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.
2 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
3 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
4 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
5 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
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.
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.
8 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.
9 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.
10 (No Transcript) 11 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
12 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
13 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
14 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
15 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
16 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
17 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.
18 (No Transcript) 19 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
20 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
21 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
22 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
23 Electronic Catalogs at Boise Cascade (cont.) 24 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.
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