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Business Models and Strategies Underlying the World of E-Commerce


Business Models and Strategies Underlying the World of E-Commerce Dr. Bert Rosenbloom Rauth Chair in Electronic Commerce Management and Executive Director of the ... – PowerPoint PPT presentation

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Title: Business Models and Strategies Underlying the World of E-Commerce

Business Models and Strategies Underlying the
World of E-Commerce
  • Dr. Bert Rosenbloom
  • Rauth Chair in Electronic Commerce Management
  • and
  • Executive Director of the Safeguard Scientifics
  • Center for Electronic Commerce Management
  • Drexel University

Electronic Commerce Management (ECM) is the
emerging business discipline that deals with the
strategic, managerial, and operational issues
associated with the technology of electronic
The dramatic growth of electronic commerce has
begun to raise issues that transcend the
technologies that have spawned it.
  • New business opportunities emerging for
  • Changing customer relationships from E-commerce.
  • Developing global strategic alliances among
    electronically linked firms.
  • Managing vast networks of suppliers, customers,
    and intermediaries linked via E-commerce.
  • Impact of E-commerce on organizational culture.
  • Electronic commerce and government regulations,
    especially tax implications.
  • Education and training of the human resources
    needed for E-commerce.
  • Others --- to be discerned in the future.

Conventional business models and strategies may
not be adequate for planning, organizing, and
controlling organizations operating in the new
environment of electronic commerce.
New business models may be needed to operate
successfully in the world of E-commerce
  • No shortage of new E-commerce models has
    already emerged. Some of which are discussed

Ground Rules for Examining Forthcoming
E-Commerce Business Models
  • Mostly just theories or hypotheses at this point
  • Nobody knows yet whether any of them are right
    or wrong
  • Most evidence is anecdotal
  • Experience base is very short -- a couple of
    years at most
  • Rigorous empirical evidence in support or
    non-support of the models is lacking

Disintermediation Model
Elimination of Middlemen in Distribution
Channels Intermediaries become superfluous
because producers gain exposure to vast numbers
of customers in Cyberspace All thats needed is
a Wesite Millions of customers have access to
thousands of producers via the Internet. So, who
needs middlemen
  • Dell Computer 14 million per day

Reintermediation ModelAddition of Middlemen in
Distribution ChannelSpecialized intermediaries
are needed to efficiently link buyers and sellers
together in Cyberspace
  • Amazon .com
  • Autobytel
  • Peapod Inc.
  • Verticalnet

Average Total Cost Model Conventional vs.
Internet Distribution Channels
Per Unit of Product Sold
Conventional Channel
Units of Products Sold
Per Unit of Product Sold
Internet Channel
Units of Products Sold
Profit After Break-Even Point Model
Conventional vs. Internet Distribution Channels
Conventional Model
Costs Revenues
Sales (units)
Internet Model
Costs Revenues
Sales (units)
Marketing Channel Flows ModelFive Flows in
Marketing Channels
  • 1. Product flow
  • 2. Negotiation flow
  • 3. Ownership flow
  • 4. Information flow
  • 5. Promotion flow
  • Internet superb at handling 2,3,4, and 5
    because these can be digitized and moved at
    speed of light..
  • Product flow cannot be digitized and is
    processed (often by humans) and moves at best
    at speed of sound.
  • Product flow may be the Achilles' Heel of

Profits Can Wait Model
  • Why?
  • Because in the world of E-commerce, if the firm
    has earned a profit too soon it is probably
    spending too little to stake its claim by
    establishing infrastructure and customer
    recognition as a destination Internet player

Get on the Internet First Model
  • Its not important to have a perfected or even a
    carefully considered business concept or plan
    to operate on the Net.
  • The same goes for offering an IPO.
  • What is important is to be first because the
    first is the one customers remember.

Brand Equity is Key ModelBrand equity has
shifted from product namesin the conventional
world to the names of Internet firms in the
E-commerce world
  • Ebay
  • Yahoo
  • AOL
  • Everybody knows them and everybody goes there.
  • Brand equity has evolved into channel equity
  • on the Internet.

Market Cap is All That Matters ModelWho cares
about sales, earnings, real assets and people.
The only thing that matters is the size of your
Lifetime Value of Customer Model
  • How much revenue and/or profit will a customer
    generate over the course of a lifetime of doing
    business with you
  • Old concept----- not new to E-commerce
  • What is new is the use of LVC by Internet firms
    to justify
  • Lack of profits
  • Huge market caps
  • Current users X projected growth X revenue
    produced by each over their lifetimes
  • A Whole Bunch

Perfect Market Segmentation Model
100 million customers in market
Perfect Market Aggregation (1 product)
Perfect Market Segmentation (100
million different products)
Market segment Niche marketing Micro-marketing On
e -to-one marketing Relationship building
Technological capabilities provided by the
Internet enable firms to approach the state of
perfect market segmentation.
Its Your Marketing Channels Stupid Model
  • Marketing Mix Strategic Variables (4Ps)
  • Product Strategy
  • Pricing Strategy
  • Promotional Strategy
  • Place (channel) Strategy
  • Sustainable competitive advantage too difficult
    to achieve with first three Ps
  • Internet provides a new frontier for creating a
    sustainable competitive advantage through the
    fourth P, channel strategy.

Optimum Customer Service ModelCustomer tracking
and profiling capabilities via the Internet
provides near perfect information about customer
purchasing and usage patterns.
  • Therefore
  • Heavy buyers get heavy service and
  • Light buyers get light service.
  • Heavy service demand customers who
  • dont spend much get cut off.
  • Just ask Fidelity Investments

Channel Conflict Model
  • In the world of E-commerce, new start-ups have a
    huge advantage over firms with established
    conventional marketing channels because they can
    avoid channel conflict.
  • Conventional channels of existing companies
    become baggage when they attempt to sell via
    the Internet. The poster child is
  • Compaq Computer

Convenience and Efficiency Model
  • Business to Consumer Market
  • E-commerce via the Internet must grow
    spectacularly because consumers want
    convenience and Internet shopping provides the
    ultimate in convenience.
  • Caveat
  • How about behavioral motives for shopping.
  • Business to Business Market
  • E-commerce via the Internet will be virtually
    the only way
  • businesses deal with each other because of the
    cost effectiveness and efficiency of the
  • Caveat
  • Non-rational motives also exist in the B-to-B

Variable Cost Pricing ModelWe lose 50 on each
room but well make it up in volume.
  • Silly or possible
  • Answer possible
  • As long as excess capacity exists and price
    charged is above variable unit costs.
  • Regular price of hotel room 180
  • Occupancy rate 60
  • Average Fixed Cost 100
  • Average Variable Cost 40
  • Average Total Cost 140.
  • Hotel offers half price on rooms 90
  • Less AVC 40
  • Contribution to FC 50

Internet is a near perfect source for this type
of information Maybe has a bright
Technological Equality Model
  • Internet technology in E-commerce becomes
    virtually equal among firms.
  • Like air conditioning and elevators, everybody
    has them and is expected to have them.
  • Therefore
  • Technology no longer offers any given firm a
    differential advantage
  • Playing field becomes technologically level
    and so firms quest for sustainable competitive
    advantage reverts back to old fashioned
  • For related discussion see Michael Porter,
    What is Strategy? Harvard Business Review.
    (Nov-Dec. l996).

Internet is a Whole New Culture ModelUnless
you are
  • Under 25
  • Have virtually no experience
  • Untainted by having worked at a conventional
  • Guaranteed substantial stock options
  • Convinced you are a master of the Web universe
  • You are not suitable to work for, provide
    consulting to, or even mix socially with the
    Internet elite.