E-Business Strategies E-Commerce: Impacting the Way We do Business October 1-2, 2001, Nashville TN Bob Smith Associate Professor/Extension Specialist Dept. of Wood Science and Forest Products Virginia Tech

Outline Why the Internet E-business Strategy ??? Determining Competitive Advantage Implementing Strategy

Why the Internet?

“When history is written, the creation of the Internet may be ranked alongside Johann Gutenberg’s printing press and Marconi’s radio as among the major advancements in human communication.” Roanoke Times, March 1, 1997

What do these technologies have in common with the Internet? Printing press Telephone Automobile Airplane Television Over-night delivery Facsimile machine Cellular phone Personal computer

Printed Material Mass reproduction Unknown audience Wider geographical area One-way communication

Telephone Immediate communication Interactive two-way communication Customer prospecting Wider geographical area

Planes, Trains & Automobiles Personal communication Wider geographical base Two-way communication Perception of above- average service

Television Wide, mass audience One-way communication 60 second sound bite First visual electronic medium

Over-night Delivery Provide immediate service Create perception of customer care JIT management systems Federal Express

FAX - iT Immediate transfer of written information Above average service One-way promotion Closer to the customer

Cellular Phone Mobility Instant access to customers Above average service 24 hour contact

Personal Computer Faster service Customer information Data bases Instant communication

What do they have in Common? Wider distribution of information Uniform information Assist in marketing function of company Many were interactive Allow for impression of above average service They all have become standards in the industry

Internet

Definitions Electronic Commerce (EC) is where business transactions take place via telecommunications networks, especially the Internet. Electronic commerce describes the buying and selling of products, services, and information via computer networks including the Internet. The infrastructure for EC is a networked computing environment in business, home, and government. E-Business describes the broadest definition of EC. It includes customer service and intrabusiness tasks. It is frequently used interchangeably with EC. Electronic Commerce, 2000

What is an Intranet? When internet technology is used to create a private network within a company an intranet is formed. Allows for immediate transfer of technology between locations. Provides information such as product pricing, inventory lists, production schedules, and data bases for remote employees.

What is an Extranet? An extranet is formed when the company allows outsiders into the intranet pages. Customers can order on line. Reduces paperwork Minimizes errors Provides better customer services Shortens delivery times Support distributors

What’s Needed Designated computer Software to communicate with Internet A connection into a network that accesses the Internet Or * Hire a commercial service and have a connection to the network

Cost $1500 computer $300 Software Home page design - $100/hr - ? Commercial Internet access - >$100/month

Current Users Average age is 40 45% female 45% married 1/3 computer field, 1/4 educational & 20% professional >40% have made purchase over $100 Source: www.gvu.gatech.edu/user_surveys/survey-1999

What’s Being Sold Computer software Computer hardware Books Music Gifts Travel Clothes >$100 billion sold in 1999

What’s Being Sold? Source: Forester Research Inc. 1998

Technology Update (It took this many years to reach 50 million users) Radio - 38 years Television - 13 years Internet - 4 years

Why an E-Commerce Strategy

The Benefits of Electronic Commerce Benefits to Organizations Expands the marketplace to national and international markets Decreases the cost of creating, processing, distributing, storing and retrieving paper-based information Allows reduced inventories and overhead by facilitating “pull” type supply chain management The pull type processing allows for customization of products and services which provides competitive advantage to its implementers Electronic Commerce, 2000

Benefits to Organizations Reduces the time between the outlay of capital and the receipt of products and services Supports business processes reengineering (BPR) efforts Lowers telecommunications cost - the Internet is much cheaper than value-added networks (VANs) Electronic Commerce, 2000

Benefits to Customers Enables customers to shop or do other transactions 24 hours a day, all year round from almost any location Provides customers with more choices Provides customers with less expensive products and services by allowing them to shop in many places and conduct quick comparisons Allows quick delivery of products and services in some cases, especially with digitized products Electronic Commerce, 2000

Benefits to Customers Customers can receive relevant and detailed information in seconds, rather than in days or weeks Makes it possible to participate in virtual auctions Allows customers to interact with other customers in electronic communities and exchange ideas as well as compare experiences Electronic commerce facilitates competition, which results in substantial discounts. Electronic Commerce, 2000

Benefits to Society Enables more individuals to work at home, and to do less traveling for shopping, resulting in less traffic on the roads, and lower air pollution Allows some merchandise to be sold at lower prices benefiting the poor ones Enables people in Third World countries and rural areas to enjoy products and services which otherwise are not available to them Facilitates delivery of public services at a reduced cost, increases effectiveness, and/or improves quality Electronic Commerce, 2000

Why? Works 24 hours a day Offers 2 way communication Unlimited access Interactive advertising Supports current business efforts

Electronic Markets A market is a network of interactions and relationships where information, products, services, and payments are exchanged. The market handles all the necessary transactions. An electronic market is a place where shoppers and sellers meet electronically. In electronic markets, sellers and buyers negotiate, submit bids, agree on an order, and finish the execution on- or off-line. Electronic Commerce, 2000

Electronic Commerce is Interdisciplinary Marketing Computer sciences Consumer behavior and psychology Finance Economic Production/Logistic Management information systems Accounting and auditing Management Business law and ethics Electronic Commerce, 2000

Major Business Pressures Market and economic pressures Strong competition Global economy Regional trade agreements (e.g. NAFTA) Extremely low labor cost in some countries Frequent and significant changes in markets Increased power of consumers Societal and environmental pressures Changing nature of workforce Government deregulation of banking and other services Shrinking government budgets subsides Increased importance of ethical and legal issues Increased social responsibility of organizations Rapid political changes Rapid technological obsolescence Increase innovations and new technologies Information overload Rapid decline in technology cost vs. performance ratio Technological pressures Electronic Commerce, 2000

Competition in Electronic Commerce Impacts on competition Lower buyers’ search cost Speedy comparisons Differentiation Lower price Customer service Digital products lack normal wear and tear Electronic Commerce, 2000

Competition in Electronic Commerce Perfect competition Enable many buyers and sellers to enter the market at little or no cost (no barriers to entry) Not allowing any buyers and sellers to individually influence the market Make certain products homogeneous (no product differentiation) Supply buyers and sellers with perfect information about the products and the market participants and conditions Electronic Commerce, 2000

Competition in Electronic Commerce Observations regarding competitiveness There will be many new entrants The bargaining power of buyers is likely to increase There will be more substitute products and services The bargaining power of suppliers may decrease The number of industry competitors in one location will increase Electronic Commerce, 2000

What is Strategy

Strategy is the roadmap to success. Strategy answers the question what business are you in? Strategy determines how you compete within the market you are in. Strategy focuses the company in a unified direction.

The goal is to develop a sustainable competitive advantage The goal is to develop a sustainable competitive advantage. There are generally two forms of competition, Operating effectiveness (production) or Competitive position (marketing)

Competitive Advantage Can Be Achieved By: Concentrating on particular market segments (niche markets) Offering products which differ from the competition (product differentiation) Using alternative distribution channels and manufacturing processes Employing selective pricing and fundamentally different cost structures

Generic Strategies Porter gives us a little more help in strategy formulation by providing three generic strategies which, if successfully implemented, can allow a firm to stake out a defended position in the marketplace. These strategies are: Overall cost leadership Differentiation Focus

Overall Cost Leadership Efficient scale facilities Vigorous cost reductions Cost control Overhead control Avoid marginal accounts Minimize R&D Minimize service Minimize advertising

Differentiation Key idea: Create something about your product that is perceived industry wide as being unique Bases for Differentiation: Quality Delivery Credit and Terms Service Training Reputation / Brand Image Tech. Information The Actual Product Price Etc.

Differentiation can provide insulation against competitors because of brand loyalty by customers and a resulting lower sensitivity to price

Focus Key Idea: Focus on a particular buyer group, segment of the product line, or geographic market

This strategy is built around serving a particular target market very well. The premise is that a firm is able to serve its narrow strategic target more effectively or efficiently than competitors who are competing more broadly By effectively implementing this strategy a firm can achieve differentiation by better meeting the market needs or lower costs through specialization, or both

Focus your message Pick your theme to say something special/unique about your firm, and stick to it. Unique product Speedy Delivery Super Service ? Stay Committed!

Generic Strategies Summary

For Successful Strategic Competition, Select Arenas That Are: Sheltered from changes in the business environment Advantaged to provide protection from intense global competition Electronic Commerce, 2000

Determining Competitive Advantage

Industry and competitive analysis Strategic Planning Industry and competitive analysis Implement-ation plan Strategy formulation Strategy reassessment Electronic Commerce, 2000

Company and Competitive Analysis Monitoring, evaluating, disseminating of information from the external and internal environments SWOT Analysis Weaknesses Strengths Threats Opportunities Electronic Commerce, 2000

SWOT Strengths – those factors of the company that provide for its success. A good reputation, quality products or low cost producer. Weaknesses – those factors that are a disadvantage for the company. A high cost producer, a high employee turnover, or much competition. Opportunities – those factors that are outside the company’s control, but are areas in which they could capitalize. A changing demographic profile, competition closing plants or e-business allowing for wider distribution of products. Threats – those items outside the control of the company and that may hinder it. Items such as new laws, a recession or increased competition.

Company Analysis Strengths (S) Weaknesses (W) Production Marketing INTERNAL FACTORS Strengths (S) Weaknesses (W) Production Marketing Electronic Commerce, 2000

Competitive Analysis Production Marketing Opportunities (O) EXTERNAL FACTORS Production Marketing Opportunities (O) Threats (T) Electronic Commerce, 2000

Company and Competitive Analysis INTERNAL FACTORS Strengths (S) Weaknesses (W) EXTERNAL FACTORS WO Strategies Generate strategies here that take advantage of opportunities by overcoming weaknesses SO Strategies Generate strategies here that use strengths to take advantages of opportunities Opportunities (O) ST Strategies Generate strategies here that use strengths to avoid threats WT Strategies Generate strategies here that minimize weaknesses and avoid threats Threats (T) Electronic Commerce, 2000

Strategic Questions The Company What is your uniqueness? Where are you vulnerable? Why are you losing existing customers? Where is the greatest value created in the company? What are the most common objections you hear from customers? Electronic Commerce, 2000

Strategic Questions The competition The market Who are the top 3 competitors? What are their strengths? Where are they vulnerable? Where can you attack? How do you compare on price, service, quality, etc? The market What are 3 important trends? How is the industry changing? How many market segments do you serve? Where is the greatest growth potential? Which of your customers are doing well and why? Electronic Commerce, 2000

Competitive Strategies Offensive strategy— usually takes place in an established competitor’s market Frontal Assault— attacker must have superior resources and willingness to persevere Flanking Maneuver— attack a part of the market where the competitor is weak Bypass Attack— cut the market out from under an established defender by offering a new type of product that makes the competitor’s product unnecessary Encirclement— greater product variety and/or serves more markets Guerrilla Warfare— use of small, intermittent assaults on different market segments held by the competitor Electronic Commerce, 2000

Competitive Strategies Defensive strategies— takes place in the firm’s own current market position as a defense against possible attack by a rival Lower the probability of attack Divert attacks to less threatening avenues Lessen the intensity of an attack Make competitive advantage more sustainable Electronic Commerce, 2000

Cooperative Strategies Competitive Strategies Cooperative Strategies Collusion— active cooperation of firms within an industry to reduce output and increase prices in order to get around the normal economic law of supply and demand (illegal) Strategic Alliance— partnership of two or more corporations or business units to achieve strategically significant objectives that are mutually beneficial Joint Venture— a way to temporarily combine the different strengths of partners to achieve an outcome of value to both Value-Chain Partnership— a strong and close alliance in which one company or unit forms a long-term arrangement with a key supplier or distributor for mutual advantage Electronic Commerce, 2000

Strategic Summary Focus your efforts! Define your competitive advantage! Have a clear strategy! Do it!

Implementing Strategy

Questions Savings Objectives Competitive advantage Presentation Objectives Benefits to customers Current business

Questions What are you producing and selling? How are you unique? Why should the customer buy from you? How are you going to reach the customer? What’s success?

Objectives Introduce new product or service Advertising existing business Supplement existing business program Reach broader customer base Provide better service Information exchange Reduce transaction costs

Current Customers Benefits Easier access to information Shipping schedules Discounts Invoicing Inventories

Marketing Mix Promotional Tool Pricing Product Information Ads, publicity, sales tool Pricing Product Information Distribution

$ Savings Support time Order entry Promotion response E-mail Shipping and invoicing information Customer lists $

Home Page KISS Keep it simple, stupid 1. Decide what information you want to share 2. Grab their attention quickly 3. Present information in simple, logical fashion 4. Do not put lots of graphics on first page 5. Should be pleasant to the eye 6. Each page should have company name, logo, e- mail address and toll-free phone number

Promoting Your E-business

Why Do You Need Promotion? Just because you build it, doesn’t mean they will come. You are competing against not only your market area, but the entire world. Your current and future customers need to be able to find you.

HOW? List homepage address on all current advertising. Put on all publicity newsletters letterhead business cards billing statements fax cover sheets Register with search engines. Link to other sites and your association sites. Advertise on the web.

Link to? Your trade associations Suppliers Customers Complementary products

Advertising on the Web To build awareness Develop prospects Meet customer needs Generate orders Build customer relations Test market

Good Internet Advertising Includes: Clear message and identification on 1st page. Facilitates easy access to further information. The advertisement downloads quickly. Provides the right information. Product description, payment options, and contact information.

Common Search Engines Submit it - www.submit-it.com Yahoo - www.yahoo.com Webcrawler - www.webcrawler.com Infoseek - www.infoseek.go.com Lycos - www.lycos.com Google - http://www.google.com/

The Advantage for Small Businesses Inexpensive source of information Inexpensive way of advertising Inexpensive way of conducting market research Inexpensive way to build (or rent) a storefront Lower transaction cost Electronic Commerce, 2000

The Advantage for Small Businesses Niche market, specialty products (cigars, wines, sauces) are the best Image and public recognition can be accumulated fast Inexpensive way of providing catalogs Inexpensive way to reach worldwide customers Electronic Commerce, 2000

The Risks and Disadvantages for Small Businesses Disadvantage when a commodity is the product (for example, CDs) No more personal contact which is a strong point of a small business No advantage being in a local community Electronic Commerce, 2000

The Risks and Disadvantages for Small Businesses Lack of expertise in legal issues, advertisement Lack of resources to fully exploit the Web Less risk tolerance than a large company Electronic Commerce, 2000

Success Factors for Small Businesses Niche products Small volume Capital investment must be small Inventory should be minimal or non-existent Electronic payments schema exist Payment methods must be flexible Electronic Commerce, 2000

Success Factors for Small Businesses Logistical services must be quick and reliable The Web site should be submitted to directory-based search engine services like Yahoo in a correct way Join an online service or mall and do banner exchange Design a Web site that is functional and provides all needed services to consumers Electronic Commerce, 2000

Summary Successful firms will integrate the E-business into their company’s strategy. Used properly, E-business will be one more method of increasing income and profits. It is just a matter of time before it will be as common as the fax, cell-phone and digital camera.

References Electronic Commerce: A Managerial Perspective. 2000. By Efraim Turban, Jae Lee, David King, and H. Michael Chung. Prentice Hall, Upper Saddle Rivern New Jersey. (slides are marketed). E-Business Revolution. 2000. By Daniel Amor. Prentice Hall,Upper Saddle Rivern New Jersey. Strategic Internet Marketing. 1996. Tom Vassos. MacMillan Computer Publishing, Indianapolis, IN. E-Business Readiness. 2001. By James Craig and Dawn Jutla. Anderson-Wesley. Upper Saddle Rivern New Jersey.