Chapter 1 Introduction To E-business For use with

Learning Objectives (1) • Explain what a business model is and how it is used. • List the technologies that are being used to foster e -business. • Recommend how a business can use e-business techniques to develop long term marketing relationships. • Identify the components of a marketing system. For use with Strategic Electronic Marketing: Managing E-Business, 2 e Copyright 2003 South-Western College Publishing 2

Learning Objectives (2) • List the components of an e-business based marketing system. • List the components of an e-business value chain. • Explain how and why businesses need to evolve and change to maintain competitiveness. • Explain the importance of evaluating the ethical practices of a business and outline an ethical framework for e-business. For use with Strategic Electronic Marketing: Managing E-Business, 2 e Copyright 2003 South-Western College Publishing 3

Vignette: General Electric www. GE. com Suppliers linked through Extranet deliver just-in-time. Supplies bid online. Product shipped from inventory or order is routed to factory. (1) Consumer product delivered through distributors or shippers. Web page provides information and ordering. Customer gathers information and purchases through Web page. Database monitors equipment Payments are made by online through Web page. For use with Strategic Electronic Marketing: Managing E-Business, 2 e Copyright 2003 South-Western College Publishing 4

Vignette: GE (2) • Thinking Strategically – Explain why Jack Welch would see e-business as important for GE. – Consider where e-business could have a bigger impact for GE, in the business-to-business arena or the business-to-consumer arena. – List reasons why GE has been able to implement a new e-business model so quickly. – Visit the GE website (www. ge. com). Speculate on the advantages of using a Website to develop and maintain customer relationships. For use with Strategic Electronic Marketing: Managing E-Business, 2 e Copyright 2003 South-Western College Publishing 5

Changing Nature of Marketing • Capture data electronically at the point of sale and route that information from the retailer to the supplier and/or the manufacturer. • Electronically linked distribution systems are speeding products through the channel of distribution and helping to forge strong relationships between firms. • The World Wide Web is allowing businesses to reach customers around the world rather than just local markets. • Information on the customer’s shopping behavior is being stored in databases to profile individuals for targeted promotions and customized products. For use with Strategic Electronic Marketing: Managing E-Business, 2 e Copyright 2003 South-Western College Publishing 6

Business Models • New information technologies are allowing businesses to redesign business models and change business practice – A business model, or commerce model, is the basic process flow indicating how a business operates. It indicates how business functions are linked together. • Internet based business models requires fewer hard assets (bricks and mortar assets) – Brick and mortar businesses have tangible physical assets such a factory, office building, warehouses, etc. For use with Strategic Electronic Marketing: Managing E-Business, 2 e Copyright 2003 South-Western College Publishing 7

What is E-Business E-business, or electronic business, systems use a number of information technology-based business practices to enhance relationships between the business and the customer. Ebusiness includes changes in marketing communication, distribution systems, and business models. www. ibm. com/e-business/ For use with Strategic Electronic Marketing: Managing E-Business, 2 e Copyright 2003 South-Western College Publishing 8

What is E-Commerce • E-Commerce: consists of using electronic information based systems to engage in transactions or commerce online. This includes automating purchasing through Web sites. For use with Strategic Electronic Marketing: Managing E-Business, 2 e Copyright 2003 South-Western College Publishing 9

Table 1. 1: E-Business Industry Terms (1) • Internet: A global network of computer networks that use a common interface for communication. • World Wide Web: A graphically based Internet standard that allows easy access to information from around the world. • E-Business: This is the process of using information technology (IT) to support a fuller operation of a business. For use with Strategic Electronic Marketing: Managing E-Business, 2 e Copyright 2003 South-Western College Publishing 10

Table 1. 1: E-Business Industry Terms (2) • E-Commerce: Uses electronic information based systems to engage in transactions or commerce online. • Extranet: An Internet based connection between a business and its suppliers, distributors, and partners. This is not open to the general public. • Intranets: Internal private network that use the same types of hardware, software, and connections as the Internet. For use with Strategic Electronic Marketing: Managing E-Business, 2 e Copyright 2003 South-Western College Publishing 11

Four Layers Of The Internet Economy • Layer one: Internet Infrastructure Layer – Includes companies with products and services that help create an IP based network infrastructure. • Layer two: Internet Applications Layer – Builds off of layer one and includes the products and services that make it technologically feasible to perform business activities online. • Layer three: Internet Intermediary Layer – Allows the investments in infrastructure to turn into business transactions by facilitating the meeting of buyers and sellers over the Internet. • Layer four: Internet Commerce Layer – Includes the sales of products and services to consumers or businesses over the Internet. For use with Strategic Electronic Marketing: Managing E-Business, 2 e Copyright 2003 South-Western College Publishing 12

Table 1. 2: E-Business Growth and Projections • How big is the Internet: 500 million users worldwide - 2005 expected 1 billion. • How much will consumers spend online: 1. 8 billion - 2005: 16 billion. • How much will businesses spent online: 1. 3 trillion - 2005: 4. 3 -8 trillion. For use with Strategic Electronic Marketing: Managing E-Business, 2 e Copyright 2003 South-Western College Publishing 13

Marketing • Marketing is the process of planning and executing the conception, pricing, promotion, and distribution of ideas, goods, and services that create exchanges that satisfy individual and organizational needs. • Relationship marketing implies that business undertake strategies that will hold desirable customers over a long time period. For use with Strategic Electronic Marketing: Managing E-Business, 2 e Copyright 2003 South-Western College Publishing 14

A Systems Approach (1) • Helps decision-makers look at how all aspects of a strategic business unit (SBU) interact with each other. • Systems are seen as being organic in that they must change in response to their environment or face the possibility of becoming extinct. For use with Strategic Electronic Marketing: Managing E-Business, 2 e Copyright 2003 South-Western College Publishing 15

A Systems Approach (2) • All of the components of a business must work in unison to allow the marketing system to operate in its environment. • This system must organize itself and find an advantage over its competitors to ensure long-term sustainability. For use with Strategic Electronic Marketing: Managing E-Business, 2 e Copyright 2003 South-Western College Publishing 16

The Traditional Business System Distribution Flow Product Price Communication Target Customers Information Flow Payment Flow For use with Strategic Electronic Marketing: Managing E-Business, 2 e Copyright 2003 South-Western College Publishing 17

Figure 1. 2: The Traditional Marketing System Strategic Plan Strategic Goal Environment: Supply Chain Technological Competitive Political and Legal Social For use with Strategic Electronic Marketing: Managing E-Business, 2 e Copyright 2003 South-Western College Publishing 18

What Are The Business’ Goals? • Pure Play Internet? – Communicate or Sell? • Multi-Channel Sales Approach? • Support Brick and Mortar? – Hold Current Customers? • Enhance Relationship Development? For use with Strategic Electronic Marketing: Managing E-Business, 2 e Copyright 2003 South-Western College Publishing 19

E-Business Systems are fostering a number of changes to the marketing system: – Customized production. – Increasing price pressure resulting in lowering prices. – Shorter channels of distribution dominated by facilitators. – Extranet-enhanced supply chain management. – Non-linear promotions. – Electronic transfer of funds. – Database information management systems. For use with Strategic Electronic Marketing: Managing E-Business, 2 e Copyright 2003 South-Western College Publishing 20

E-Business Systems Shorter Channels Dominated by Facilitators Customized Production Dynamic Pricing Customized Non. Linear Promotion Market-of-One Customer Knowledge Management & Data Warehousing Electronic Payments For use with Strategic Electronic Marketing: Managing E-Business, 2 e Copyright 2003 South-Western College Publishing 21

The E-Business System Strategic Plan Extranet Supply Chain Strategic Goal Environment: Constant Technological Change Increased Competitive Pressure Weakened Political and Legal Influence Greater Social Acceptance of Change For use with Strategic Electronic Marketing: Managing E-Business, 2 e Copyright 2003 South-Western College Publishing 22

E-Business Value Chain (1) E-business value chains view information technology as part of a business’ overall value chain adding to the competitive advantages of a business Distribution Inbound Logistics Extranets: Lowers costs increase speed (Ch 4) Value Production Differential Advantages Customization Dynamic Pricing (Ch 5) Marketing/ Sales E-commerce: Lower costs, new market entry. (Ch 6) E-business Promotion (Ch 7) Customer (Ch 8) Targeting & Support Databases and CRM (Ch 9) Management (Ch 10) Leadership: Management Intranets: Lower costs, better communication. Innovativeness: Speed, flexibility, new product ideas Competitive Advantage Through Stronger Customer Relationships (Ch 11 Strategy and Business Models) E-Business Communication Platforms (Ch 3) E-Business Technological Infrastructure (Ch 2) For use with Strategic Electronic Marketing: Managing E-Business, 2 e Copyright 2003 South-Western College Publishing 23

International E-business • The United States is expected to account for only half of the expected global $7 trillion in e-business -facilitated transactions. • Markets outside of the United States are expected to grow the fastest in areas such as wireless and HDTV delivery of Internet content. • Cultural barriers to seamless global e-business: – Language differences, currency conversions, shipping problems, a lack of global brand recognition, differing legal and ethical standards, and a lack of trust in foreign markets. For use with Strategic Electronic Marketing: Managing E-Business, 2 e Copyright 2003 South-Western College Publishing 24

Levels of E-Commitment • Brochure Sites Costs – Sets up a Web page to promote a business. This can also allow contacts through email and simple product ordering. • E-Commerce Costs – Allows for purchasing online with automated credit card clearance and links to inventory through databases. • E-Business Costs ? ? – Refocuses business practice to take advantage of new technologies to lower costs, improve value, and respond quickly to environmental change. For use with Strategic Electronic Marketing: Managing E-Business, 2 e Copyright 2003 South-Western College Publishing 25

Table 1. 3: Components of an E-Business System (1) • Chapter 2: Technological Environment – Primer on the technology behind the Internet and the World Wide Web. • Chapter 2 Appendix: High Technology – A more in-depth primer on technology. • Chapter 3: Communication – How communication is changing over the Internet. • Chapter 3 Appendix: Hypermedia design – A guide to tools, techniques, and theory related to designing for hypermedia. • Chapter 4: Distribution – Looks at the dynamics of change in distribution systems. • Chapter 5: Value Creation – Explores the current business models that are being used on the Internet. For use with Strategic Electronic Marketing: Managing E-Business, 2 e Copyright 2003 South-Western College Publishing 26

Table 1. 3: Components of an E-Business System (2) • Chapter 6: E-Commerce – Explores the current business models that are being used on the Internet. • Chapter 7: Internet Advertising and Promotion – This chapter illustrates how hypermedia are being used strategically for advertising and promotion. • Chapter 8: The Customer – Diffusion of innovations, online consumer behavior, and online communities. • Chapter 9: Data Collection and Use – The collection and use of information to gain competitive advantages. • Chapter 10: Management – This chapter explores the change in management that is required to operate in a dynamic and technical environment. • Chapter 11: Strategy and Business Models – Innovative approaches to strategy through e-business value chains. For use with Strategic Electronic Marketing: Managing E-Business, 2 e Copyright 2003 South-Western College Publishing 27

Case 1. 1: e. Bay (1) • Thinking Strategically – Consider if society is better off because of the introduction of e. Bay. – Discuss both sides of this economic welfare question. – Consider why a government would be interested in fostering the growth of a business like e. Bay. – Decide what type of government action would benefit e-businesses like e. Bay and what government actions would limit e-businesses. For use with Strategic Electronic Marketing: Managing E-Business, 2 e Copyright 2003 South-Western College Publishing 28

Case 1. 1: e. Bay (2) • Thinking Strategically – Discuss if it is proper for e-businesses to capture data on their customer’s shopping behavior and personal profiles. – Determine how a customer could benefit from an e-businesses use of this data and how a customer could be damaged. For use with Strategic Electronic Marketing: Managing E-Business, 2 e Copyright 2003 South-Western College Publishing 29

Political, Legal, and Ethical Environments • The political and legal environment: – Represents the rules by which businesses and society operates. – Social goal is to increase the overall economic welfare or the net benefits an economic system provides to a society. • Ethics – The study of how individuals or businesses make decisions given the consequences of those decisions For use with Strategic Electronic Marketing: Managing E-Business, 2 e Copyright 2003 South-Western College Publishing 30

Exercise 1. 1 Imagining the Future • Imagine if the telephone and television were invented within the last ten years. • Decide how companies would need to change to use these new tools. • Determine if they would be able to use the same techniques to promote and sell their products. • Decide if they would use the same outlets to distribute goods and services. • Speculate on whether the relationships between suppliers and producers would be handled in the same way. • Decide if companies could be managed in the same manner. For use with Strategic Electronic Marketing: Managing E-Business, 2 e Copyright 2003 South-Western College Publishing 31

Exercise 1. 2 Checking Buyer Behavior (1) For use with Strategic Electronic Marketing: Managing

Exercise 1. 2 Checking Buyer Behavior (2) • Explain how the e-business techniques outlined in this chapter would effect the shopping activities outlined above. • Indicate how this would effect the way you would make your purchases. • Determine if a smaller number of local outlets make it more likely that you would shop online. • Decide which of these businesses are likely to have links to their suppliers. • Explain which of these industries will face the greatest amount of change. For use with Strategic Electronic Marketing: Managing E-Business, 2 e Copyright 2003 South-Western College Publishing 33

Exercise 1. 3 Ethical Analysis • Use the following table to evaluate the ethical implications of e-business practices. List both advantages and disadvantages in each cell. Identify the ethical dilemmas that can be found when the advantages in some cells conflict with the disadvantages in others. For use with Strategic Electronic Marketing: Managing E-Business, 2 e Copyright 2003 South-Western College Publishing 34

Competitive Exercise 1. 4 Business Model • Assume you are going to present a business proposal to a venture capitalist. Your team should outline a system for an existing business. • Indicate how it currently meets the needs of its customers through its product development, promotion, distribution system, and so forth. • Draw a plan of how you think this business model should operate using the e-business techniques outlined in this chapter. • Explain how you think the business could make the transition from the old business model to the new one. • Determine if there any environmental drivers leading this business model to change. • Decide what could hinder the move to e-business. • Outline any ethical concerns that could be raised by this e-business system. For use with Strategic Electronic Marketing: Managing E-Business, 2 e Copyright 2003 South-Western College Publishing 35