influence of visits. Do visits have some effect on conversion
probabilities or is most purchasing driven by a strong baseline effect? The model seems to
indicate that visits do have effects, above and beyond the baseline, that accumulate and
increase purchasing probabilities as indicated by a relatively large µ0 = 0.276 when compared to
the baseline, rv = 0.062.Second is the adaptation effect. That is, does the incremental effect of
each visit systematically evolve as the shopper gains experience? In this case, k is less than one,
suggesting that subsequent visits have a diminishing (but still positive) impact on purchasing
behavior as the shopper makes more visits to the site.

Conclusion:
The Internet has provided e-commerce managers with an over-abundance of data and metrics.
The Internet has provided e-commerce managers with an abundance of data that can be used
for analyses of online buying behavior