Channel Mgmt & E Commerce

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1 Master TEW (BK) Channel Mgmt & E Commerce Collges / Vragen en Antwoorden Q uickprinter Koningstraat Antwerpen EUR

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3 2013 E-commerce summary EXAM PREPARATION 2013 VINCENT BERGSMA

4 Contents Lecture 1 Framework for internet marketing and ecommerce... 2 Lecture 2 Ecommerce infrastructure & security: internet and the World Wide Web... 5 Lecture 3 Web business models Lecture 4 Building an ecommerce website Lecture 5 Ecommerce marketing concepts Lecture 6 Ecommerce marketing communications Appendix Safety... 40

5 Lecture 1 Framework for internet marketing and ecommerce Evolution towards the digital economy 1960 Production efficiency 1970 Strategic planning 1980 Total quality management 1990 Values and relationships (from now on more focus on customer experience) 2000 Business intelligence 2010 Customer co-creation Evolution of ecommerce Innovation Development of key concepts Dot-com businesses with heavy capital investments anyone can do anything This was due to the belief of computer scientists that ecommerce was inexpensive and universal communication that was accessible by everybody. Moreover economists felt it could provide nearly perfect competitive markets and friction free commerce with lower search costs, disintermediation, price transparency and elimination of unfair competitive advantages. Lastly entrepreneurs felt it could provide them an opportunity to earn above normal returns on investment as they were could use first mover advantages. However many of these visions turned out not to be true. Ecommerce was not friction free as consumers are not as price sensitive as expected and considerable price dispersion continued to exist as a result. Moreover information asymmetries continued to exist leading to continued imperfect competition. New intermediaries found their way to the internet, disabling disintermediation. And fast followers often overtake first movers, disabling many first mover advantages Consolidation Emphasis on business driven approach (the dot-com bubble bursted) 2006-present Reinvention Extension of technologies New models based on user-generated content, social networking and services. Web 2.0 taking on user-centred applications and social media technologies. These feature much user generated content and communication with highly interactive social communities with sometimes large audiences (and often-times unproven business models). Leading examples are Facebook, Twitter, Instagram and Wikipedia. Ecommerce trends Mobile platform solidifies with mobile e-commerce exploding Continued growth of social networks and expansion of social and local e-commerce Explosive growth in Big Data E-books gain wide acceptance One-to-one future marketing Due to the rise of IT/ICT technology companies are able to compete for every single customer by mass customizing their processes (marketing, complaint handling, production etc.) to every customer.

6 Finally this should link the production back end to the sales front end, all focussed on mass customization. Over time this has influenced marketing communications as well. Traditionally marketing communication was one-to-many, in which the company sends a universal message out to a number of customers through traditional mass marketing. Over time this evolved into one-to-one (internet) communication. Organizations here are able to send different messages to different customers, personalizing or customizing them. Ultimately however many-to-many communications are only influenced by the organization as communication don t only flow through companies anymore, but instead are mediated by the internet, allowing customers to send messages and content to each other and the company only to participate in this conversation. Implications Through the emerging digital economy major shifts in business fields occur, changing the way business is done. This results in: A different balance between speed and knowledge Globalization (global competition) Virtual marketplaces and shorter product/service life cycles Networking and partnerships (through intranet, extranet and internet) Mass customization opportunities Focus on business processes (efficiency) New business models/roles in ecommerce All of these result in the fact that strategic decisions are becoming more and more technology based. This same technology is shifting a firm s relationship with its customers from a face-to face relation to a screen-to-face interaction. Value creation has also shifted with this trend, changing from physical goods to an economy that favours service, information and intelligence as the primary sources of value creation. Economics of information: Richness and reach Accessibility Entry barriers Disintermediation Buyer search costs Mass customization Relationship marketing Moreover just 34.3% of the world population has access to internet at the moment.

7 Unique features of ecommerce technology Ubiquity Global reach Universal standards Information richness Interactivity Information density Personalization/customization Social technology Reasons to study ecommerce Ecommerce is a stronger and different technology than all previous and as such bringing fundamental changes to commerce. Traditional commerce focussed on a passive consumer, using fixed prices driven by a sales force and information asymmetry. As such marketing focused on selling the brand (emphasising mass production and promoting a distinct brand) to managing the consumer (focusing on customers individualized interests and demands. Lastly information creation and cycle speed increases significantly as well. All together we can define ecommerce the use of internet and web to transact business or more formally Digitally enabled commercial transactions between and among organizations and individuals. Thus ecommerce is focussed on interaction between players. E-business on the other hand is focussed on interaction within a firm the digital enablement of transactions and processes within a firm, involving information systems under a firm s control. New technologies and opportunities More advanced connection devices increase the potential for an online audience. This ranges from cell phones to home wireless systems. Moreover new information appliances integrate technology with specific consumer demands. Faster internet connections bring marketing messages to the audiences faster. Over the past 17 years ecommerce has seen a rapid growth and change. With this technologies continue to evolve at exponential rates, with much disruptive change and new opportunities emerging. Types of ecommerce (Classified by market relationship or technology) Business-to-Consumer (B2C) Business-to-Business (B2B) Consumer-to-Consumer (C2C) Social e-commerce Mobile e-commerce (M-commerce) Local e-commerce

8 Lecture 2 Ecommerce infrastructure & security: internet and the World Wide Web Internet and the World Wide Web Internet interconnected network of thousands of networks and millions of computers that links businesses, educational institutions, government agencies and individuals. World Wide Web one of the internet s most popular services that provides access to billions, possibly trillions of web pages. Evolution of the internet Innovation phase Creation of the fundamental building blocks Institutionalization phase large institutions provide funding and legitimization 1995-present Commercialization phase Private corporations take over, expand internet backbone and local service. Two pillars for the success of internet technology are its compatibility and open system. As much software was compatible with different products, companies were allowed to have more flexibility and lower switching costs. TCP and IP software became two of the most well-known internetworking pieces of software. IP software sets the rules for data transfer over a network, while Transmission Control Protocol (TCP) software ensures the safe and reliable transfer of the data. Due the compatibility and its open nature companies accepted standards such as TCP/IP, and the internet was able to grow rapidly. The internet: Key technology concepts The internet is defined by the Federal Networking Commission as network that: Uses IP addressing Supports TCP/IP Provides services to users, in manner similar to telephone system Three important concepts: 1. Packet switching 2. TCP/IP communications protocol 3. Client/server computing In the late 1970 s Wide Area Networks were established that allowed computers and Local Area Networks separated by large geographical distances to communicate.

9 One of the technologies that allowed these WAN s to operate effectively was packet switching. Packet switching slices digital messages into packets that are then send along different communication paths as they become available. Upon arrival these are then assembled and ready for use again, allowing less expensive and less wasteful file sending than circuit switching. All this is achieved by using routers, which are special purpose computers that interconnect the computer networks that make up the internet and route packets. Routing algorithms then ensure that packets take the best available path toward their destination. Circuit-switched network Dedicated connections are established for each communication, placing limits on the number of distinct exchanges possible in a given network. Packet-switched network Packet switching provides fair access to shared network resources by breaking up files into data packets before being transferred. To do so the original message is digitized into bits, which are broken into packets and send together with header information to indicate destination and other control information such as the total amount of bits of the message and how many packets there are.

10 TCP/IP Transmission Control Protocol (TCP) establishes a connection between sending and receiving web computers and handles the assembly of packets at the point of transmission and reassembly at the receiving end. Internet Protocol (IP) provides the internet s addressing scheme. Routers (considered the building blocks of internet) allow different network technologies to communicate with one another. Domain names are in essence IP addresses expressed in natural language. By a Domain Name System (DNS) the numeric IP addresses can be expressed in natural language. Lastly Uniform Resource Locators (URLs) are the addresses used by a Web browser to identify the location of content on the Web. Ex. Indicates a browser should use Hypertext Transfer Protocol for server access The name of the computer being accessed (could also use the computers IP address) The directory that contains the file you want to view The name of the file being requested TCP/IP Architecture and Protocol Suite 1. Application layer Internet protocols: HTTP, SMTP, POP3, IMAP, FTP: Telnet, SSL. Utility programs: Ping, Tracert, Pathping. 2. Transport layer 3. Internet layer IPv4 32-bit number, expressed in series of four sets of separate numbers marked of by periods, able to handle up to 4 billion addresses. Replaced by IPv6, 128-bit, able to handle up to 1 quadrillion addresses. Ex Class C address: network identified by the first three sets, computer by the last. 4. Network interface layer Client/Server Computing Powerful personal computers (clients) connected in network with one or more servers. In these networks servers perform common functions for the clients such as storing files, software applications etc. New clients that rapidly grow in numbers are tablets and smart phones. Smart phones are also considered to be a disruptive technology due to their new type of processors and operating systems. Currently about 25% of the cell phones are smart phones.

11 Cloud computing Is the fastest growing form of computing and allows firms and individuals to obtain computing power and software over the internet, such as Google Apps. Furthermore it radically reduces the costs of building and operating web sites, infrastructure, IT support and hard- and software. Internet today The internet s growth has boomed without disruption because it is based on: Client/server computing model Hourglass, layered architecture And in lesser degree to Network Technology Substrate Transport Services and Representation Standards Middleware services Applications Limitations for its future growth can be found in the infrastructure, in bandwidth limitations, quality of service limitations (latency and best effort QOS), network architecture limitations, language development limitations (such as HTML) and wired internet limitations. As such the Internet2 Project is founded by a consortium of 200+ universities, government agencies and private businesses collaborating to find ways to make the Internet more efficient and faster. The main goals of this collaboration are: creating leading edge very-high speed networks for the national research community, enabling revolutionary Internet applications and ensuring rapid transfer of new network services and applications to the broader internet community. Benefits of internet 2 technologies IP Multicasting enables efficient delivery of data to many locations on a network Latency solutions diffserv (differentiated quality of service) assigns different levels of priority to packets depending on the type of data being transmitted Guaranteed service levels and lower error rates ability to purchase the right to move data through network at guaranteed speed in return for higher fee. Declining costs. The Internet Network Architecture is divided into three layers: the backbone with high-bandwidth fibre-optic cable networks, private networks owned by a variety of NSPs with a bandwidth of between 155Mbps-2.5 Gbps and has redundancy build into the network. IXPS are the hubs where backbones intersect with regional and local networks, and connect backbone owners to another. CANs then operate within a single organization that leases internet access directly from regional or national carriers.

12 Mobile wireless internet access The last mile from the internet backbone to user s device. There are two basic types of wireless internet access: 1. Telephone based 2. Computer based Internet service providers Provide the lowest level of service to individuals, small businesses and some institutions. They provide: Narrowband (dial-up) Broadband o Digital Subscriber Line (DSL) o Cable modem o T1 and T3 o Satellite Intra- and extranets Intranet is a TCP/IP network located within a single organization for communications and processing. Extranet is formed when firms permit outsiders to access their internal TCP/IP networks. Wireless Local Area Networks (WLANs) Wi-Fi high speed, fixed broadband wireless LAN with different versions for home and business use, but always limited in range. WiMax high speed, medium range broadband wireless metropolitan area network Bluetooth low speed, short range connection Ultra-Wideband (UWB) low power, short range, high bandwidth network Zigbee short-range, low power wireless network technology for remotely controlling digital devices. Organizations that influence Internet and monitor its operations Internet Architecture Board (IAB) Internet Corporation for Assigned Names and Numbers (ICANN) Internet Engineering Steering Group (IESG) Internet Engineering Task Force (IETF) Internet Society (ISOC) World Wide Web Consortium (W3C) International Telecommunications Union (ITU) Development of the web : Web invented by Tim Berners-Lee (at CERN) and founded HTML, HTTP, web server and web browser. 1993: Mosaic Web Browser w/gui invented by Andreesen and others at NCSA, running on Windows, Macintosh and Unix. 1994: Nedscape Navigator Andreessen and Jim Clark invent the first commercial web browser 1995: Microsoft launches Microsoft internet explorer

13 Hypertext Is text formatted with embedded links. These links connect documents to one another and to objects such as sound, video or animation files. It uses Hypertext Transfer Protocol (HTTP) and URLs to locate resources on the web. Ex. Markup languages 1. Generalized Markup language (GML) (1960 s) 2. Standard Generalized Markup Language (SGML) (1986) 3. Hypertext Markup Language (HTML) uses a fixed set of predefined markup tags to format text that control the look and feel of web pages. 4. extentisble Markup Language (XML) is a new markup language specification developed by W3C designed to describe data and information, with tags defined by the user. Web servers and clients Web server software enables a computer to deliver web pages to clients on networks that request this service by sending a HTTP request. Its basic capabilities include: security services, FTP, search engines and data capture. Examples are: Apache and Microsoft IIS. This software is installed on a web server, which can be either web server software or a physical server. These can also be specialized in specific tasks, such as database servers, ad servers and so on. Finally a web client, any computing device attached to the internet capable of making a HTTP request and displaying HTML pages makes use of the server s capabilities. This is done mostly by using a web browser which main purpose it is to display web pages. The internet and the web: Features Internet and web features on which the foundations of ecommerce are built include: is the most used application of the internet and uses a series of protocols for transferring messages with text and attachments from one user to another. Although spam is a worsening problem, it can also be an effective marketing tool. Instant messaging displays words typed on a computer almost instantly and allows recipients to respond immediately in the same way. Different proprietary systems are offered by AOL, MSN, Yahoo and Google while Meebo and Digsby allow users to communicate across platforms. Search engines identify web pages that match queries based on one or more techniques, such as keyword indexes or page rankings. They also serve as shopping tools, advertising vehicles (search engine marketing) and tools within e-commerce sites. Outside it is the most commonly used internet activity. Intelligent agents (bots) are software programs that gather and/or filter information on a specific topic and then provide a list of results. Examples include: search-, shopping-, web monitoring-, news- and chatter bots. Online forum (also known as message board, bulletin board, discussion group, board or forum) is a web application that enables internet users to communicate with each other, but not in real time, as members have to visit the online forum to check for new posts. Chat is similar to instant messaging, however multiple users are allowed. As such users typically log into a chat room.

14 Streaming media enable music, video and other large files to be sent to users in chunks so that when received and played, files come through uninterrupted. As such users are allowed to begin playing media files before files are fully downloaded. Cookies are small text files deposited by a web site on a user s computer to store information about a user that are accessed when a user visits the next web site. They allow a website to personalize the user experience, but can also pose a privacy threat. Web 2.0 features and services Online social networks are services that support communication among networks of friend and/or peers. Blogs are personal web pages of chronological entries. Really Simple Syndication (RSS) is a program that allows users to have digital content automatically sent to their computers over the internet. Podcasting allows audio presentations to be stored as an audio file and makes it available for download from the web. Wikis allow users to easily add and edit content on Web pages Music and video services exist of online video viewing and digital video on demand. Internet telephony (VOIP) Voice Over Internet Protocol uses internet to transmit voice communication Internet television (IPTV) Video conferencing and telepresence Online software and web services for instance web apps, widgets and gadgets. Intelligent personal assistants exist of software that interacts with the user through voice commands. This features natural language (a conversational interface), situational awareness and a module that interprets voice commands to interact with various web services. Examples include Siri and Google Now. Mobile apps continue to explode in 2012 as 70% of mobile phone owners research products and services with 35% have made a purchase. Biggest security issues 1. Malware infection 2. Being fraudulently represented as sender of phishing messages 3. Laptop or mobile hardware theft of loss 4. Bots/zombies 5. Denial of service To achieve the highest degree of security, companies should use organisational policies and procedures and obey industry standards and government laws, while carefully using the Image 1. The E-commerce security environment latest safety technologies. Other important factors include the time value of money, cost of security vs. potential losses and the fact that security often breaks at the weakest link. Malicious code virusses, worms, trojan horses, drive-by downloads, backdoors, bots, botnets and threats at both clients and server levels. Potentially unwanted programs (PUPs) browser parasites, adware, spyware Phising scams, social engineering, edentity theft

15 Hacking types: white, black and grey (also possible; hacktivism) Cybervandalism disrupting, defacing, destroying websites Data breach losing control over corporate information to outsiders Credit card fraud/theft hackers target merchan servers; use data to establish credit under false identity Spoofing (pharming) Falsifying traits ussually to achieve a false identity (at least temporarily). This often includes , website, ip-adres, or biomedical traits. Spam/junk websites Denial of service (DoS) attack hackers flood a site with useless traffick to overwhelm a network Distributed denial of servce (DDoS) attack Sniffing - Eavesdropping program that monitors information traveling over a network Insider jobs Poorly designed server and client software Social network security Mobile platform threats Same risks as any Internet device Cloud security issues Security vs. Ease of use the more security measures added, the more difficult a site is to use, and the slower it becomes. Desire of individuals to act anonymously use of technology by criminals to plan crimes.

16 Points of vulnerability to security threats in ecommerce 1. Client 2. Server 3. Communications pipeline Protecting Internet communications Encryption Transforms data into cipher text readable only by sender and receiver. Secured both stored information and information transmission. Encryption provides 4 out of 6 key dimensions of e- commerce security: 1. message integrity, 2. Nun repudiation, 3. Authentication and 4. Confidentiality. Securing channels of communication (SSL, S-HTTP, VPNs) Protecting networks (firewalls) Protecting servers and clients Secure Sockets Layer (SSL) establishes a secure, negotiated client-server session in which URL of requested document, along with contents, is encrypted S-HTTP provides a secure message-oriented communications protocol designed for use in conjunction with HTTP Virtual Private Network (VPN) allows remote users to Image 2 Available tools to achieve site security securely access internal network via the Internet, using Point-to-Point Tunnelling Protocol (PPTP) Protecting networks Firewall - Hardware or software that filters packets and prevents some packets from entering the network based on security policy. This is achieved by two main methods: packet filters and application gateways Proxy servers (proxies) - Software servers that handle all communications, originating from or being sent to, the Internet Protecting servers and clients Operating system security enhancements such as upgrades and patches. Anti-virus software, which is the easiest and least expensive way to prevent threats to system integrity, however it requires daily updates.

17 Lecture 3 Web business models E-commerce influences business by all of Porters Five forces: 1. The basis of competition among rivals 2. Barriers to entry 3. Threat of new substitute products 4. Strength of suppliers 5. Bargaining power of buyers But co-optition is also an option. This is appears when two companies both work together and compete at the same time. Industry value chains are sets of activities performed by suppliers, manufacturers, transporters, distributors, and retailers that transform raw inputs into final products and services. As internet reduces the cost of information as well as transactional costs, greater operational efficiencies are achieved, lowering costs, prices and adding value for the customers. Firm value webs are networked business ecosystems. They use internet technology to coordinate value chains of business partners, either within an industry or within a group of firms. It coordinates a firms suppliers with its own production needs using an internet-based supply chain management system. Firm value chains are activities that a firm engages in to create final product from raw inputs. The internet influences these chains as well, as it increases operational efficiency, enables product differentiation and enabled precise coordination of steps in a chain.

18 Networked-economy companies can create value in two ways: liberate trapped value or introduce new-to-the-world value A business model is a set of planned activities designed to result in a profit in the marketplace. With a business plan describing this business model. E-commerce Business models then use/leverage the unique qualities of internet and the web. In the networked economy developing a business model requires four key choices: 1. Value cluster: specifying the value proposition or the value cluster of the business. 2. Online offering: articulate the online product, service or information offering. 3. Resource system: define how the company needs to align its resources to deliver the value proposition. 4. Revenue model: Define and select the most appropriate revenue model to pursue. 8 key elements of a business model 1. Value proposition 2. Revenue model 3. Market opportunity 4. Competitive environment Value proposition 5. Competitive advantage & online offering 6. Market strategy 7. Organizational development Resource model 8. Management team The value proposition explains why customers should buy from you. Examples of such value propositions include: personalization/customization, reduction of product search/ price discovery costs and facilitation of transactions by managing product delivery. The value proposition is the result

19 of a combination of choices about the customers, the benefits offered and the unique capabilities of the firm. How a firm will earn revenue, generate profits and produce a superior return on capital is put forward by the revenue model. The major types of revenue models are: Advertising revenue model Subscription revenue model Transaction fee revenue model Sales revenue model Affiliate revenue model The market opportunity depends on the market space that is intended to serve and its size and is usually divided into smaller niches. The market space is made up of actual or potential commercial value in which a company intends to operate. The realistic market opportunity is then defined by the revenue potential in each of the market niches in which the company hopes to compete. The competitive environment defines who occupies the intended market space. This could be either other companies selling similar products in the same market space and companies selling substitutes. The competitive environment is influenced by the number and size of active competitors, each competitor s market share, profitability, and pricing. A competitive advantage defines the special advantage a firm brings to the market space. This is achieved when a firm produces a superior product (benefit leadership) or can bring a product to market at a lower price than competitors (cost leadership). Important concepts in these are that firms are asymmetrical, can use first mover advantages, unfair competitive advantages and leverage different sources of advantage. Market strategy then stipulates the plan on how to promote the products and services to attract the target audience. It lays out a detailed view of how the company intends to enter the market and attact customers, which is very important, because the best business concepts fail if not properly marketed to potential customers. Organizational development explains what types of organizational structures within the firm are necessary to carry out the business plan. These are then divided into an organizational structure. Usually a firm starts of functional and hires more specialists as the company grows. The management team consists of the employees responsible for making the business model work, a strong management team moreover also provides instant credibility to outside investors. However even strong management teams might not be able to salvage weak business models, but can change it if necessary. The customer decision process is made up of three generic phases, prepurchase (need origination, information gathering, and evaluation), Purchase (the purchase decision), and post purchase (with post-purchase evaluation and behaviour). Categorizing ecommerce business models Ecommerce business models are typically categorized according to their sectors: B2C, B2B, C2C or the type of ecommerce technology that is used, such as mobile commerce (m-commerce), however there

20 is not a specific correct way on how to do it. Moreover similar business models might occur in more than one sector and companies might use more than one business model. B2C Business models Portals provide search options and an integrated package of content and services. Their main revenue models are: advertising, subscription fees and transaction fees. Three variations occur often: horizontal/general, vertical/specialized (Vortal) and pure search portals. E-tailers provide an online version of a traditional retailer, as such its main revenue model is sales. Most common variations include: virtual merchants, bricks-and-clicks, catalogue merchants and manufacturer direct. This business model moreover provides low barriers to entry. Content providers provide digital content on the web (such as news, music and video). These businesses commonly use subscription based revenue models. Users pay per download (micropayment), advertising or affiliate referral fees. They are most common as content owners, syndications and web aggregators. Transaction brokers process online transactions for consumers. Their primary value proposition is saving time and money and their main revenue model is based on transaction fees. Transaction brokers are most common in financial services, travel services and job placement services. Market creators use internet technology to create markets that bring buyers and sellers together. Examples include Ebay and Priceline. Mostly these businesses use transaction fee revenue models. Service providers provide online services. Such an example is Google with Google Maps, Google Docs, etc. It proposed value by providing valuable, convenient, time-saving, low cost alternatives to traditional service providers. Revenues are mainly based on sales of services, subscription fees, advertising and sales of marketing data. Community providers provide an online environment (social network) where people with similar interests can transact, share content and communicate. Leading examples include Facebook and Twitter. Revenue models include: advertising fees, subscription fees, sales revenues, transaction fees and affiliate fees. B2B business models B2B business models are dividable into two main sections: net marketplaces (e-distributors, e- procurement, exchange and industry consortia) and private industry networks (single firm or industry wide). Net marketplaces E-distributors supply products and services direct to individual businesses. They are owned by one company that seeks to serve many customers while getting revenue from sales of goods. An example of such a player is grainger.com. E-procurement creates and sells access to digital markets and includes B2B service providers and application service providers (ASPs). Revenue is based upon transaction feed, and annual licensing fees. Exchanges are digital marketplaces where suppliers and purchasers conduct transactions. They are usually owned by independent firms whose business is making a market. Usually they serve a single vertical industry with revenues based upon transaction- and commission fees. They create powerful competition between suppliers, however their number has fallen dramatically. Industry consortia are industry owned vertical marketplaces that serve specific industries. They are often more successful than exchanges as they are sponsored by powerful industry players and strengthen traditional purchasing behaviour. An example is Exostar.

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