![MSRP and the U.S. Supreme Court
Manufacturer Suggested Retail Price
For almost 100 years in the U.S., manufacturers could suggest a retail price
of a product but antitrust law prevented them from enforcing that price.
In 2007, the U.S. Supreme Court in a 5-4 decision, overturned the law
◦ Leegin Creative Leather Products, Inc. v. PSKS, Inc., dba Kay’s Kloset
◦ http://caselaw.lp.findlaw.com/cgi-
bin/getcase.pl?court=US&navby=case&vol=000&invol=06-480
Manufacturers can now stop sales to any retailer who offers discounts on
their products.
Reasoning
◦ The basic argument was that local stores provide service and people might use that
service for free and go online to find a cheaper price from someone who does not
have the costs of a storefront and customer service.
◦ A secondary argument was that it would force retailers to compete across brands
instead of within a brand. [But how do you compete if you cannot cut price?]
Alternate opinion: If stores provide a useful service, people would pay for
it. The market would determine the value of that service—not an arbitrary
value assigned by a manufacturer. And stores could make their own
decision to sell products online at a discount. Ultimately, manufacturers
who understand economics will reconfigure their prices.](https://image.slidesharecdn.com/mis07-130114054924-phpapp01/85/Mis07-17-320.jpg)
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Mis07
- 1. Introduction to MIS Chapter 7 Electronic Business Jerry Post Technology Toolbox: Paying for Transactions Technology Toolbox: Choosing Web Server Technologies Cases: Retail Sales
- 2. Outline What types of products are sold online? How do Web-based services work and why do they change the world? How can customers pay for products and why do you need new payment mechanisms? How do firms get revenue from Web ads and how do customers find a site? How do you create an EC Web site? How do portable Internet connections (mobile phones) provide new ways to sell things? When do consumers and businesses pay sales taxes on the Internet? Does the Internet create a global marketplace? What are the costs for cloud computing?
- 3. Electronic Business Salesperson Service, orders, and information Orders, Auctions, and EDI Large business Small business/ Sales and supplier CRM The Internet Web hosting and Web-based services Consumers Customer
- 4. Forms of Electronic Commerce Business Consumer Business B2B B2C EDI Consumer-oriented Commodity auctions Sales Services Support Consumer C2B C2C Minimal examples, Auction sites (eBay) possibly contract But many of these are employee sites such as dominated by small vworker.com business sales. Social networks
- 5. Marketing Phases Pre-Purchase Purchase ◦ Static data sites. ◦ Transmission security. Promotion. ◦ User identification. Product specifications. ◦ Product selection. Pictures. ◦ Payment validation. Schematics. ◦ Order confirmation. Pricing. Post-Purchase FAQs. ◦ Service. ◦ Interactive sites. Problem tracking. Configuration. Sales leads. Compatibility. ◦ Resolve problems. Complex pricing. ◦ Answer questions. ◦ Product evaluation. Modifications. Tracking customers.
- 6. E-Commerce B2C U.S. Sales U.S. E-Commerce Sales 60 50 40 Billion $ 30 20 10 0 EC/Total = 5% in 2010-Q4 EC 4Q/Year = 32% Total 4Q/Year = 27% EC Annual 22% average growth rate v. 3% for total http://www.census.gov/mrts/www/ecomm.html
- 7. Amazon EC 2010-Q4 ◦ Total U.S. EC Sales: $52.6Billion ◦ Amazon Sales: $12.95 Billion ◦ Amazon is almost 25% of the total!
- 8. Basic Consumer Concepts Lower prices ◦ All else equal, consumers will purchase a product with a lower total price. ◦ Consumers require information to compare. Instant gratification ◦ All else equal, consumers will choose a product in hand. See and touch ◦ Consumers prefer to see and touch products whenever possible. Things are rarely “equal” ◦ Which is the point of marketing and information.
- 9. Products and Online Questions Food ◦ Webvan and Peapod both tried. Too expensive and minimal demand. ◦ Restaurants are small and local and do little online. ◦ Specialty foods, such as coffee are popular. Clothing ◦ Sizing and touch are issues. ◦ Variety and assortment are easier to find online. ◦ Brands make it easier to search and buy online. Shelter ◦ Housing is hard to sell online. ◦ House data controlled by realtor organizations (MLS). ◦ Rentals can benefit. ◦ http://www.zillow.com Transportation ◦ Airlines heavily use the Internet, with a new push to selling their own tickets. ◦ New cars are hard to buy and sell online. ◦ Manufacturers provide minimal data. ◦ Used car sales benefit from the search capabilities.
- 10. Online Sales: Digital Content Entertainment: Defined products ◦ Books In 2010, Amazon reported digital sales exceeded sales of even paperback books. E-readers are dropping in price. ◦ Music Flexible pricing might increase sales even faster. Amazon now offers monthly sales. High-end systems: www.hdtracks.com ◦ Video Movies (Netflix, …) Television (Hulu, …)
- 11. B2C Internet Features Search Compare products and vendors Low costs for large amounts of information Wide audience Tailor responses to individuals Social feedback (newer) What products match these features?
- 12. B2B Internet EDI ◦ Ordering and Tracking ◦ Payment Web site ordering ◦ Staples and Office Depot Auctions ◦ Spot market, such as steel Services ◦ Hosting ◦ Search ◦ Payment
- 13. Production Chain parts parts parts supplier supplier supplier warehouse warehouse supplier supplier supplier tool workers manufacturer Manufacturer wholesaler wholesaler distributor distributor distributor retail store retail store retail store retail store Consumers
- 14. Disintermediation Production Chain Manufacturer E-commerce website Retailer Consumer
- 15. Airlines and Disintermediation 1960s-1990s 2000-2010 2010- Airline (American) Reservation system (Sabre) Web Sites Travel agent (Expedia, Orbitz, Travelocity) Customer
- 16. Price Competition Searches ◦ Google (www.google.com/products) ◦ Bing (Products tab) ◦ Nextag Barcode scanning, many options ◦ Android Web search ◦ iPhone Prices and more http://scan.jsharkey.org/
- 17. MSRP and the U.S. Supreme Court Manufacturer Suggested Retail Price For almost 100 years in the U.S., manufacturers could suggest a retail price of a product but antitrust law prevented them from enforcing that price. In 2007, the U.S. Supreme Court in a 5-4 decision, overturned the law ◦ Leegin Creative Leather Products, Inc. v. PSKS, Inc., dba Kay’s Kloset ◦ http://caselaw.lp.findlaw.com/cgi- bin/getcase.pl?court=US&navby=case&vol=000&invol=06-480 Manufacturers can now stop sales to any retailer who offers discounts on their products. Reasoning ◦ The basic argument was that local stores provide service and people might use that service for free and go online to find a cheaper price from someone who does not have the costs of a storefront and customer service. ◦ A secondary argument was that it would force retailers to compete across brands instead of within a brand. [But how do you compete if you cannot cut price?] Alternate opinion: If stores provide a useful service, people would pay for it. The market would determine the value of that service—not an arbitrary value assigned by a manufacturer. And stores could make their own decision to sell products online at a discount. Ultimately, manufacturers who understand economics will reconfigure their prices.
- 18. Dynamic Pricing P Price consumer is S willing to pay Perfect competition price D Q The ultimate goal is to set individual prices for each consumer to capture the maximum price each is willing to pay. As opposed to the perfect competition price, where everyone pays the same price, and some customers gain because they were willing to pay more.
- 19. Making Money on the Internet Sell products Sell services ◦ To consumers (financial, match making, …) ◦ To businesses (Web services, CRM, …) Sell advertising Sell stock—which means convincing investors that you will someday make a profit doing one of the above
- 20. Consumer Services: Social Networking Google Ads Facebook $ Advertiser $ Ad Content
- 21. Distributed Services Original document Company 1 The Internet Internet Service Company 2 e.g., automated document Translated translation document
- 22. E-Commerce Risk Mitigation It is critical that vendors Consumer is protect their databases. protected by credit card company. Encrypt(Database) Encryption protects Vendor transmission of data and verifies identity of vendor. Vendor is not protected by credit card and has only weak methods to verify customer identity. Customer
- 23. Payment Mechanisms Credit card drawbacks ◦ High transaction costs. ◦ Not feasible for small payments. ◦ Only some protection for merchants. Characteristics needed ◦ Low enough costs to support payments less than $1. ◦ Secure transmission. ◦ Authentication mechanism. ◦ Easy translation to traditional money. Alternatives ◦ Mobile phone bill. ◦ Smart cards. Smart Card ◦ Digital cash. 5400-1111-0000- Name
- 24. Credit Card Industry VISA, Security MasterCard, Database AmEx, Discover, Card Processor JCB, … Authorization data Payment data Issuing Bank Merchant Bank Customer Merchant Payment data Product/service
- 25. Digital Cash Trusted Party Service Conversion to real money (3) Cash amount is verified and added to Bank vendor account. (1) Consumer purchases a cash value. Vendor (2) Customer chooses product, sends ID or digital cash number. PayPal is similar, but takes a more interactive role in Consumer every transaction. All item data is sent through PayPal.
- 26. Near Field Communication Payment Prepaid account Debit account Bank price Terminal inches Identifier + PIN Message receipt Customer
- 27. Web Advertising Revenue Web Ad Revenue Revenue Google 9 8 7 6 Billion $ 5 4 3 2 1 0 IAB: http://www.iab.net/resources/ad_revenue.asp And Google 10-Q statements. Some revenue is not advertising, but… IAB says top 10 companies generate over 70% of the revenue
- 28. Web Advertising Placement Publisher Website negotiate sites negotiate ads Browse page + info ad link DoubleClick/Google ad Advertisers request page content Ad Rotate ads Track hits Collect money Distribute payments Track customers User Web browser
- 29. Web Advertising: Advertiser Perspective Want viewers to see the ad. Want viewers to click through to the main site. Want to collect contact information from viewers. Need to match site demographics to target audience. Monitor response rates. Cost.
- 30. Web Advertising: Publisher Perspective Income ◦ Cost per thousand viewings ($1 - $50) ◦ Need volume (25,000 or 1,000,000 per month) ◦ Need demographics Tasks ◦ Ad rotation software ◦ Tracking and monitoring ◦ Ad sales staff ◦ Billing ◦ Third Party: DoubleClick
- 31. Google AdWords Advertisers purchase keywords When users search for something Google displays ads that match the keyword If a user clicks on an ad, the advertiser is charged. Advertiser Complications ◦ Choose keywords that users are likely to enter. ◦ Prices are not fixed—advertisers bid for keywords and the highest bids at any point in time are placed at the top. ◦ Advertisers set daily budgets. When a budget is reached the ads are no longer displayed. Any Web site owner can join Ad words and place ads on a page. Google pays a portion of the revenue to the owner when an ad is clicked.
- 32. Google Keywords Decisions ◦ Keywords and phrases ◦ Price per click to bid ◦ Daily budget—be careful Support data from Google ◦ Number of monthly searches by keyword ◦ Estimated average cost per click ◦ Estimated ad position Check your competition!
- 33. Keyword Selection and Pricing
- 34. Online Advertising Becomes Complex http://www.lumapartners.com/resource-center/lumascapes-2/
- 35. Privacy Set your browser to block third-party cookies. Optionally, use “private” browsing mode, but it might not work with some Web site features. Watch for newer opt-out tools More extreme: Edit the hosts file to completely block an ad site: ◦ 127.0.0.1 ads.doubleclick.net
- 36. Web Hosting Options Business Situation Hosting Options Small business with a few basic Static HTML with a Buy Now items. button. Unique items of uncertain value. eBay auction. Many items but minimal Web commerce server hosted by configuration issues. third party. Many unique items and merchant Amazon WebStore. identity is not critical. Unique service. Custom programming, probably run on a hosted server. Custom application with tight Custom programming running on linkages to in-house applications your own servers. Rare. and databases.
- 37. Simple Static HTML Web Site Main Web Page Categories … Category 1 Category 2 Category 3 Product photo Product photo Product photo … … … … … … Product 1 Product 2 Product 3 Product n Description Description Description Description Price Price Price Price Photo Photo Photo Photo
- 38. Simple Web Site with Buy Now Button Merchant Web site Card Processor Site Product Buy Now Description Shopping Cart Credit Card Data Price Item Price Name … … Address Total Phone Check Out Card Number Submit Notify merchant Customer Notification http://www.goemerchant.com/index.htm (Accept/Reject) http://www.paypal.com http://checkout.google.com
- 39. Web Auctions Uncertain price Can set reserve price Good for unique items Efficiency depends on ◦ Full information ◦ Adequate number of participants
- 40. Amazon WebStore (MarketPlace) Search Cameras Description Catalog Price Vendor Transfer Database Checkout Description Price Scanned image Contact info Consumer Product search Transaction Processing Choose vendor Amazon.com handles credit Pay for item Sends order info to merchant Merchant ships item to consumer
- 41. Web Commerce Servers Your Web site Products Shopping cart Sales Merchants Customers Commerce Server Shell Load database Images Database Descriptions Prices Web servers Customize site Web/Commerce Hosting Company
- 42. Application Service Provider Business Application e.g., Accounting Store data Analyze data Facilitate company interaction Businesses that lease the use of the application
- 43. Web Hosting Options Business Situation Hosting Options Small business with a few basic Static HTML with a Buy Now items. button. Unique items of uncertain value. eBay auction. Many items but minimal Web commerce server hosted by configuration issues. third party. Many unique items and merchant Amazon MarketPlace. identity is not critical. Unique service. Custom programming, probably run on a hosted server. Custom application with tight Custom programming running on linkages to in-house applications your own servers. and databases.
- 44. Mobile Commerce Apple iPhone Motorola Xoom HTC Evo As cell phones and tablet computers converge; people can connect to any business every place they go.
- 45. Cloud Computing Costs ◦ Fixed monthly ◦ Cost per processing ◦ Data storage ◦ Data transfer in and out ◦ Database/software Examples ◦ Amazon: Elastic Cloud (EC2), Simple Storage Service (S3), Database ◦ Microsoft: Azure and SQL Azure ◦ Rackspace ◦ Equinix
- 46. Technology Toolbox: Paying for Transactions Payment Method Fixed Cost Fixed Fee Discount Fee Fraud/Insurance Cash Low except for $0.00 $0.00 Physical security security Check-physical $20/month $0.25 1.7% Included Check-electronic $20/month $0.25 2.5% Included Credit Card-physical $10/month $0.25-$0.50 1.6% Covered: 0.08% Minimum $25 fraud average Credit Card-electronic $30-$50/month $0.25-$0.50 2.6%-4% Not covered: Minimum $25 0.25% fraud average Debit Card Setup/key pads $0.35-$0.55 0% - 2% None PayPal None $0.30 2.2% - 2.9% Covered for physical shipments
- 47. Quick Quiz: Paying for Transactions 1. Why have consumers rejected most electronic payment mechanisms? 2. What additional fees are charged for international transactions? 3. What happens if a customer refutes a charge?
- 48. Technology Toolbox: Choosing Web Server Technologies Main Platforms: Java: J2EE IBM Websphere Oracle PHP/PERL/PYTHON Microsoft .NET
- 49. Quick Quiz: Web Server Technologies 1. Why would programmers become so attached to one system? 2. What are the advantages of choosing the most popular server technology? 3. What are the dominant costs of creating a website?
- 50. Cases: Retail Sales Annual Revenue 450 400 350 300 Wal-Mart Billion $ 250 Sears 200 SuperValu 150 Amazon 100 50 0 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Net Income / Revenue 0.2 0.1 0 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 -0.1 Wal-Mart -0.2 Sears Ratio -0.3 SuperValu -0.4 Amazon -0.5 -0.6 -0.7