Bachelor of Business Administration Program ©Mathieu CHAUVET – 2014/2015 1

Learning objectives In this chapter, we will address elements related to : Revenue models How some companies move from one revenue model to another to achieve success Revenue strategy issues that companies could face when selling on the Web Creating an effective business presence on the Web Web site usability 2

I) Revenue Models 3

Revenue models Possible web business revenue-generating models: Web catalog Digital content Advertising-supported Advertising-subscription mixed Fee-based These models can work for various sale types Business-to-consumer (B2C) Business-to-business (B2B) 4

1) Web-catalogue revenue models Adapted from mail-order (catalog) model Seller establishes brand image Printed information mailed to prospective buyers Orders placed by mail or toll-free telephone number Expands traditional model Replaces or supplements print catalogs Offers flexibility Orders placed through Web site or telephone Payments made though Web site, telephone, or mail Creates additional sales outlet for existing companies 5

Development of an additional Marketing channel Pathway to customers Advantages of having several marketing channels?  Reaching more customers at less cost Possibility of combining various marketing channels Example: ordering through the website and having the opportunity to collect the product on stores Examples: Wallmart Dell Best Buy: web site basically selling same products as in stores 6

7 Combining marketing channels thanks to e-commerce

Web catalogue revenue models: for any type of products? Computers and consumer electronics Clothing retailers Flowers and gifts Books, music, and videos Most visible electronic commerce examples Radioshack, H&M, Fleurop-Interflora, Amazon.com, etc.  …What about luxury goods and general discounters? 8

Luxury goods and web-catalogue revenue models? Difficult to sell online  Customers want to see product in person or touch  What you actually buy is also the experience! LVMH (Louis Vuitton) or Rolex Web sites provide information Shopper purchases at physical store Heavy use of graphics and animation Evian Web site Presents information in a visually stunning way 9

Traditional discount retailers (Costco, Kmart, Target, Wal- Mart) Slow to implement online sales on their Web sites Had huge investments in physical stores Now use the Web catalog revenue model as a complement of their traditional activities or for successful online sales operations 10 General discounters and web-catalogue revenue models?

2) Digital Content Subscription Revenue Models Firms owning written information or information rights Embrace the Web as a highly efficient distribution mechanism Use the digital content revenue model  Sell subscriptions for access to information they own Examples: Entertainment: Netflix Academic research content: ProQuests Business content: Dow Jones newspaper publisher subscriptions 11

3) Advertising-support revenue models The real disruption from Internet! Providing free programming and advertising messages Supports network operations sufficiently  Implies a measurement of site visitor views Requires demographic information collection Characteristics set used to group visitors  Aim: Keeping visitors at site and attracting repeat visitors in order to obtain large advertiser Examples: Web portals (Google, Yahoo, etc.), Travers sites, Web- employment sites, Youtube, etc. 12

13 Strategies for an advertising-supported revenue model

4) Advertising-Subscription Mixed Revenue Models The idea? Free information attracts subscribers and fulfills mission. Often assimilated to freemium model Typically less or no advertising compared to advertising- supported sites Web sites offer different degrees of success The New York Times (today) Bulk of revenue derived from advertising The Wall Street Journal (mixed model) Subscription revenue weighted more heavily ESPN 14

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Freemium/premium model Free for Many, Fee for a Few! Leads to a different revenue model Offer basic product to many for free Charge a fee to some for differentiated products 16

5) Fee-for-Transaction Revenue Models Service fee charged Based on transaction number or size Web site offers visitor transaction information or protection Personal service formerly provided by a human agent known as an intermediary Examples: AirBnB Ebay Ticketmaster 17

Revenue Models in Transition Some companies had to change their revenue model To meet needs of new and changing Web users To compensate lengthy unprofitable growth phases Examples: Dell 18

Subscription to Advertising-Supported Model Slate magazine Upscale news and current events Success expectations were high Experienced writers and editors Acclaim for incisive reporting and excellent writing Initial revenue source Annual subscription did not cover operating costs Now an advertising-supported site Part of the Bing portal Value to Microsoft: increase the portal’s stickiness 19

Advertising-Supported to Advertising- Subscription Mixed Model Salon.com Acclaimed for innovative content Initial revenue source Advertising-supported site Needed additional money to continue operations Now offers optional subscription version Annual fee for Salon premium Free of advertising Additional content Downloadable content 20

Advertising-Supported to Fee-for- Services Model Xdrive Technologies: offered free disk storage Initial revenue source (1999): advertising-supported Targeted advertising Did not cover operating costs 2005: bought by AOL Switched to a subscription-supported model Xdrive frequently adjusted its monthly fee downward AOL closed the service in 2009 Successful companies: fee based on storage amount used 21

Advertising-Supported to Subscription Model Northern Light search engine includes own database Results include Web site links and abstracts of its owned content Initial revenue source Combination of the advertising-supported model plus a fee-based information access service Advertising revenue: insufficient to cover service Converted to a new subscription-supported revenue model Mainly large corporate clients Individual monthly billing option for articles accessed 22

Multiple transitions Encyclopedia Britannica Initial Web offerings (1994) Britannica Internet Guide Encyclopedia Britannica Online Initial revenue source Paid subscription site had low subscription sales Converted to free advertiser-supported site (1999) Advertising revenues declined 2001: returned to mixed model with subscription plan and free content Value added: sells reputation and the expertise 23

Revenue strategies issues Channel conflict (cannibalization) Company Web site sales activities interfere with existing sales outlets Strategic alliance: Two or more companies join forces Amazon.com joined with Target, CDnow, ToysRUs…until ToysRUs and Amazon suing each other 24

II) Analyzing Web Presence 25

Creating an Effective Web Presence Organization’s presence Public image conveyed to stakeholders (customers, suppliers, employees, stockholders, neighbors, general public) Effective Web presence Critical even for smallest and newest Web operating firms Web business site Intentionally creates distinctive presences Good Web site design provides: Effective image-creation features Effective image-enhancing features 26

Identifying Web Presence Goals Web business site objectives: Attracting Web site visitors Keeping visitors to stay and explore Convincing visitors to follow site’s links to obtain information Creating an impression consistent with the organization’s desired image Building a trusting relationship with visitors Reinforcing positive images about the organization Encouraging visitors to return to the site 27

Making Web presence consistent with brand image: Different firms establish different Web presence goals Coca Cola Web site pages Usually include trusted corporate image (Coke bottle) Image: traditional position as a trusted classic Pepsi Web site pages Usually filled with hyperlinks to activities and product-related promotions Image: upstart product favored by younger generation 28

Not-for-profit organizations Web presence effort key goals: Image enhancement and information dissemination Successful site key elements Integrate information dissemination with fund-raising Provide two-way contact channel  Web sites used to stay in touch with existing stakeholders, identify new opportunities for serving them 29

Improving web presence: the web usability Current Web presences Few businesses accomplish all goals… …But most of them fail to provide visitors sufficient interactive contact opportunities  Improving Web presence: Make site accessible to more people Make site easier to use Make site encourage visitors’ trust Make site develop feelings of loyalty toward the organization 30

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Changes of the web regarding usability Simple mid-1990s Web sites Conveyed basic business information No market research conducted Web objectives achievement Failed due to no understanding for Web presence-building media Web sites designed to create an organization’s presence: Contain links to standard information set Success dependent on how this information was offered 32

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A concern for visitors’ needs Successful Web businesses: Realize every visitor is a potential customer (partner) Web presence is an important concern Know visitor characteristic variations and reason for visit: Learning about company products or services Buying products or services Obtaining general company information Following a link into the site while searching for information about a related product, service, or topic …  Visitors arrive with different needs, experience, and expectation levels 34

Making Web sites accessible Build interface flexibility options: Frame use Text-only version Selection of smaller graphic images Specification of streaming media connection type Choice among information attributes Offer multiple information formats Consider goals in Web site construction 35

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Web presence through trust and loyalty Creates relationship value Good service leads to seller trust Delivery, order handling, help selecting product, after-sale support Satisfactory service builds customer loyalty Customer service in electronic commerce sites Recurrent problems: Lack of integration between call centers and Web sites Poor responsiveness 37

Assessment of e-commerce websites Companies routinely review electronic commerce Web sites for: Usability, customer service, other factors Sell the gathered information directly to the companies operating the Web sites Include suggestions for improvements BizRate.com posts ratings: Provides comparison shopping service Compiles ratings by conducting surveys of sites’ customers 38

Usability testing and improvement A key issue! Avoids Web site frustration Customers leave site without buying anything  Possibility to develop usability testing Simple site usability changes Include telephone contact information Staff a call center Learn about visitor needs by conducting focus groups Usability testing cost Low compared to Web site design costs 39

Towards a Customer-Centric Web Site Design… Important part of successful electronic business operation Focus on meeting all site visitors’ needs Customer-centric approach Putting customer at center of all site designs Follow guidelines and recommendations Make visitors’ Web experiences more efficient, effective, memorable  The development of Webby Awards sites Examples of good Web site design 40

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Summary 42

Various possibilities for Web revenue models Models work differently Different business types use different models Companies change models as they learn more about: Customers, business environment Channel conflict and cannibalization challenges One approach: channel cooperation Effective Web presence delivers customer value Web site visitors arrive with a variety of expectations, prior knowledge, skill levels, technology 43