Transcript Chapter 5

Chapter 5:
E-Business Value Strategies
For use with Strategic Electronic Marketing:
Managing E-Business
Copyright 2000 South-Western College Publishing
Chapter 5 Slide: 1
LEARNING OBJECTIVES(1):
• Be able to explain the seven strategies e-businesses are
using to create value for customers.
• Understand how e-commerce is being used as a strategic
tool by e-retailers as well as traditional retailers.
• Be able to perform a benefit analysis of alternative sales
channels.
• Explain how digital communication adds value to a
business.
• Describe how the delivery of services are changing
because of new technologies.
For use with Strategic Electronic Marketing:
Managing E-Business
Copyright 2000 South-Western College Publishing
Chapter 5 Slide: 2
LEARNING OBJECTIVES(2):
• Be able to explain how the business process is changing
through the use of the Internet, Extranets, and EDI
systems.
• Be able to describe how a market-of-one strategy will
impact businesses.
• Explain how auctions are used to facilitate commerce.
• Be able to describe the impact of e-business strategies on
pricing.
• Gain an understanding of the determinates of hosting the
technology required to implement the e-business strategies.
• Understand the limitations to international e-commerce.
For use with Strategic Electronic Marketing:
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Copyright 2000 South-Western College Publishing
Chapter 5 Slide: 3
Vignette: What’s Old is New Again
in Grocery Shopping
• Thinking Strategically
– Evaluate your grocery shopping habits.
– Determine how often you purchase the same products.
– Consider if you would trust a grocer to pick out your meats,
fruits, and vegetables.
– On your next visit to a brick and mortar grocer determine
which aspect of grocery shopping could be automated.
– Evaluate the business model for a traditional grocer and
determine where their competitive advantage lies.
– Estimate the expenses that a business can save by moving
grocery shopping online.
For use with Strategic Electronic Marketing:
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Copyright 2000 South-Western College Publishing
Chapter 5 Slide: 4
Creating Value
• Businesses create value for their customers by
providing quality goods and services at acceptable
prices.
• A business model that provides more benefits to
its customers and/or sells at a lower the price will
take market share away from competitors.
– A commerce or business model is the basic process by
which a business obtains its inventory, produces the
good or service, and how they deliver that to the
customer.
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Copyright 2000 South-Western College Publishing
Chapter 5 Slide: 5
Six E-Business Value Creation Processes
• An online purchasing perspective: allows for buying and selling of
products and information on the Internet and other online services.
• A digital communication perspective: allows for delivery of digital
information, products, services, or payments online.
• A service perspective: allows for the cutting of costs, improving of
the quality of goods, and increasing the speed of service.
• A business process perspective: allows automation of business
transactions and work flows.
• A market-of-one perspective: allows for developing products for a
single customer with close to the same costs as mass production.
• An auction based perspective: allows automation of bidding for
products or customers online.
www.amazon.com
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Chapter 5 Slide: 6
Creating Value
Digital
Communication
and Service
Online
Purchasing
Market-ofOne
Supplier
Extranet
We thought you'd like to know that the following
items have been
shipped to:
Brad Kleindl
614 W. Jaccard Place
Joplin MO 64801
Business
Process
using UPS Ground (3-7 business days).
For your reference, the number you can use to
track your package
is 1Z38EW250330006573. You can refer to our
web site's customer service page or
Auctions
http://www.amazon.com/exec/obidos/subst/trac
king.html
For use with Strategic Electronic Marketing:
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Copyright 2000 South-Western College Publishing
Chapter 5 Slide: 7
Online Sales Strategy
• E-commerce is the process of allowing
Web based technologies to facilitate
commerce or trade.
– E-commerce can be retail, between an ebusiness and an end user, or it can be used for
business-to-business transactions.
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Chapter 5 Slide: 8
E-Retailing
• Retail sales are likely to shift between various
alternative sales channels.
– Sales channels are the models that businesses use to
sell to their customers. These could include brick and
mortar outlets, catalogs, direct marketing, or ecommerce.
– A destination site is a Web site that is designed to have
the visitor return over and over. This requires including
extras such as games, chats, contents, new information,
or any other content that the targeted audience may
desire.
For use with Strategic Electronic Marketing:
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Chapter 5 Slide: 9
Pure-Play Internet Businesses
• The 1999 top ten retail e-commerce sites were:
– eBay, Amazon, Dell, Buy.com, Onsale.com,
Gateway.com, Egghead.com, Barnesnadnoble.com,
CDNow, and AOL.
• Of the top 100 e-commerce sites:
– 50 used the Internet as their primary sales channel, 21
were traditional retailers, 21 were catalog/mail order
retailers.
– The most successful sites had established off-line
brands and had proven ability to provide customer
service www.nrf.com
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Copyright 2000 South-Western College Publishing
Chapter 5 Slide: 10
Table 5.1: Benefit Analysis for Amazon.com (1)
Benefits
Amazon.com
Number of
Books
Discounts on
books.
2.5 million +
Percent off on all titles
(customer pays
shipping)
Online databases allow
links to topic areas.
Ability to
browse by
topics
Average 2-3 days
Consumer's
access to books
Immediate - online
Access to
information
about the book.
Mall
Superstores:
Bookstore:
70,000
175.000 +
Discounts on selected
titles.
Books placed in topic
sections.
Immediate
Consumer must browse or
ask for help.
For use with Strategic Electronic Marketing:
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Copyright 2000 South-Western College Publishing
Chapter 5 Slide: 11
Table 5.1: Benefit Analysis for Amazon.com (2)
Benefits
Ability to
converse with
the author.
Shipping of
gift books.
Other
relationship
development
tools
Interaction
with
customers
Amazon.com
Mall Bookstore: Superstores:
Online through
Rarely except for signing.
discussion groups or
email.
Handled online.
Customer must ship.
Personalization
Database
recommendations
based on past
purchases.
Email comments
Email links to
service personnel.
Chat rooms with
other customers.
Other stores
for customers
to visit.
Coffee shops
Face-to-face
Face-to-face
sales
sales
representatives. representatives.
For use with Strategic Electronic Marketing:
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Chapter 5 Slide: 12
Niche E-Retailers
• Niche e-retailers typically target narrow market
segments with clearly differentiated offerings.
• Successful niche e-retailers can offer a deep
product line and add expertise and advice that
cannot be found in traditional stores.
• They do need to develop brand names and
establish credibility with their customers if they
are to succeed
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Chapter 5 Slide: 13
Table 5.2: Niche E-Retailers
Business
Tavolo
www.tavolo.com
Violet
www.violet.com
Target Market
Individuals who desire
gourmet and specialty
cooking items and
information.
Busy, professional
women and men ages
25 to 55.
Product Offering
This site offers an extensive
line of specialty cooking
item, gourmet chef advice,
and recipes.
Offers six categories of
gifts: house, office, identity,
thanks, kids, and bath. The
items are considered to be
“authentic chic”.
For use with Strategic Electronic Marketing:
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Copyright 2000 South-Western College Publishing
Chapter 5 Slide: 14
Case 5.1: A Prescription for Success? (1)
• Thinking Strategically
– Consider the types of products that individuals usually
purchase at a pharmacy.
– Determine if it is important to receive that product
immediately, or can an individual wait until the next
day for the product.
– Decide how important it is to talk to a pharmacist about
products purchased at a pharmacy.
– Compare the services they offer to what can be found at
a brick and mortar store.
For use with Strategic Electronic Marketing:
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Copyright 2000 South-Western College Publishing
Chapter 5 Slide: 15
Case 5.1: A Prescription for Success? (2)
• Thinking Strategically
– Determine if the consumer’s purchase patters would
differ if they were purchasing products on a continuing
basis.
• For example, if an individual was permanently on a
heart medicine, would that individual be likely to
order that online and have it delivered to his or her
home?
– Speculate on the future of online pharmacies.
For use with Strategic Electronic Marketing:
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Copyright 2000 South-Western College Publishing
Chapter 5 Slide: 16
Digital Communication Strategy
• Digital products are information-based products,
such as multimedia entertainment, programs,
online information services, published
information, music, video, or any other digital
content can be transferred over the Internet.
– Pay content sites are generally targeted toward
individuals who have a high need for information.
– Some sites follow radio and broadcast television
models and obtain revenue through advertising. They
also play a role in supporting and enhancing the
associated traditional media.
For use with Strategic Electronic Marketing:
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Copyright 2000 South-Western College Publishing
Chapter 5 Slide: 17
Digital Communication Strategy
• Advantages of Digital Products
– Online content is the lower cost involved in transfer and
delivery.
– Electronic content allows for a publish-once, read many
time environment.
– Existing content developers can reach a wider audience.
– Smaller firms that are able to provide content at low
startup costs.
– If sold, digital content is usually purchased on a pertime-period subscription basis or per-use basis.
For use with Strategic Electronic Marketing:
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Copyright 2000 South-Western College Publishing
Chapter 5 Slide: 18
Case 5.2: The Market Wants Its MP3.
• Thinking Strategically
– Determine the advantages and disadvantages of using
MP3 for the consumer.
– Consider the advantages and disadvantages of this
format for the music industry.
– Compare and contrast those advantages and
disadvantages and speculate on the future of MP3.
– It is projected that within the next five years an entire
movie will be downloadable in 20 minutes or less.
– Speculate on how this will effect the movie and video
rental industries. www.mp3.com
For use with Strategic Electronic Marketing:
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Copyright 2000 South-Western College Publishing
Chapter 5 Slide: 19
Service Strategy
• The service strategy impacts two areas:
– Supporting businesses that specialize in providing
services to the customer.
• Includes educational institutions, physicians, banks,
realtors, insurance agents, and many others.
– Enhancing the service component of a businesses by
meeting customer service needs before, during, and
after the sale.
• Answering questions about a product, how it is
used, or how it fits a specific purpose, and handling
any problems that may occur after the sale.
For use with Strategic Electronic Marketing:
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Copyright 2000 South-Western College Publishing
Chapter 5 Slide: 20
Table 5.3: Technology’s Impact on Service (1)
• Intangibility: The Internet is allowing buyers to directly
compare products and services offered online allowing
them to search for the greatest value.
• HSH Associates (www.hsh.com) offers information on
mortgage rates. Quotesmith (www.quotesmith.com) allows
individuals to obtain quotes from multiple carriers.
• Perishability: Digital information can be stored and
delivered as needed. Online services need not perish, they
can be created as needed by the user. Online sales systems
also can fill unused capacity for transport companies such
as airlines.
• National Public Radio (www.npr.org) stores its radio programs
for individuals to download and play at their leisure.
For use with Strategic Electronic Marketing:
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Copyright 2000 South-Western College Publishing
Chapter 5 Slide: 21
Table 5.3: Technology’s Impact on Service (2)
• Inseparability: Real estate buyers can use the Web to
view homes and take virtual walkthroughs. The medical
industry is using the Web to deliver services directly to the
user’s home computer. Retailers are providing shopping
services online.
• WebMD (www.webmd.com) provides information on medical
issues. Nordstrom (www.nordstrom.com) has a personal
shopper that suggests products for customers.
• Variability: Databases and standardized procedures can
remove the variability of service delivery.
• Amazon, Dell, and many other companies use email, FAQs,
and other technology to standardize services.
For use with Strategic Electronic Marketing:
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Chapter 5 Slide: 22
Customer Relationship Management
• Customer Relationship Management systems
combine software and management practices to
serve the customer from order, through delivery,
and after sales service.
– Enhancing customer service is rated by IT managers as
the number one method to gain competitive advantages
followed by improving internal business processes.
For use with Strategic Electronic Marketing:
Managing E-Business
Copyright 2000 South-Western College Publishing
Chapter 5 Slide: 23
Table 5.4: Providing Service Online (1)
Best Practice Site
Be able to respond to
Respond
customers within 6 hours if
Quickly
possible, but defiantly
within 24 hours.
Be sure products are
Link to
available for delivery.
Inventory
Technology Leverage
Knowledge bases and
intelligence agents can provide
instant feedback.
Use Extranets and inventory
databases linked to e-commerce
software.
Automatically send
This can be sent from databases
Automatic
confirmations through email through automated email
Order
systems.
Confirmation to customers giving
confirmation numbers and
routing numbers.
Provide product, security,
This can be designed into the
Provide
Web site. The use of FAQs or
Information and shipping information.
frequently asked questions
allows for self-service.
For use with Strategic Electronic Marketing:
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Copyright 2000 South-Western College Publishing
Chapter 5 Slide: 24
Table 5.4: Providing Service Online (1)
Best Practice
Provide
alternative
means of
contact
Avoid extra
fees
Customer
response
specialists
Site
800 number phone lines
allow customers to place
orders, inquire about orders,
or receive service
information as an alternative
to Internet use.
If off-line businesses do not
charge for service support or
gift wrapping, these should
not by charged online.
Use “live” individuals to
support automated service
transactions.
Technology Leverage
Chat systems can be a lower
cost alternative to phone
systems. IP telephony can also
be used is the customer
possesses the technology.
Lower costs available through
the Internet should allow for
services to be delivered at low
or no costs.
This can be facilitated with chat
or through the use of
intelligence agents or wizards.
For use with Strategic Electronic Marketing:
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Copyright 2000 South-Western College Publishing
Chapter 5 Slide: 25
Business Process Strategy
• Businesses engage in transactions with
other businesses using the same techniques
as business-to-consumer e-businesses.
– Business-to-Business E-Commerce
– Supply Chain Management and Extranets
• The supply chain is the network of
suppliers and customers for goods, services,
or information used from the point of origin
to final consumption.
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Chapter 5 Slide: 26
Market-Of-One Strategy
• Digital factory use digital manufacturing
process is combined with the human worker
resulting in a "soft manufacturing process"
brings flexibility to production and allows
manufacturers to produce individualized
products at mass production speeds.
– This “mass customization” and a “market-ofone” process allows marketers to develop tight
customer relationships.
For use with Strategic Electronic Marketing:
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Copyright 2000 South-Western College Publishing
Chapter 5 Slide: 27
Auction Strategy
• Sales auction sites allow individuals and
businesses to sell products online and have
potential customers bid for the price of the
product.
• Buyer-driven commerce sites allow the customer
to specify how much they are willing to pay for a
product or service and then let the providers bid
for the customer.
• Reverse auctions allow individuals and
companies to have sellers bid for the purchase.
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Copyright 2000 South-Western College Publishing
Chapter 5 Slide: 28
Pricing Strategies
• Greater efficiency allows for selling at a
lower overall costs.
• Cost saving can be found in lower fixed
costs because of minimized use of brick and
mortar assets and lower variable costs in
reduced staffing requirements.
For use with Strategic Electronic Marketing:
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Chapter 5 Slide: 29
Table 5.6: Transaction Cost Comparisons
Traditional Method
Telephone transaction
cost plus related
customer service
charges
Bank transaction cost
Airline ticket cost for
processing
Average Internet
Amount
$ 5.00
Automated
Internet
transaction cost
$ 1.07
$ 8.00
Average
Amount
$ 0.01
Bank transaction $ 0.01
on the web
Airline ticket
$ 1.00
transaction on the
web
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Chapter 5 Slide: 30
Obtaining Product Pricing Information
• Intelligent shopping agents are software
based search systems that return product
and pricing information from multiple
vendors.
– The customer specifies the product or they use
other criteria, such as a price range for a
product category.
– The agent then returns information on sales
outlets, prices, and availability.
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Chapter 5 Slide: 31
Pricing Strategies
• Skimming pricing sets high initial prices to
“skim” off payments from individuals who are
willing to purchase products when they first come
to market.
• Penetration pricing sets prices lower in an
attempt to capture market share for a product.
– E-businesses may attempt to capture market share by
selling at very low prices or even below costs.
– If a firm has an overriding goal of attaining market
share, they may even give products away for free.
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Chapter 5 Slide: 32
An Example of Changing Business
Models: Stock Brokerage (1)
Figure 5.2: Traditional Brokerage System
Issuing
Company
Underwriting
Company
Stock Exchange
Stock
Broker
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Stock
Investor
Chapter 5 Slide: 33
An Example of Changing Business
Models: Stock Brokerage (2)
Online Systems
Issuing
Company
Web Stock
Exchange
Alternative:
Direct Issue
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Stock
Investor
Chapter 5 Slide: 34
Table 5.7: Benefit Analysis for Online
Benefits
Cost For
Transaction
Information
on Companies
and quotes.
Speed and
Convenience
Expertise of
Advice.
Traditional Brokers
Depends upon broker and
amount of stock.
Broker acts as a
gatekeeper between
corporate information and
customer.
Broker required to
receive quotes.
Customer needs interface
of broker for information
and trades.
Depends on broker.
Online Brokers
One-third to one-tenth of
traditional brokers.
Customer can use online
information to obtain
information immediately.
Stock quotes available
immediately.
Customer can obtain immediate
information at their convenience
and place trades immediately.
Depends on the buyer.
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Chapter 5 Slide: 35
Figure 5.3: Online Brokerage
Prices and Volume
Prices
Per Trade
Full Service Average $116.90
Discount Average $66.09
Volume
90 mill. a day
Growth rate 44%
DLJ Direct $20
Fidelity $28.95
Ameritrade $8 Suretrade $7.95
Lowest profit limit $5
Web Street $0
Jan. 1997
July
Aug.
Number of Online Brokers: 15
Schwab % of trades online: 15
Sept.
Oct.
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Nov.
Dec. 1997
60
40
Chapter 5 Slide: 36
Hosting The Technology
• Commerce service providers (CSPs) are
companies that facilitate commerce for other
businesses.
– Businesses can form an alliance with hosting sites such
as ISPs, banks, distributors, or online malls.
• The low cost entry of using a CPS is very
attractive to merchants.
– The merchant must still market their site as they would
any other business, but they do not have the brick and
mortar costs and can reach the entire world with the ecommerce site.
For use with Strategic Electronic Marketing:
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Chapter 5 Slide: 37
Table 5.8: Advantages of Selling
With Standalone Vs CSP Sites
Issue
Costs
Control
Pulling
Customers
Quality of
Traffic
Standalone System
No fees paid to the CSP.
Higher costs in personnel,
hardware, software, and
development.
Business can control all of its
policies related to selling.
If mall closes, business may lose
past customers.
Business must get customers to
their site by themselves through
promotion.
A standalone site may have higher
quality traffic that is more likely to
buy.
Using a CSP
Lower cost for maintaining
technology to support the site.
Seller may need to comply
with mall's sales, credit, and
return polices.
Retail trade concentration can
pull in a larger number of
shoppers.
Individuals who browse one
day may turn into shoppers at
another time.
For use with Strategic Electronic Marketing:
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Chapter 5 Slide: 38
International E-Commerce (1)
• Implementing new business models:
– First, the technical infrastructure must allow for
the flow of information.
– Second, flexibility of channel relationships is
required.
• In countries like Japan where long distribution
channels are maintained through personal
relationships, disintermediation and restructuring
will be much more difficult.
For use with Strategic Electronic Marketing:
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Chapter 5 Slide: 39
International E-Commerce (2)
• Implementing new business models:
– Third, the political and legal structure must
allow E-commerce to be undertaken.
• The ability to ship products without tariff
restrictions and the free flow of capital is a
requirement.
– Fourth, Businesses and customers must be
willing to change their business and purchasing
habits.
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Chapter 5 Slide: 40
Table 5.9: Political and Legal Problems (1)
• Advertising and Competition
– France: By law all Web sites aimed at French customers
must be in French.
– Germany: Some promotions, such as two-for-one or
promotional tie-ins may be illegal.
– Sweden: Toy advertising may not be directed at children.
• Payments
– Due to differing currencies customers may not know the
exact price until the currency exchange is made. (The
development of the Euro should allow for smoother
payments.)
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Chapter 5 Slide: 41
Table 5.9: Political and Legal Problems (2)
• Delivery
– The cost of shipping a product 30 miles across a border
can be more expensive than 300 miles within the
borders of a country.
• Legal
– Return policies may not be the same for all countries.
– Setting liability for faulty products may be unclear.
– It may be difficult to determine how value added taxes
are assessed.
– Privacy laws in Europe are more stringent than in the
U.S.
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Chapter 5 Slide: 42
Active Learning Exercise #5.1:
Business Model Strategies
• Use the Web to evaluate different business
models.
• Determine how many of the strategies
outlined in this chapter are used at the Web
sites you visit.
• Explain how those strategies are used to
create value for the business.
For use with Strategic Electronic Marketing:
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Chapter 5 Slide: 43
Active Learning Exercise #5.2:
Evaluating Business Models
• Use the following matrix to compare an e-business against
traditional business models.
• Determine the benefits the business provides to its
customers.
• Decide how these benefits compare to traditional models.
• Explain what the online business would need to do to get
you to purchase online.
• Explain what the traditional model will need to do to keep
you buying at their site.
Benefits
Online Model
Traditional Model
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Chapter 5 Slide: 44
Active Learning Exercise #5.3:
Niche Retailers
• Use the Web to find narrowly targeted niche
retailers.
• Determine the target market for the e-retailer.
• Describe how these e-retailers target their market.
• Explain how they are differentiated from other
competitors.
Business Site
Target Market
Product Offering
For use with Strategic Electronic Marketing:
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Chapter 5 Slide: 45
Active Learning Exercise #5.4:
Business Model Building
• Pick a business-to-consumer or business-to-business
industry that you would be interested in working in.
• Determine the best business model for meeting you
customer’s needs.
• Decide on which of the strategies outlined in this chapter
would be beneficial in providing value to customers.
• Use the following matrix to determine if a business should
host the technology or if it should use a commerce service
provider.
For use with Strategic Electronic Marketing:
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Copyright 2000 South-Western College Publishing
Chapter 5 Slide: 46
Active Learning Exercise #5.4:
Business Model Building
Issue
Standalone
Commerce System
Commerce Service
Provider
Costs
Control
Pulling
Customers
Quality of
Traffic
For use with Strategic Electronic Marketing:
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Copyright 2000 South-Western College Publishing
Chapter 5 Slide: 47