2019/1/8

1

MIB605- Lecture 2E-commerce and E-Marketplace

Prof. Geng Cui

Agenda Today

� Marketplace analysis for e-commerce

� What’s online marketplace?

� How consumers “reach” your website? (market size or catchment is too narrow)

� Process of online marketplace analysis (including competitors, customer, and intermediary usage of digital technologies)

� Business models for e-commerce

� Figure 2.10 Business model

� Revenue models

2019/1/8

2

Online marketplace analysis

2019/1/8

3

China vs. US eMarket Users

• China is the world’s largest internet market with:• 1.397billion population

• 71% own a smartphone

• 751 million internet users (54.3% of population)

• 889 million Wechat users

• 500 million mobile payment users

• 72% internet users are between 10-39 years old

• US is the world’s second largest internet market with:• 323 million population

• 77% own a smartphone

• 287 million internet users (78.2% of population)

• 207 million Facebook users

• 48 million mobile payment users

• 90% + internet users are between 10-39 years old

� $ 1.7 trillion market by 2020

� 200 million more online shoppers coming from lower tier cities and rural China

� Average spending 12,198 RMB in 2017

� Over 200 cities in China have same-day or next-day delivery coverage by Cainiao and JD

� US: $ 531billon market by 2020

� Average spending $ 1819 USD in 2017

China vs. US eMarket: Size

2019/1/8

4

Consumer’s journey

Search Intermediaries

Destination site

2019/1/8

5

Recommendation

Agent

Online product reviews

or word of mouth (WOM)

Customer service,

promotions

WOM or formation of opinions

2019/1/8

6

Intermediaries and media sites

Search engines

Customer services,

online communities

Traditional Marketplace

Physical location

Buyers and sellers come together to perform transactions

Electronic marketplace

Virtual marketplace

such as the Internet in which no direct contact occurs between buyers and sellers: Amazon. Taobao, (Tmall),

Vs.

Company e-commerce websites

Internet web, mobile portal, mobile apps

Burberry.com

Location of trading in the marketplace

2019/1/8

7

� The way a manufacturer or organization delivers products and services to its customers.

� The relationship between a company and its Channel partners can be altered by the opportunities afforded by the Internet.

� Because the Internet offers a means of bypassing some of the channel partners – a

process of disintermediation! But it has its advantages and challenges!

� Online marketplaces as a aggregators (Amazon, Tmall), shopbots (Qunar, 51766, Expedia, TripAdvisor, Airbnb)!

Typical channel structures between business and consumer organizations

Marketplace Channel Structures

Characteristics B2C B2B

Complexity of buying decisions Relatively simple – individual and influencers

More complex – buying process involves users, buyers, technical, business, financial and operational departments etc.

Channel Relatively simple – direct or from retailer

More complex, direct or via wholesaler, agent or distributor

Purchasing characteristics Low value, high volume or high value, low volume. May be high involvement

Similar volume/value. May be high Involvement. Repeat orders (rebuys) more common

Product characteristic Often standardized itemsMass customization on the rise (衣帮）

Standardized items or customized for Sale

• B2C and B2B are two forms of commercial transactions

B2B and B2C Comparison

2019/1/8

8

� (a) It shows the former position where a company marketed and sold its products by ‘pushing’ them through a sales channel.

� (b) and (c) show two different types of disintermediation in which the wholesaler (b) or the wholesaler and retailer (c) are bypassed, allowing the producer to sell and promote direct to the consumer.

� The benefits of disintermediation to the producer are clear – it is able to remove the sales and infrastructure cost of selling through the channel.

� Vertical/narrow – flat and wide, like China before and after reforms!

• .

A graphical form for a simplified retail channel –flattening of channel structure by dis-intermediation

Farmigo is an online farmer’s market in America.

Break the distribution chain with supermarkets. Reduce distribution cost, increase revenue. Consumers can buy fresh product directly from farmers. Price is lower than supermarket

Early failures!

Recent comeback (logistics like Walmart, services)

Why not popular in Japan/HK as in China and US (cost of delivery)

Example- The benefits of disintermediation to the producer

2019/1/8

9

• Amazon, E-Bay (buy-sell, review, socialize)

• Taobao, Jingdong (buy-sell, review, socialize/chat)

• Dianping (review, sales/promotion)

• Ctrip (buy-sell, review, promotion, voice, socialize/chat)

• Expedia (buy-sell, review, promotion)

• TripAdvisor (review, social interaction, directing to selling sites)

Different Online Representations: values/functions

� Online purchasers typically use a combination of channels as they follow their customer journeys.

� As they select products and interact with brands, they do not use the Internet inisolation – they consume other media such as print, TV, direct mail andoutdoor ads. It follows that an effective approach to using the Internet is as partof a multi-channel marketing strategy.

� Stores may display the QR codes of their websites or apps in prints for people toscan, download and install to use!

The Importance of Multichannel Marketplace Models

2019/1/8

10

� Offline

� Mixed-mode

� Online

Multi-channel Marketplace Model- Consumers use a combination of channels for their purchases. Multi-Channel Defines how different marketing channels should integrate and support each other

Example: channel chain map for consumers selecting an estate agent to sell their property

� Intermediaries vary in scope and the services they offer, so naturally terms have evolved to describe the different types

• Blog - Content updated through time, typically text- based, can include video

Give an easy way of regularly publishing web pages, online journals, or event listing

Include feedback or comments

• Search engine - Main focus is on search. Search for information on the Web.

The search results are generally presented in a line of results often referred as results pages

• Marketplace or auction site – Online shopping website

• Media type – Voice, Video, Delivered by streaming media or download files

Paid search ads! Search engine optimization! Saved search results lead to follow up promotions and offers!

Types of “New” Intermediary

2019/1/8

11

Product & Service Decisions

Key Decisions

Channel Functions

Functions and Services Performed by Channel Members

• Marketing Research

• Communications

• Contact

• Matching/Customizing

• Negotiation

• Physical Distribution

10 - 21

• Financing

• Risk Taking

• Service

• Relationship Management

• Product Assembly

Question: Which functions by intermediaries can replaced by internet

technologies and how?

� Direct and

Indirect Channels

� Multiple-Channel

Systems

� Hybrid Systems

Mix Elements� Direct channels:

� Company controlled.

� Sales force, direct marketing, company owned retail stores.

� Indirect channels:

� Intermediaries aid in the distribution process.

� Both types of channels have inherent weaknesses and strengths.

� The choice between direct and indirect channels requires many considerations.

� Disintermediation is common.

Channel Options

2019/1/8

12

Lessons to be learned from failures in e-commerce

� Channel structured may be changed via disintermediation.

� Channel functions cannot be removed or ignored! If any one is removed, it must be replaced by something else! It can be shifted but must be absorbed by a new system!

� Success of Amazon (distribution centers)

� Value providers can be internalized or outsourced (Amazon. vs. SF).

� The importance of service and value-added activities – remember that service is not free and can be costly!

� Ebay vs. Taobao (fees/revenues, voice support, interactions, ease and security of payment, after-sale service…)

Business Models for eCommerce

2019/1/8

13

• Defining a clear online business model is essential for a new start-up online business to be

successful. But it’s also important for existing businesses thinking about options to refine

their business model or add new services to their offerings in the light of new opportunities

made possible by the Internet.

• The main sections of the canvas in a logical order to consider them are:

Business Models for eCommerce(shifting value chains by reshuffling partner functions)

Value PropositionValue Proposition Customer SegmentsCustomer RelationshipsCustomer SegmentsCustomer Relationships

ChannelsKey PartnersActivities

ResourcesCost StructureRevenue Stream

• The Chart suggests three different perspectives for reviewing alternative business models, from which a business model can be viewed.

• Any organization can operate in different categories, but most will focus on a single category for each perspective.

• Such a categorization of business models can be used as a tool for formulating digital business strategy.

Positions, products, and revenue

models (pricing), recombining to

form new business models

2019/1/8

14

The Monetization of the Internet and “Clicks”Different from its original concept of a portal free for all, today’s Internet is largely monetized given the

advance of the Internet economy and e-commerce

The Internet has become a marketplace where goods, services, and eyeballs and clicks are traded for

their value.

For marketing, consumer attention and actions on the Internet are valued commodities that are studies,

collected, and traded extensively! And Live, like the stock exchange!

Consumer attention and actions are traded based on subscriptions and live real-time bidding (RTB) based

on changing prices on the major portals and exchanges (e.g., Google Ad, Facebook, Baidu, Amazon)!

https://www.mobvista.com/en/blog/whats-the-difference-between-an-ad-network-and-an-ad-

exchange/

Revenue models for marketing and media services!

� Definition: Describe methods of generating income for an organization.

� Online publisher and information intermediary revenue models: forums, bloggers,

CPM display advertising on-site

CPC advertising on-site ( pay- per- click text ads which depends on the response from netizens.)

Sponsorship of site sections or content types (typically a fixed fee for a period)

Affiliate revenue (CPA, but could be CPC)

Transaction fee revenue

Subscription access to content or services

Pay- per- view access to documents

Subscriber data access for email marketing

Cost- Per- Mille (Cost per 1000 impressions)

Cost- Per- Acquisition is commission-based and replacing CPM and CPC

A company receives a fee for facilitating a transaction.

A range of documents can be accessed from a publisher for a fixed period.

Payment occurs for single access to materials which can be downloaded.

Site owner can send different forms ofemail to customers to get valuable dataabout them.

2019/1/8

15

CPM=Cost per thousand

Cost of ???

Advertisement: per pc, per second, per display

Link

Page view

Likes

Click or click through (visit, install, download, trial, etc.)

Complete transaction

Approved purchase!

Calculating revenue for an online business

� Criteria for a site owner’s ability to maximize revenue

• Number and size of ad units - A delicate balance between the number ofad units in each site section or page, too many obtrusive ad units maypresent a bad experience for site users, too few will reduce revenue.

• Capacity to sell advertising

• Fee levels negotiated for different advertising models - These will dependon the market competition or demand for advertising space.

• Traffic volumes - More visitors equate to more opportunities to generaterevenue through serving more pages (which helps with CPM-basedadvertising) or more clicks to third-party sites (which helps generate revenuefrom CPC and CPA deals).

• Visitor engagement -The longer visitors stay on a site, the more page viewsthat will accumulate, which gives more opportunities for adrevenue.

2019/1/8

16

Calculating revenue for an online business

� Two approaches to assess efficiency in generating revenue via the techniques mentioned before

• The first is effective cost per thousand Mille (eCPM)

• The other alternative is revenue per click (RPC) or (EPC)

eCPM= Revenue/impressions*1000

= £160 / 100000 * 1000

(This index just reflects the earning power of the

site instead of the site publisher’s actual revenue.)

EPC = £192.02

Total Revenue = Total Click / 100 * EPC ≈ £3610

Impression ≠ click

eCPM vs. eRPM

Figure 2.12

� A publisher charges $10 CPM, that means the advertiser’s ad will be shown 1000 times for $10. If your budget is say $10,000 then how many times the ad will be shown for?

CPM = Total Cost to an advertiser * 1000 / Total Impressions

Total Impressions = (Total Cost or Budget * 1000) / CPM = 1,000,000 times

Examples

� If the CPC is $1.00 and your ad is shown 12,000 times but gets no clicks then you pay nothing. If you get 10 clicks on your ad and then how much you should pay? Calculate the CPM.

CPC = Total Cost / Total Clicks or (Total Impression * CPM / 1000) / Total Clicks

Total Cost = CPC * Total Clicks = $10

CPM = (CPC * 1000 * Total Clicks) / Total Impressions ≈ $0.83

2019/1/8

17

Examples

� Supposing that the CPA of an ad is $5, number of impression is 10,000, CTR is 3% and CR is 2%, calculate the Total Cost.

CPA = Cost to an advertiser / (Total Impressions * CTR * CR)

Total Cost to the advertiser = CPA * (Total Impressions * CTR * CR) = $30(or Revenue to the publisher)

CTR(Click through rate) = (number of clicks / number of impressions) * 100 (Most commonly used)

CR(Conversion rate) = (number of conversions or impressions) * 100

� Assuming that the total spending on the campaign or advertisement is $2000 and the total number of conversions made is 200, what will be the eCPA?

eCPA = Total spending / number of conversions or actions = $10

eCPC = Total Spending or Revenue / Total Clicks = eCPM / (Conversions * 1000)

Case in Point – 英国报姐1.What is the nature of the business in the value chain?

2.What is its revenue model?

3.Whether this model is sustainable in the long run?

2019/1/8

18

ONLINE START-UP COMPANIES

How to value Internet start-ups or dot-coms

Dot-Coms：Businesses whose main trading presence is on the Internet.

� Difficult for investors to assess the long-term sustainability.

� Overvalued by investors who are keen to make a fast return from their investments.

2019/1/8

19

Case in point Discussion: How come e-Bay lost China three times?

How about sharing economy?

� Sharing bikes

� Airbnb

� 5miles.com

2019/1/8

20

Summary

� The constantly changing digital business environment should be monitored by all organizations.

� The online marketplace involves transactions between B2C, B2B, C2C and C2B.

� The Internet can cause disintermediation and also re-intermediation.

� Trading in the marketplace can be sell- side (seller- controlled), buy- side (buyer-controlled) or at a neutral marketplace.

� The Internet may also offer opportunities for new revenue models such as commission on affiliate referrals to other sites or banner advertising.

� The success of Internet start-up companies is critically dependent on their business and revenue models and traditional management practice.

� Disrupting technologies and models bring challenges (to existing firms), opportunities and risks to the start-ups! (Alibaba- facial recognition – payment processing companies, like Visa/Mastercard, global payment, EPS).

Break time!

Assign the leading discussion topics

Group Projects

2019/1/8

21

MIB605-E-commerce and Social Media Marketing: Group Project and Leading Discussion

Group Project : e-marketing and social media planning

� Choose a company of your choice from below 5 industries and conduct marketing research and social media marketing plan for a new marketing and promotion campaign:

� Entertainment, E-commerce, Tech (Fintech), Education, Tourism, Catering.

� Conduct market and industry research: environment, industry, competition, technology, market segments, trend, demand and forecast

� Identify one market/segment (i.e., location and people) and develop a social media marketing plan for a new promotion campaign

� Strategies and planning

� Develop objectives and goals (benefits and impact)

� Marketing mix strategies

� Social media strategies and plan

� Implementation and contingency

� Sustainable and financially feasible

2019/1/8

22

Leading Discussion 1: The success or failure sharing bikes in China and elsewhere Sharing economy, such as cars, bikes, rooms for rent, are fueled by the Internet, venture capitalists and social media. New businesses emerged to disrupt existing business models and create new ones to serve the needs of the sellers and consumers. While some of them are quite successful in certain locations, others have folded after burning a lot of investors’ money in a short life span.

You must address the following managerial questions:

1. How the sharing economy is different from traditional business models? In other words, in what areas have customer values been shifted to create business opportunities?

2. Even the success and failures, what are the essential challenges for a viable sharing economy business?

3. What kind of role do social networks play in sharing economy?

4. What kind of challenges face a sharing economy business in terms of business model and revenue generation?

Leading Discussion 2: How would businesses (e.g., hotels and restaurants) benefit from engaging customers in online social media？Social media are essential for both consumers’ daily activities. They have also become one of the major channels for engaging existing and potential customers. They provide a key engine for growth from both market penetration and development. In this discussion, you are asked to consider how businesses such as hotels and restaurants should invest in capital and human resources (i.e., manpower and hours) engage customers on online platforms and social media and help to implement marketing functions and achieve their objectives.You must address the following managerial questions:1. Should a business engage their existing and potential customers in online platforms and social

media?2. If so, what operational areas or functions such engagement can serve? 3. How should a business organize and control its marketing activities on social media?4. How can such engagement be integrated with other marketing activities of a firm?Reference readings: 1. Li, Chunyu, Geng Cui, Ling Peng (2017) The Signaling Effect of Management Response In

Engaging Customers: A Study of The Hotel Industry. Tourism Management. 62 (October): 42-53.2. https://www.oxera.com/getmedia/84df70f3-8fe0-4ad1-b4ba-d235ee50cb30/The-benefits-of-

online-platforms-main-findings-(October-2015).pdf.aspx?ext=.pdf

2019/1/8

23

Leading Discussion 3: Why Did Starbucks Win at eCRM and Social Media?

In U.S. Starbucks stores, 20% of transactions are done via the mobile app, resulting in nearly 9 million mobile transactions weekly. The article mentions that the popularity of mobile payments at Starbucks comes as a certain “Network Effect”. This is achieved by the high frequency of consumers’ Starbucks visits and their close proximity to other customers. Even with the proven massive success of the program’s current model, Starbucks still has plans for enhancing it. Over the summer it announced plans for partnerships with outside companies to increase ways that customers can utilize their program membership. The first was with the ride-sharing company Lyft. This deal would allow riders to collect loyalty program stars, while all Lyft drivers would automatically earn gold status. A second plan for partnership was withThe New York Times. This would allow loyalty members to view a selection of stories for free via their Starbucks app, as well as earn stars through paid subscriptions to the newspaper

The Starbucks Loyalty program exemplifies all the components of modern successful CRM. While it has been able to achieve the three objectives of CRM, it has also been able to go above and beyond by paying attention to all the components of customer loyalty.

• Unfold the Starbucks eCRM program by presenting a 360 degree comprehensive introduction

• Raise one or two creative initiations that Starbucks could incorporate in its eCRM in HK market

• List one or two Chinese brand who is advanced in utilizing eCRM in winning the market

Reference reading: http://marketingmag.ca/brands/why-starbucks-is-winning-at-loyalty-152974/

The impact of CRM 2.0 on customer insight http://www.emeraldinsight.com/doi/abs/10.1108/08858621011066008

Social CRM as a business strategy https://link.springer.com/article/10.1057/dbm.2011.7

Leading Discussion 4: The Great Firewall of China

The Internet is supposed to be free for all and representative of our collective wisdom, free from government intervention, hackers, trolls and other manipulators with sinister motives. Evidence is clear that some governments want to control and affect the Internet and public opinion to their own interest. Aside from censorship, building firewalls to limit and ban access, China has come up with a new “credit” system that monitor the activities of its citizens online and offline, with direct consequences for its citizens and the society. Some have lamented the disappearance of the “free” Internet.

In this leading discussion, you should

• To what extent have governments and other parties limit access to the Internet to their own interests?

• What are the dire implications and consequences of the firewalls and state censorship have on the people, society, and the economy?

• While hackers, trolls and other manipulators have sinister motives, are government interventions justified in the name of society and stability?

• Is it still possible to keep the Internet free all, unbridled by political and commercial interest?

2019/1/8

24

Leading Discussion 5: Crisis Management and PR Using Social Media

If there’s one thing that spreads faster on social media than word of a new Beyoncé album, it’s public outrage. In fact, as reported in the New York Times, “anger is the emotion that spreads the most easily over social media.” This means a small local issue has the potential to spiral into a full-blown international crisis quickly—something no brand can afford.

A day care center under contract to Ctrip.com, a leading travel agency, was suspended Thursday after staff were caught on camera allegedly abusing toddlers. Three staff of the third-party center managers in Shanghai have been detained, according to Shanghai police. To help employees solve babysitting problems for children aged 18 months to 3 years, the minimum age to qualify for a place at a public kindergarten, Ctrip established the center in 2016, run by a third-party organization. Video footage of staff abusing children appeared online to public outcry.

• Conduct an effective strategic plan to manage this company crisis by using social media

Reference Reading: The Use of Social Media in Risk and Crisis Communication http://www.oecd.org/gov/risk/social-media-in-risk-and-crisis-communication.htm

Leading Discussion 6: How search engine optimization (SEO) helped Lingnan University?)

When students search for Lingnan University (岭南大学）in Chinese, they used to be guided to the

Lingnan College at SYSU in Guangzhou. Although the two have the same historical roots, they are two different universities. In order to boost the awareness and reputation of Lingnan University (Hong Kong), the university needs to adopt search engine optimization so that applicants and other interested parties would be directed to the Lingnan University’s website.

1. What kind of role does search engines play in consumers’ search and decisions?

2. How do search engine affect business reputation and opportunities?

3. How to optimize search engine’s results for a business?

4. Is there a problem with fairness as businesses with financial resources may come on top of the search results?

5. How do consumers distinguish SEO and the uncontaminated collective interest and intelligence?

2019/1/8

25

Leading Discussion 7: Social Media Strategies for Palace Museum HK

Beijing’s Palace Museum alone receives more than 15 million visitors a year and has to restrict numbers to 80,000 a day in peak periods. Its revenue from cultural products reached 1 billion yuan in 2015, up from 600 million yuan in 2013. By the end of 2015, the museum had churned out 8,683 different souvenir products -- everything from earphones that look like a Qing Emperor’s necklace to a mini Ming Dynasty royal guard to hold your smartphone. Part of the museum’s success reflects the changing tastes of a younger generation and the using of social media and ecommerce technology. China’s museums are harnessing the nation’s tech giants to integrate with the booming e-commerce market via by selling tickets online via Tmall.com and Wechat Pay. As the Palace Museum will open in Hong Kong soon, how would you design its social media strategies in the territory.

1) Analyze the success factors for BJ Palace Museum in terms of social media and ecommerce integration

2) Compare their approaches with other museums internationally (i.e MOMA, Metro NYC, etc...)

3) Give creative and feasible suggestions for Palace Museum HK.

Leading Discussion 8: Creativity, Entrepreneurship or just Manipulated Buzz?

Recently, a young standup comedian Zhang Yunlei (张云雷）has amassed a lot of fans to his show and ignited heated debate about the future of standup comedy (相声）. Fans, and their WOM (likes, followers, rankings) and support are critical for today’s entertainers and artists. While some agree that popular support is important, others worry about the future of arts and entertainment driven by fans, and sometimes manipulated buzz.

1) Analyze the current situation of the fan-based phenomenon and the impact on entertainment and arts (comedies, movies, books).

2) How do we distinguished genuine popular support from manipulated buzz and reputation management?

3) Should artists and creative directors engage in reputation management (fans, votes, rankings, etc.)?

4) What kind of impact does this fan support have on the future of arts and entertainment?.