Ch2

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Ch2 (6) - Discussion Board

• The name-your-own-price model is considered a
  reverse auction. However this model does not
  include RFQs or consecutive bidding. Why is it
  called a reverse auction
• AnswerIt is considered a reverse auction
  because it changes the normal roles of a
  traditional auction. In this auction buyers
  indicate the goods and prices that they are
  interested in purchasing. Sellers then evaluate
  this information and decide to either provide the
  good at a specified price or to forego the bid.

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Case 2.2 Diamonds Forever Online (p.45)

• The age-old business of gem buying is very
  inefficient Several layers of intermediaries can
  jack up the price of a gem 1000 between
  wholesale and final retail prices

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Case 2.2 Diamonds Forever Online (cont.)

• American Don Kogen made his fortune in
  Chanthaburi (Thailand)one of the worlds leading
  centers for processing gems
• He started by purchasing low-grade gems from
  sellers that arrived early in the morning and
  then selling them for a small profit to dealers
  who arrived late in the day
• This quick turnover of inventory helped him build
  up his capital resources
• He reached the U.S. gem market using advertising

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Case 2.2 Diamonds Forever Online (cont.)

• Using faxes he shortened the order time
• In 1998 Kogen decided to use the
  Internetestablishing thaigem.com and sold his
  first gem online
• By 2001 the revenue from his online business
  reached 4.3 million and it more than doubled
  (to 9.8 million) in 2002
• Online sales account for 85 percent of the
  revenue
• The buyers are mostly dealers or retailers such
  as Wal-Mart or QVC

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Diamonds Forever Online (cont.)

• He buys raw or refined gems from all over the
  world some online catering to the demand of his
  customers
• Thaigems competitive edge is low prices
• The proximity to gem processing factories and the
  low labor cost enable prices significantly lower
  than his online competitors
• Unsatisfied customers can return merchandise
  within 30 days no questions asked
• Delivery to any place in the world is made via
  Federal Express at about 15 per shipment

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Questions

• 1. Describe Thaigems business model including
  the revenue model. How are logistics and payments
  organized (Visit thaigem.com to find more
  details.)
• The model is B2B (selling to distributors).
  The revenue model is made as an intermediary
  increasing the prices he paid manufacturers
  before selling to buyers. Logistics appear to be
  handled internally from Asia. Payments appear to
  be made on account or through a merchant system.
•  
• 2. Compare this entrepreneurial business to
  click-and-mortar gem businesses such as
  Tiffanys online business (tiffany.com). Visit
  the two sites and comment on the differences.
• Student responses will vary. Thaigem appears
  to be more focused on selling to distributors
  while Tiffany targets individual buyers.

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Questions

• 3. During the 2000-2002 shakeout of dot-coms
  Thaigem.com was prospering. Why do you think it
  was not affected by the dot-com downturn
• Thaigems business model was as a distributor
  and it did not rely on some of the less stable
  business models used by dot-coms.
•  
• 4. Of the 40 billion annual sales in the gem
  industry only about 2 percent are done online.
  Do you think that selling gems online will grow
  to more than 2 percent Why or why not
• Student answers will vary. Students will
  debate between the benefits of EC for businesses
  and the desire to examine gems before purchase.
• 5.Go to gemcentral.com and compare it with
  thaigem.com.
• Please note gemcentral.com is not a working
  URL at this time.

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Real-World Case Rosenbluth International A New
Way to Compete (p.75)

• 1. Describe the strategy the company uses to
  counter disintermediation.
• The company is providing additional value to
  customers by focusing on one market and then
  deploying EC applications to assist them.
• 2. Explain how EC facilitated the strategy.
• The company has embraced EC and uses a variety of
  IT/EC applications to assist clients.

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Real-World Case Rosenbluth International A New
Way to Compete (p.75)

• 3. Analyze the competitive solution using
  Porters five forces model.
• Barriers to entry large threat Internet-based
  travel services can be easily deployed (note
  Rosenbluths use of proprietary systems to
  counter this)
• Substitutes marginal threat customers need to
  travel (note use of IP conferencing as a threat)
• Suppliers large threat significant power of
  the airlines to set price and commissions
• Buyers large threat can bypass the channel
• Rivalry large threat as many companies compete
  for smaller profits
• Check carlson.com to find its EC initiatives.
  Compare these to Rosenbluths.
• Both firms provide corporate travel management
  services.  This outsourcing is what was done
  internally in some companies.  Both companies
  focus on corporations and provide a wide variety
  of EC enabled services.

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Case 2.4 Reverse Mortgage Auctions in Singapore
(p.54)

• Homebuyers in Singapore find the lowest mortgage
  rates at Dollardex (dollarDEX.com)
• Reverse auctions are combined with group
  purchasing saving
• 20000 over the life of a mortgage for each
  homeowner
• 1200 in waived legal fees

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Case 2.4 Reverse Mortgage Auctions in Singapore
(cont.)

• Dollardexs first project
• The site invited potential buyers in three
  residential properties in Singapore to join the
  service
• Applications including financial credentials
  were made on a secure Web site
• Seven lending banks were invited to bid on the
  loans

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Case 2.4 Reverse Mortgage Auctions in Singapore
(cont.)

• In a secure electronic room borrowers and
  lenders negotiated final terms
• After 2 days of negotiations of interest rates
  and special conditions the borrowers voted on
  one bank
• 18 borrowers on the United Overseas Bank (UOB)
  paying about 0.5 percent less than the regular
  mortgage interest rate as well as the waiver of
  the legal fees

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Case 2.4 Reverse Mortgage Auctions in Singapore
(cont.)

• UOB generated 10 million of business
• Dollardex allows customers to participate in an
  individual reverse auction if they do not want to
  join a group
• Flexibility is high in addition to interest
  rates banks are willing to negotiate down
  payment size and the option of switching from a
  fixed-rate to variable-rate loan

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Case 2.4 Reverse Mortgage Auctions in Singapore
(cont.)

• On average there are 2.6 bank bids per customer
• As of summer 2003 Dollardex.com also offers car
  loans insurance policies and travel services
• Allows comparisons of mutual funds that have
  agreed to give lower front-end fees

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Case 2.4 Reverse Mortgage Auctions in Singapore
(cont.)

• Provides unit trusts in which you want to invest
• Sets up a gift registry page for your wedding and
  invite your givers to place funds in them
• Reports and advice are also available online as
  well as face-to-face

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Questions (p.54)

• 1. How is the group purchasing organized at
  dollardex.com What services are offered
• Group purchasing is organized around a reverse
  auction process. This process allows homeowners
  to negotiate favorable rates on home mortgages in
  addition to waiving legal fees.
•  
• 2. Why does a reverse auction take place
• A reverse auction takes place because the
  traditional auction roles have been reversed. In
  this auction the banks are bidding for the
  customers business.
•  
• 3. Can this model exist without an intermediary
• It would be very difficult for this model to
  exist without an intermediary. The intermediary
  in this model creates groups of purchasers
  solicits banks and assists negotiation.

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Case 2.3 Electronic Catalogs at Boise Cascade
(p.49)

• Boise Cascade Office Products
• 4-billion office products wholesaler customer
  base includes over 100000 large corporate
  customers and 1 million small ones
• 900-page paper catalog used to be mailed to
  customers once each year
• Boise also sent mini-catalogs tailored to
  customers individual needs based on past buying
  habits and purchase patterns

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Case 2.3 Electronic Catalogs at Boise Cascade
(Cont.p.49)

• In 1996 the company placed its catalogs online
• Customers view the catalog at boiseoffice.com and
  can order straight from the site or submit orders
  by e-mail
• The orders are shipped the next day
• Customers are then billed
• In 1997 the company generated 20 percent of its
  sales through the Web site

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Case 2.3 Electronic Catalogs at Boise Cascade
(Cont.p.49)

• Boise expects the Internet business to generate
  80 percent of its total sales by 2004
• Boise prepares thousands of individualized
  catalogs for its customers
• paper customer catalog primarily because As of
  2002 the company has been sending paper catalogs
  only when specifically requested
• It used to take about 6 weeks to produce a single
  of the time involved in pulling together all the
  data

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Case 2.3 Electronic Catalogs at Boise Cascade
(Cont.p.49)

• Now the process of producing a Web catalog that
  is searchable rich in content and available in
  a variety of formats takes only 1 week
• One major advantage of customized catalogs is
  pricing
• Boise estimates that electronic orders cost
  approximately 55 percent less to process than
  paper-based orders

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Electronic Catalogs at Boise Cascade (cont.)
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Questions

• 1. What are the advantages of the electronic
  catalog to Boise Cascade To its customers
• For Boise Cascade the benefits of the
  electronic catalog include decreased costs to
  produce catalogs quicker turnaround time in
  production ease in creation of differentiated
  pricing and lower sales processing costs. The
  companys customers also benefit. They receive
  their catalogs more quickly with a customized
  selection of products.
•  
• 2. How are the customized catalogs created by
  Boise Cascade
• Existing catalog and product information are
  digitized and stored in a database. Specific
  products and groups of products are selected for
  the customer and added to that customers
  customized catalog. This catalog can then be
  delivered through print or through the Web.