E-COMMERCE Learning Unit 8: Electronic Commerce Strategy

Strategic choices in e-commerce Placing strategy in context A business model is a ‘model’ or framework that describes what and how the company should do to make profit. To help ‘lock-in’ a user-base Consider following when implementing e-commerce strategy: Segmentation Target market selection Positioning

OUTCOMES: Describe and understand the strategy planning and formulation process used for electronic commerce.

Electronic Commerce Electronic commerce strategy is the formulation and execution of a vision how an existing or new company intends to do business electronically. The strategic process: Starts with the formulation of the strategy – the “thinking” part of the process Perform an internal and external environmental analysis Decide on goals Select a strategy Implement – take physical action Control.

Electronic Commerce Electronic commerce strategy is the formulation and execution of a vision how an existing or new company intends to do business electronically. The strategic process starts with the formulation of the strategy – the “thinking” part of the process.

Strategic Planning process Perform internal & external analysis Decide on goals Select strategy Implement – take physical action Control

Building a customer base You need to get and keep customers. Can do this by means of: Site-centric marketing Symbiotic marketing Trust as a strategy Harnessing the power of self-service (the customer must do something himself to use service) Strategic alliances

Site-centric marketing: This is when websites that offers an array of free content, hoping to attract surfers (potential consumers) in anticipation that some would make purchases. Other site centric approaches include the use of banner ads or spam email, both of which are ineffective. Symbiotic marketing: Involves an alliance between firms to exploit the relative advantages of each firm.

“Meet the Volkswagens” Twitter ad Example of a banner ad “Meet the Volkswagens” Twitter ad The ad asks you to simply enter your username and by analysing your tweeting habits it will determine what VW is most suitable for you. It bases this on keywords within your tweets and is completely unobtrusive and fun

Symbiotic relationships between the two businesses (e. g Symbiotic relationships between the two businesses (e.g. Amazon and guess) are more likely to occur under these conditions: When the services are complimentary and add value. When the services involve changing data which must be processed via a central server. When the market is fragmented and not dominated by a few players. When the markets have long product development cycles. When markets are B2B markets.

Trust as a strategy Consumers are becoming concerned about using the Internet because of the publicity surrounding cookies, privacy issues, cyber fraud, and online security. The site must portray a secure, confidential environment. Trust can be enhanced thought fulfilment of delivery, avoidance of cookies, and other invasive practices, and the use of 3rd party seals of approval.

Harnessing the power of self-service Online banking customers prefer to perform transacting by themselves. Customers can benefit through lower prices/ fees and interest rates.

Strategic alliance These are cooperative relations between parties in a value chain. From product – internet – selling – delivering.

Lock-in Customers Lock-in refers to keeping customers from switching to competing websites and buying competing products. If a business or supplier would like to ‘lock-in’ the consumer then he should: Invest in a building a user-base Entrenchment: Focus on the 80/20 rule Leverage customers - refers to the means by which a company can generate more revenue from lock-in (loyal) customers

Example – Google+ has games, including ‘Angry birds’ Google is using this method of hooking people to the platform of simply clicking on another app

Competition vs. Cooperation If a company develops a new operating system so that the user can use the website, then it can be costly – the companies therefore get a license. Another company may decide to either also develop a new operating system or it can just develop a system that works in cooperation with other systems – the company will then pay the original company royalties for using the operating system.

Four strategies that may be used to unleash positive feedback necessary to build a network: Performance play: risk strategy – firm maintains control over technology that is new. It is not compatible with any previous technology Controlled migration: when new improved technology is introduced and it is compatible with old (versions) technology – e.g. Microsoft Open migration: Firm launches new technology with an open design that is compatible with previous technology Discontinuity: Lot of firms with new technology which is not compatible with any previous programmes

Digitally enabled merchandising (DEM) Digitally enables services (DES) E-commerce can be implemented for specific functions and virtual markets can be classified in terms of: Digitally enabled merchandising (DEM) Digitally enables services (DES) Electronic publishing software (EPS) Electronic tele-services (ETS):   Goods Services Digital Electronic publishing software (EPS) Electronic tele-services (ETS) Terrestrial (Global) Digitally enabled merchandising (DEM) Digitally enables services (DES)

Bricks (traditional shopping) and Clicks (electronic shopping) Companies try to sell traditionally in their stores but also increase traffic on internet. Advantages of this strategy: Lower labour costs for company – it is self-service Trust Differentiation through value-added programmes Geographic and product extension

E-Commerce Valuation When evaluating an e-commerce business one looks at: Intellectual assets (technology and know-how;) Market position; Business model used, and Risk factors. Two approaches to evaluate company: Cost approach Income approach