Electronic Commerce EMarket Structure and Strategies KAIST EC Lecture September 11, 2001 Jae Kyu Lee

1
Electronic Commerce- E-Market Structure and
Strategies KAIST EC LectureSeptember 11,
2001Jae Kyu Lee (jklee_at_kgsm.kaist.ac.kr)Gradua
te School of ManagementKorea Advanced Institute
of Science and Technology
2
Issues in eMarketing and Strategies

• What are the types of eMarketplaces?
• Manufacuturers Concern
• Direct Marketing How to succeed?
• Cases Dell, IBM, and Compaq
• Structure of eTailers
• Target customers consumers or retailers?
• Who owns the eChannel?
• Who keeps stock and fulfills the order?
• How eTailers connect with suppliers?
• Cases Amazon, BN, BestBookBuys, McCraw-Hill
• Evolution of General eMalls and Reaction of
  Retailers
• Performance of eTailers and CSFs of eMarket
  Sites
• Role of eBrokers

3
Types of e-Marketplaces
Operators
B2B
B2C

• Seller-centric eMarketplace
• Manufacturer A, DistributorsC, Retailers D
• Third Party eMarketplae
• Pure eTailer B, eBrokerE, B2B Exchanges
• Buyer-centric eMarketplace
• Buying Business F

?
?
?
?
?
-
4
Alternative eMarket Channels

• A Manufacturers Direct Marketing
• A1 Pure Direct Marketing Disintermediation
• A2 Support the Retailers/VAR (Value Added
  Retailer)
• B Pure eTailer
• B1 Pure eTailer with its own stock
• B2 Pure eTailer without its own stock
• C Distributors eChannel
• C1 Distributors eChannel for VAR B2B Sales
• C2 Distributors eChannel for eTailing
• D Retailers eChannel
• E Through eBrokers
• F Buyer-Centric eMarketplaces

5
???? ??? Direct Marketing ??
A Pure Direct Marketing and Disintermediation
Mfr.com
Dell, Cisco Make-to-Order
Mfr
Buyers
(1) Web(PO)

• Consumer
• Business

(2) Deliver
Internet Physical
Stock
A2 Support the Retailers/VAR/ Dealers
(1) Web(Information)
Mfr.com
Sony TV in USA Market Automobiles
Mfr
Buyers
(2) Forward
Retailer, VAR
(3) PO
(4) Deliver
VAR Value Added Retailer
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Dell Computers Direct Marketing Lessons

• Dells Performance (built in 1984 at dormitory)
• Sold 30 Mil/day Online (40 of Total Sales at
  1999-2Q)
• (99.8. BizReport.com)
• Characteristics of Direct Marketing Model
• Small Order
• Order-to-Make
• JIT Small Purchase
• Small Delivery
• Customer Relationship Management One-to-one
  Marketing

(Source Dell Computer Financial)
Stock Price ()
Profit (Mil)
Revenue (Bil)
Inventory (UnitDay)
60
750
12
40
45
500
9
30
30
250
6
20
15
0
3
10
0
0
-250
0
94
95
96
97
98yr
94
95
96
97
98yr
94
95
96
97
98yr
94
95
96
97
98yr
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Stock Prices Dell Computers
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CSFs of Dell

• Make-to-Order and Mass Customization
• Flexible Manufacturing System a Requisite
• Nature of Product (ex. Automobile) Complexity of
  Implementation
• SCM for Just-In-Time Part Delivery
• Low Inventory
• Database Marketing and Consumer Intimacy
• Data Warehouse and Web Mining
• Single Contact Point on the Internet and Online
  Customer Service
• Number 1 customer satisfaction Aug 10, 2001,
  Dell Press Release
• High Reliability and Reputation
• Technological Excellence
• Price Competitiveness
• Delivery Date Estimation and Seamless Tracking
  System

9
Competitors Response IBM

• Bricks Mortar ? Clicks Mortar
• Channel Conflict
• Price and Service Differentiation
• Resolution of Channel Conflict
• Transform to Pure Clicks
• Products (PC) and Geographical Market (USA)
• Who has the Power? A Manufacturer or Retailers
• Transformation of Manufacturing System
• Order-to-Make
• Daily Demand Forecast How to cooperate with
  retailers?
• Layoffs 10 of PC Division

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Compaq Experience and Discussion

• Compaq
• Price at Internet Channels Cheaper
• Severe Resistence of Traditional Retailers
• Revenue and Stock Price Collapsed
• CEO Replaced (April 1999)
• Layoffed 3,000 (Q3 in 1999)
• Tried to reduce dealers and expand the online
  sales
• Acquired by HP
• Discussion
• Could Dell take Direct Marketing Strategy in
  Korea?
• Planning by Regions
• Distance of eMarket from factory
• Distance of Suppliers from factory effective
  SCM

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Current Story Updated

• Dell topped Compaq in US PC sales for the first
  time in Q4 1999.
• IBM slipped to fifth position in US 1999, from
  third place in 1998.
• http//www.ecommercetimes.com/perl/story/2310.htm
  l, Jan 24, 2000
• Dell passed IBM global market share in 1999.
• Ranked No. 1 in Q1 2001.
• Dell accounts for 95 of growth of industry
  shipment.
• Volume growth rate nealry 10 times faster than
  industry average.
• Dell grew 30 from a year ago, while total
  industry declined
• more than 3.
• http//www.dell.com/us/en/gen/corpo
  rate/press/pressoffice_us_2001-04-19-aus-000.htm,
  April 19, 2001
• Number 1 for industry standard server in US Q1
  2001 No. 10 in 1996.
• Number 2 in global market (Compaq is No. 1
  yet).
• http//www.dell.com/us/en/gen/corporate/press
  /pressoffice_us_2001-05-01-aus-000.htm, May 1,
  2001

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Alternative e-Retailers Electronics Case
Pure e-Retailer with its own Warehouse
Pure e-Retailer
Internet EDI, Fax, Phone
Physical Visit Stock
(B1)
Gogocity.com
Pure e-Retailer without Warehouse
Pure e-Retailer
(B2)
Yahoo.com
eBay.com
e-Retailer with Distributor/Retailer
Customer
Mfr

• Issues
• 1. Target Customers of
• eChannels
• 2. Owner of eChannels
• 3. Stock and Order
• Fulfilment
• 4. Backend Connection

VAR
Physical Visit
Ingrammicro.com Techdata.com
Mfr.com
(C1)
Distributor
e-Retailer
(C2)
US.Buy.com Onsale.com(Egghead.com)
IngramMicro Tech data IngramMacrotron(Germany)
Retailer
e-Retailer
(D)
CompUSA Wal-mart
CompUSA.com Walmart.com
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Amazon in the early stage (till early 1999)

• Started with books
• High Growth 34 monthly
• Sales 600 million in 1998
• Cyber Book Market Share about 50
• 5.1 million titles
• 700 titles in stock Inventory and Logistics
• Inventory Turnover Rate 42 (BN2.1)
• Loss 5.7 million 1997
• Stock Price 7 (1996), 35(98. 12. 29.), 200
  (99. 1. 19)
• Market Cap 25.4 Bil(99. 1. 19.)
• Logistics by Ingram Book Group (Wholesaler)
• http//www.businessweek.com/1997/43/b3550148.htm
• Products Diversification

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Stock Prices of Amazon.com
15
Diversification of Amazon.com
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Check Points at Amazon Site

• eCatalog
• Search Engine and Key Words
• Individual Book Information
• Related Book Information
• Shopping Bag
• Security
• Customer Information
• Credit Cards Information Entry for Payment
• Delivery Point Identification
• Multiple Shipping Option

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Amazon Updated

• Annual Growth Rate 42 in 2000s
• Expected sales in 2001 3.3 Bil
• Time Revenue(Mil) Loss(Mil) Remarks
• Q2, 1999 82.79
• Q2, 2000 578 115.7
• Q4, 2000 960 67.2 Seasonal
• Q1, 2001 668 168.0
• Significant distribution center expansion in
  1999.
• Inventory Turnover 18 (Q4, 2000), 11 (Q3, 2000)

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Amazon Updated Hope?

• Customer rose by 2.5 Mil in Q2, 2000, totaling
  more than 22.5 Mil by the end of Q2, 2000.
• Book, music, and video sales finally yield
  profits.
• Sales 385.28 (Q2, 2000)
• Profit 10.06 (Q2, 2000)
• High growth in electronics.
• Keeps 1.1 Bil in cash
• Sold the search and personalization service to
  AOL at 100 Mil.
• Sources
• http//www.ecommercetimes.com/perl/story/3885.html
  
• http//news.cnet.com/news/0-1007-201-4418213-0.htm
  l?tagbplst
• http//www.informationweek.com/story/IWK20010724S0
  002

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Competitors Response Barnes Noble

• High Margin 36 (Amazon 22)
• Cyber Book Market Share About 15 (1997)
• Profit 51 millions
• Acquired Ingram Against anti-trust Law
• http//www.infotoday.com/newsbreaks/nb1130-2.htm

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Competitors Response

• BestBookBuys.com
• eBroker
• Compare 15 Online Bookstores
• Agent Technology
• Alliance with eStores Amazon Barnes and Noble
• 2-3 times annual growth
• http//www.webreview.com/2000/11_17/strategists/1
  1_17_00_2.shtml
• US.Buy.com
• Minimum Price Guaranteed Really? How to maintain
  it?
• McGraw-Hills Primis Custom Publishing
• The first customized publishing system to allow
  professors to design their own textbooks.
• In the 1990s, Primis' share of the market grew
  to 18.5 and it was acknowledged as the leading
  U.S. custom publisher.
• Can McGraw-Hill bypass the wholesalers and
  eTailers?
• Customers search behavior
• Who are competitors after diversification?
• Wal-Mart, Walmart.com

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BestBookBuys.com
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General vs. Specialty eTailers

• Open Market
• General eMall Operator
• Nov 1996 47,000 store registration
• 800-900 new stores per week.
• No merchaniding expertise
• Stopped service after three years.
• Switch business to solution provider
• Loss 26.5 in Q2, 2000
• http//www.ecommercetimes.com/perl/story/3890.htm
  l
• Internet Mall
• 40,000 stores in 1997
• General eMalls switched to eBrokers Revenue
  Model?
• Specialty eStores with guaranteed order
  fulfillment can win the market. Brand really
  matters.

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Retailers toward Clicks and Mortar

• Walmart Online
• Announced to offer over 80,000 of its products
  on the Internet
• Has a strong supply chain
• Next Amazon.com?
• http//moneycentral.msn.com/articles/invest/jubak
  /3519.asp
• Three relaunches http//seattle.bcentral.com/sea
  ttle/stories/2001/03/12/daily3.html
• Alliace with Amazon.com desirable?
• Retailers Web Strategies
• Duplication of physical stores? Poor performance
• Promotion of physical stores?
  Lotteshopping.com
• Opportunity of new online business? Lotte.com
  New entity.
• Resolution of Channel Conflict

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Strategic Alliance Assignement

• Toys R Us and Amazon.com
• Consult the both sites
• Survey the online articles about the alliance
• What is the alliance strategy between them?
• What are the possible strategies of alliance?
• Suggest possible alliances between Wal-mart and
  Amazon.com.
• Due Sept 21, 2001 Within five pages,
• Show the source of information.

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Characteristics of eTailers Power
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CSFs of eMarket Sites
??
Bizrate.com
Gomez.com
Forrester
ShopServe
CSF
Product Quality
Brand
Product Selection
Assist Selection
Selection
. Product Mix .Complementary
Products . Configuration
On-time Delivery, Shipping and Handling
Delivery
Delivery
. Return Policy . After Service
Customer Support
Customer Support
Customer Service
Service
Ease of Ordering
Ease of Use
Ease of Ordering
Transacting
Ease of Use
Product Information, Product Representation
On-site Resource
On-site Resources
Features and Content
Privacy Policies
Customer Confidence
Safety
. Security . Warranty . Site Image .
Responsiveness . Channels
Reliability
. Layout/Design . Convenience of Use
Web Site Convenience
Ease of Use
Web Site Convenience
Usability
Community
. Customer Tracking . Interactivity .
Customization
Relationship Service
Relationship Service
Price
Overall Price
Price
Price
Pricing
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Gomez.com
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Live with e-Brokers
Internet EDI, Fax, Phone
Physical Stock
Assist selection Of Sites/Products
Mfr
Customer
(E)
e-Broker
Mfr.com
e-Broker Service (USA)

• e-Broker as Advistizing
• Channel
• What to compare?
• Where to compare?

• Issue

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Concluding Remarks

• Understanding the structures of alternative
  eMarket channels is the foundation of eMarketing
  plan.
• Direct marketing manufacuturer should accomodate
  the online order taking with the flexible
  manufacturing system.
• Understanding the best manufacturing system
  management practice in EC era important Dell
  Experience
• Understanding the comepetitors and potential
  partners of eTailers business important Amazon
  and competitors Experience
• Roleplay Project Themes
• Identify who I am manufacturer or retailer or
  new comer?
• Plan for my companys eMarketing strategy SWOT
• What is the revenue model and its cost
  effectiveness?
• Who are competitors?
• Necessity of strategic alliances