5-1 Management Information Systems for the Information Age Copyright 2004 The McGraw-Hill Companies, Inc. All rights reserved Chapter 5 Electronic Commerce Strategies for the New Economy

5-2 Management Information Systems for the Information Age Copyright 2004 The McGraw-Hill Companies, Inc. All rights reserved Presentation Overview The Growth of E-Commerce The Growth of E-Commerce The Advantages of Business To Consumer E-Commerce The Advantages of Business To Consumer E-Commerce Keys To Success in Business To Consumer E-Commerce Keys To Success in Business To Consumer E-Commerce Business To Business E-Commerce Business To Business E-Commerce The Role of E-Government The Role of E-Government E-Commerce Payment Systems E-Commerce Payment Systems

5-3 Management Information Systems for the Information Age Copyright 2004 The McGraw-Hill Companies, Inc. All rights reserved Opening Case Study Sodas and Snack Food on the Web Soda and snack foods are one of the last things we would consider buying online because they are available on nearly every street corner. Soda and snack foods are one of the last things we would consider buying online because they are available on nearly every street corner. How can products that are easily available take advantage of generating sales on the Internet? How can products that are easily available take advantage of generating sales on the Internet?

5-4 Management Information Systems for the Information Age Copyright 2004 The McGraw-Hill Companies, Inc. All rights reserved The Growth of E-Commerce

5-5 Management Information Systems for the Information Age Copyright 2004 The McGraw-Hill Companies, Inc. All rights reserved E-commerce – is commerce, but it is commerce accelerated and enhanced by IT, in particular the Internet. E-commerce – is commerce, but it is commerce accelerated and enhanced by IT, in particular the Internet. Demand aggregation – combines purchase requests from multiple buyers into a single large order, which justifies a discount from the business. Demand aggregation – combines purchase requests from multiple buyers into a single large order, which justifies a discount from the business. The Growth of E-Commerce

5-6 Management Information Systems for the Information Age Copyright 2004 The McGraw-Hill Companies, Inc. All rights reserved The Growth of E-Commerce Global E-commerce Growth Projections

5-7 Management Information Systems for the Information Age Copyright 2004 The McGraw-Hill Companies, Inc. All rights reserved The Growth of E-Commerce The Digital Divide Digital divide - expresses the fact that different peoples, cultures, and areas of the world or within a nation do not have the same access to information and telecommunications technologies. Digital divide - expresses the fact that different peoples, cultures, and areas of the world or within a nation do not have the same access to information and telecommunications technologies. Global digital divide - specifically describes the differences in IT access and capabilities between different countries or regions of the world. Global digital divide - specifically describes the differences in IT access and capabilities between different countries or regions of the world.

5-8 Management Information Systems for the Information Age Copyright 2004 The McGraw-Hill Companies, Inc. All rights reserved The Advantages of Business To Consumer E-Commerce The Internet’s most prominent advantages are: The Internet’s most prominent advantages are: 1. Shopping can be faster and more convenient. 2. Offerings and prices can change instantaneously. 3. Call centers can be integrated with the Web site. 4. Broadband telecommunications will enhance the buying experience.

5-9 Management Information Systems for the Information Age Copyright 2004 The McGraw-Hill Companies, Inc. All rights reserved The Advantages of Business To Consumer E-Commerce Shopping Can Be Faster and More Convenient E-tailer - an Internet retail site. E-tailer - an Internet retail site. Pure plays - Internet retailers such as Amazon.com that have no physical stores. Pure plays - Internet retailers such as Amazon.com that have no physical stores. Clicks–and-mortar retailers, (also called “bricks–and-clicks”), are like Nordstrom, which has both an Internet presence and one or more physical stores. Clicks–and-mortar retailers, (also called “bricks–and-clicks”), are like Nordstrom, which has both an Internet presence and one or more physical stores.

5-10 Management Information Systems for the Information Age Copyright 2004 The McGraw-Hill Companies, Inc. All rights reserved The Advantages of Business To Consumer E-Commerce Shopping Can Be Faster and More Convenient

5-11 Management Information Systems for the Information Age Copyright 2004 The McGraw-Hill Companies, Inc. All rights reserved The Advantages of Business To Consumer E-Commerce Shopping Can Be Faster and More Convenient M-commerce - describes e-commerce conducted over a wireless device such as a cell phone or personal digital assistant (PDA). M-commerce - describes e-commerce conducted over a wireless device such as a cell phone or personal digital assistant (PDA).

5-12 Management Information Systems for the Information Age Copyright 2004 The McGraw-Hill Companies, Inc. All rights reserved The Advantages of Business To Consumer E-Commerce Offerings and Prices Can Change Instantaneously E-tailers can change product offerings and prices instantaneously in response to changes in customer demand. E-tailers can change product offerings and prices instantaneously in response to changes in customer demand. On Your Own B2C Services (p. 250)

5-13 Management Information Systems for the Information Age Copyright 2004 The McGraw-Hill Companies, Inc. All rights reserved The Advantages of Business To Consumer E-Commerce Call Centers Can Be Integrated With the Web Site Interactive chat - lets you engage in real-time typed exchange of information between you and one or more other individuals over the Internet. Interactive chat - lets you engage in real-time typed exchange of information between you and one or more other individuals over the Internet. Internet telephony - a combination of hardware and software that uses the Internet as the medium for transmission of telephone calls in place of traditional telephone networks. Internet telephony - a combination of hardware and software that uses the Internet as the medium for transmission of telephone calls in place of traditional telephone networks.

5-14 Management Information Systems for the Information Age Copyright 2004 The McGraw-Hill Companies, Inc. All rights reserved The Advantages of Business To Consumer E-Commerce Broadband Telecommunications Will Enhance The Buying Experience Purchase a full-length feature film and download it in minutes. Purchase a full-length feature film and download it in minutes. Travel sites will offer full-motion video tours of vacation destinations. Travel sites will offer full-motion video tours of vacation destinations. Automobile buying sites will be able to offer virtual test drives to let you narrow down your choices before you take the time to visit an auto dealership. Automobile buying sites will be able to offer virtual test drives to let you narrow down your choices before you take the time to visit an auto dealership.

5-15 Management Information Systems for the Information Age Copyright 2004 The McGraw-Hill Companies, Inc. All rights reserved The Advantages of Business To Consumer E-Commerce Broadband Telecommunications Will Enhance The Buying Experience Team Work Broadband Services: Where Do You Place Your Bets? (p. 251)

5-16 Management Information Systems for the Information Age Copyright 2004 The McGraw-Hill Companies, Inc. All rights reserved Keys To Success In Business To Consumer E-Commerce Important lessons include: Important lessons include: 1. Commoditylike items work best. 2. Digital products are the best of all. 3. Attracting and retaining customers. 4. Remember the importance of merchandising. 5. You must execute well. 6. Watch the competition.

5-17 Management Information Systems for the Information Age Copyright 2004 The McGraw-Hill Companies, Inc. All rights reserved Keys To Success In Business To Consumer E-Commerce Commoditylike Items Work Best People tend to be more comfortable buying items on the Internet that are commoditylike, that is, uniform. People tend to be more comfortable buying items on the Internet that are commoditylike, that is, uniform. People tend to be less comfortable buying “high touch” items on the Internet such as furniture. People tend to be less comfortable buying “high touch” items on the Internet such as furniture.

5-18 Management Information Systems for the Information Age Copyright 2004 The McGraw-Hill Companies, Inc. All rights reserved Keys To Success In Business To Consumer E-Commerce Digital Products Are the Best of All The reasons digital products are best suited for B2C e-commerce are the following: The reasons digital products are best suited for B2C e-commerce are the following: 1. They are commoditylike products. 2. They can be mass-customized and personalized. 3. They can be delivered at the time of purchase. 4. They foster disintermediation. 5. They have global reach.

5-19 Management Information Systems for the Information Age Copyright 2004 The McGraw-Hill Companies, Inc. All rights reserved Keys To Success In Business To Consumer E-Commerce Digital Products Are the Best of All Micro-payments - techniques to facilitate the exchange of small amounts of money for an Internet transaction. Micro-payments - techniques to facilitate the exchange of small amounts of money for an Internet transaction.

5-20 Management Information Systems for the Information Age Copyright 2004 The McGraw-Hill Companies, Inc. All rights reserved Keys To Success In Business To Consumer E-Commerce Attracting and Retaining Customers Marketing mix - the set of marketing tools that the firm uses to pursue its marketing objectives in the target market. Marketing mix - the set of marketing tools that the firm uses to pursue its marketing objectives in the target market. Additional techniques for attracting Internet customers include: Additional techniques for attracting Internet customers include: 1.Registering with search engines 2.Online ads 3. and viral marketing 4.Affiliate programs 5.Selling to existing customers

5-21 Management Information Systems for the Information Age Copyright 2004 The McGraw-Hill Companies, Inc. All rights reserved Keys To Success In Business To Consumer E-Commerce Attracting and Retaining Customers 1. Registering with Search Engines  Meta tags - part of a Web site text not displayed to users but accessible to browsers and search engines for finding and categorizing Web sites. 2. Online Ads  Many Web sites use banner ads, a small ad on one Web site that advertises the products and services of another business, usually another dot-com business

5-22 Management Information Systems for the Information Age Copyright 2004 The McGraw-Hill Companies, Inc. All rights reserved Keys To Success In Business To Consumer E-Commerce Attracting and Retaining Customers 3. and Viral Marketing  Spam - unsolicited .  Viral marketing – encourages users of a product or service supplied by a B2C company to ask friends to join in as well.

5-23 Management Information Systems for the Information Age Copyright 2004 The McGraw-Hill Companies, Inc. All rights reserved Keys To Success In Business To Consumer E-Commerce Attracting and Retaining Customers 4. Affiliate Programs  Affiliate programs - arrangements made between e-commerce sites that direct users from one site to the other.  Click-throughs - a count of the number of people who visit one site, click on an ad, and are taken to the site of the advertiser.

5-24 Management Information Systems for the Information Age Copyright 2004 The McGraw-Hill Companies, Inc. All rights reserved Keys To Success In Business To Consumer E-Commerce Attracting and Retaining Customers 5. Selling to Existing Customers  One of the keys to success in the B2C space is to encourage customers to continue to buy from you.  Conversion rate - the percentage of customers who visit the site who actually buy something.

5-25 Management Information Systems for the Information Age Copyright 2004 The McGraw-Hill Companies, Inc. All rights reserved Keys To Success In Business To Consumer E-Commerce Remember the Importance of Merchandising A B2C business must do an effective job of merchandising. A B2C business must do an effective job of merchandising.

5-26 Management Information Systems for the Information Age Copyright 2004 The McGraw-Hill Companies, Inc. All rights reserved Keys To Success In Business To Consumer E-Commerce You Must Execute Well Executing well simply means that when a customer places an order on your Web site, you have to follow through and execute the necessary business processes to get the right item to the customer in a timely fashion. Executing well simply means that when a customer places an order on your Web site, you have to follow through and execute the necessary business processes to get the right item to the customer in a timely fashion. A good B2C site immediately sends an acknowledgement of the order, containing all of the order details and an estimated ship date. A good B2C site immediately sends an acknowledgement of the order, containing all of the order details and an estimated ship date.

5-27 Management Information Systems for the Information Age Copyright 2004 The McGraw-Hill Companies, Inc. All rights reserved Keys To Success In Business To Consumer E-Commerce Watch the Competition Retaining customers is one of the keys to e-commerce success. Retaining customers is one of the keys to e-commerce success. Spend time on the Web surfing around seeing what’s going on in your competitive space by looking at the Web sites of known competitors. Spend time on the Web surfing around seeing what’s going on in your competitive space by looking at the Web sites of known competitors.

5-28 Management Information Systems for the Information Age Copyright 2004 The McGraw-Hill Companies, Inc. All rights reserved Keys To Success In Business To Consumer E-Commerce Watch the Competition Team Work Evaluating Competing Web Sites (p. 258)

5-29 Management Information Systems for the Information Age Copyright 2004 The McGraw-Hill Companies, Inc. All rights reserved Business to Business E-Commerce Value Networks Intermediaries - specialist companies that provide services better than their client companies can themselves. Intermediaries - specialist companies that provide services better than their client companies can themselves. Complementors - provide products and services that complement the offerings of the enterprise and thereby extend its value- adding capabilities to its customers. Complementors - provide products and services that complement the offerings of the enterprise and thereby extend its value- adding capabilities to its customers.

5-30 Management Information Systems for the Information Age Copyright 2004 The McGraw-Hill Companies, Inc. All rights reserved Business to Business E-Commerce Value Networks Value network - all of the resources behind the click on a Web page that the customer doesn’t see, but that together create the customer relationship – service, order fulfillment, shipping, financing, information brokering, and access to other products and offers. Value network - all of the resources behind the click on a Web page that the customer doesn’t see, but that together create the customer relationship – service, order fulfillment, shipping, financing, information brokering, and access to other products and offers.

5-31 Management Information Systems for the Information Age Copyright 2004 The McGraw-Hill Companies, Inc. All rights reserved Business to Business E-Commerce Corporate Purchasing Segments Purchasing applications are usually divided into three segments: Purchasing applications are usually divided into three segments: 1. Purchasing of direct materials 2. Purchasing of indirect materials (MRO) 3. Purchasing of services

5-32 Management Information Systems for the Information Age Copyright 2004 The McGraw-Hill Companies, Inc. All rights reserved Business to Business E-Commerce Corporate Purchasing Segments Direct materials - materials that are used in production in a manufacturing company or are placed on the shelf for sale in a retail environment. Direct materials - materials that are used in production in a manufacturing company or are placed on the shelf for sale in a retail environment. Indirect materials - materials that are necessary for running a modern corporation, but do not relate to the company’s primary business activities. Indirect materials - materials that are necessary for running a modern corporation, but do not relate to the company’s primary business activities.

5-33 Management Information Systems for the Information Age Copyright 2004 The McGraw-Hill Companies, Inc. All rights reserved Business to Business E-Commerce Corporate Purchasing Segments Electronic data interchange (EDI) - the direct computer-to- computer transfer of transaction information contained in standard business documents such as invoices and purchase orders, in a standard format. Electronic data interchange (EDI) - the direct computer-to- computer transfer of transaction information contained in standard business documents such as invoices and purchase orders, in a standard format.

5-34 Management Information Systems for the Information Age Copyright 2004 The McGraw-Hill Companies, Inc. All rights reserved Business to Business E-Commerce Corporate Purchasing Segments Virtual private network - uses software to establish a secure channel on the Internet for transmitting data. Virtual private network - uses software to establish a secure channel on the Internet for transmitting data.

5-35 Management Information Systems for the Information Age Copyright 2004 The McGraw-Hill Companies, Inc. All rights reserved Business to Business E-Commerce Corporate Purchasing Segments XML (eXtensible Markup Language) - a coding language for the Web that lets computers interpret the meaning of information in Web documents. XML (eXtensible Markup Language) - a coding language for the Web that lets computers interpret the meaning of information in Web documents.

5-36 Management Information Systems for the Information Age Copyright 2004 The McGraw-Hill Companies, Inc. All rights reserved Business to Business E-Commerce Corporate Purchasing Segments ebXML - a set of technical specifications for business documents built around XML designed to permit enterprises of any size and in any geographical location to conduct business over the Internet. ebXML - a set of technical specifications for business documents built around XML designed to permit enterprises of any size and in any geographical location to conduct business over the Internet. Web Services - software applications that talk to other software applications over the Internet using XML as a key enabling technology. Web Services - software applications that talk to other software applications over the Internet using XML as a key enabling technology.

5-37 Management Information Systems for the Information Age Copyright 2004 The McGraw-Hill Companies, Inc. All rights reserved Business to Business E-Commerce Corporate Purchasing Segments On Your Own A Range of Possibilities For Next-Generation EDI (p. 265)

5-38 Management Information Systems for the Information Age Copyright 2004 The McGraw-Hill Companies, Inc. All rights reserved Business to Business E-Commerce B2B Marketplaces B2B marketplaces - Internet-based services that bring together buyers and sellers. B2B marketplaces - Internet-based services that bring together buyers and sellers. Reverse auction - the process in which a buyer posts its interest in buying a certain quantity of items, and sellers compete for the business by submitting successively lower bids until there is only one seller left. Reverse auction - the process in which a buyer posts its interest in buying a certain quantity of items, and sellers compete for the business by submitting successively lower bids until there is only one seller left.

5-39 Management Information Systems for the Information Age Copyright 2004 The McGraw-Hill Companies, Inc. All rights reserved Business to Business E-Commerce Intranets and Extranets Intranet - an internal organizational Internet that is guarded against outside access by a special security feature called a firewall (which can be software, hardware, or a combination of the two). Intranet - an internal organizational Internet that is guarded against outside access by a special security feature called a firewall (which can be software, hardware, or a combination of the two).

5-40 Management Information Systems for the Information Age Copyright 2004 The McGraw-Hill Companies, Inc. All rights reserved Business to Business E-Commerce Intranets and Extranets

5-41 Management Information Systems for the Information Age Copyright 2004 The McGraw-Hill Companies, Inc. All rights reserved Business to Business E-Commerce Intranets and Extranets Extranet - an intranet that is restricted to an organization and certain outsiders, such as customers and suppliers. Extranet - an intranet that is restricted to an organization and certain outsiders, such as customers and suppliers.

5-42 Management Information Systems for the Information Age Copyright 2004 The McGraw-Hill Companies, Inc. All rights reserved Business to Business E-Commerce Intranets and Extranets

5-43 Management Information Systems for the Information Age Copyright 2004 The McGraw-Hill Companies, Inc. All rights reserved Business to Business E-Commerce Intranets and Extranets Customer relationship management (CRM) systems - use information about customers to gain insights into their needs, wants, and behaviors in order to serve them better. Customer relationship management (CRM) systems - use information about customers to gain insights into their needs, wants, and behaviors in order to serve them better.

5-44 Management Information Systems for the Information Age Copyright 2004 The McGraw-Hill Companies, Inc. All rights reserved The Role Of E-Government E-Government - describes the application of e-commerce technologies in governmental agencies. E-Government - describes the application of e-commerce technologies in governmental agencies.

5-45 Management Information Systems for the Information Age Copyright 2004 The McGraw-Hill Companies, Inc. All rights reserved E-Commerce Payment Systems Financial EDI (FEDI) - the use of EDI for payments. Financial EDI (FEDI) - the use of EDI for payments.

5-46 Management Information Systems for the Information Age Copyright 2004 The McGraw-Hill Companies, Inc. All rights reserved E-Commerce Payment Systems Credit Cards and Smart Cards Smart cards - plastic cards the size of a credit card that contain an embedded chip on which digital information can be stored. Smart cards - plastic cards the size of a credit card that contain an embedded chip on which digital information can be stored.

5-47 Management Information Systems for the Information Age Copyright 2004 The McGraw-Hill Companies, Inc. All rights reserved E-Commerce Payment Systems Financial Cybermediaries Financial cybermediaries - Internet- based companies that make it easy for one person to pay another person over the Internet. Financial cybermediaries - Internet- based companies that make it easy for one person to pay another person over the Internet.

5-48 Management Information Systems for the Information Age Copyright 2004 The McGraw-Hill Companies, Inc. All rights reserved E-Commerce Payment Systems Electronic Bill Presentment and Payment Electronic Bill Presentment and Payment (EBPP) systems - send us our bills over the Internet and give us an easy way to pay them if the amount looks correct. Electronic Bill Presentment and Payment (EBPP) systems - send us our bills over the Internet and give us an easy way to pay them if the amount looks correct.

5-49 Management Information Systems for the Information Age Copyright 2004 The McGraw-Hill Companies, Inc. All rights reserved Closing Case Study One eBags: An E-Commerce Success Story While many pure play e-commerce sites have fallen by the wayside, eBags is not only surviving, it is thriving. While many pure play e-commerce sites have fallen by the wayside, eBags is not only surviving, it is thriving. How has eBags gained a competitive advantage over traditional bricks-and- mortar retailers of bags and accessories? How has eBags gained a competitive advantage over traditional bricks-and- mortar retailers of bags and accessories?

5-50 Management Information Systems for the Information Age Copyright 2004 The McGraw-Hill Companies, Inc. All rights reserved Closing Case Study Two Making Toyota’s Vision a Reality Toyota Motor Corporation has plans to build an IT system that will fabricate digitally designed cars and build them in digitally designed factories. Toyota Motor Corporation has plans to build an IT system that will fabricate digitally designed cars and build them in digitally designed factories. What advantages will Toyota gain by implementing this system? What advantages will Toyota gain by implementing this system?

5-51 Management Information Systems for the Information Age Copyright 2004 The McGraw-Hill Companies, Inc. All rights reserved Summary Student Learning Outcomes 1. Describe the four main perspectives of e- commerce, its current status, and the global growth expected in the next few years. 2. Identify the advantages of business to consumer (B2C) e-commerce. 3. Describe the techniques that lead to success in B2C e-commerce ventures.

5-52 Management Information Systems for the Information Age Copyright 2004 The McGraw-Hill Companies, Inc. All rights reserved Summary Student Learning Outcomes 4. Describe the variety of ways that business to business (B2B) e-commerce technologies are being used, and describe next generation models which may widen the adoption of global B2B e-commerce. 5. Identify the unique aspects of e-government applications. 6. Describe the status and options for e- commerce payment systems.

5-53 Management Information Systems for the Information Age Copyright 2004 The McGraw-Hill Companies, Inc. All rights reserved Summary Assignments & Exercises 1. Developing m-commerce scenarios for GPS cell phones 2. Dealing with the global digital divide 3. Alternatives for personalized digital music

5-54 Management Information Systems for the Information Age Copyright 2004 The McGraw-Hill Companies, Inc. All rights reserved Visit the Web to Learn More Competitive intelligence Competitive intelligence Storefront software Storefront software Hosting services Hosting services Marketing the site Marketing the site B2B marketplaces B2B marketplaces