|Return to Class Session #1|
|"The Internet proposes no threat to traditional marketing channels. All you need to keep everyone happy is to increase orders".|
|paraphrased from:||Michael Dell, Owner|
|Transition From Traditional Business to eCommerce|
The E-Commerce Myth - building an online store is easy. Throw up a Web site, the customers point, click and buy, you collect the profit. No effort, no risk, no way. (Another myth is that it will eliminate all intermediaries - see below)
Sure. Right. And, while your enjoying all that profit and leisure time, take a Real Estate class and master the market next year; take up golf, turn pro; check out the museum, you can draw that stuff; day-trading is a snap, just buy low, sell high; stay home and raise the kids, it's much easier than working; I'm a good cook; it would be fun to open a restaurant.
Get it? The reality is that building a successful online business is more complex than any Web site project you've likely tackled before. Wait, you're saying you've never created a Web site before. But you have a business. All you need to do is put it online. Sorry, you can put it online but everything changes. And, it's never done and will constantly need fixing, updating, revisions and so on. And what about order fulfillment? What about the reaction of competitors, suppliers, current customers, demands on your time?
You really need to get used to the idea that it will take new skills, enormous investments of time, capital & planning, team members or employees or experts to help, an entire accounting and billing system, contracts, and...
Whether or not you have a business, the transition from traditional business to eCommerce requires new knowledge, new skills and new ways of doing old things. We are still talking about customer/business relationships, but it's a new model for business with little precedent for success, even fewer experts but huge potential.
|I don't know when e-commerce will become a profit-making venture -- Stop asking.|
Lets take a look at some of the transitions you need to make in your site plan and business plan to succeed in an online venture.
A Fourth "Channel" While not exactly true from a pure marketing sense, writers (who don't know formal marketing) often refer to online selling as a 4th channel for conducting trade, where the traditional three channels are face-to-face, telephone and mail. The Internet can use all three but adds the dimensions of eMail and Web forms for ordering and secure electronic commerce for paying.
New Intermediaries & Facilitators In Marketing, a distribution channel includes the customer, the producer/manufacturer and all facilitators (support functions, no title) and Intermediaries (own title) necessary to get goods or services where they are wanted, when they are wanted. Intermediaries and facilitators are included if they add value and will be excluded if they fail to add value. Your business plan may put you in any of these roles, however, your are creating a (new) channel of distribution that will need to be complete with defined roles, effectiveness and efficiency in getting products to customers.
Some new or unusual facilitators or intermediaries would include (this should look familiar):
|Wholesaler||Merchant Service Company|
|E-tailers||Internet Merchant Bank|
The key element is have "added value" from the distribution system.
The traditional distribution channel is linear and value is added through order-size processing and efficiency, shipping, warehousing and delivery. E-commerce interrupts these traditional structures and they must be reconfigured.
Also, eCommerce introduces possibilities for adding value in information, product comparison, service, customer comfort, reduction of effort in shopping, and timeliness.
Lack of Barriers The Internet and the part known as the WWW are mostly barrier free:
Customers can choose your company from a level playing field. The advantage to competitors might still lay in their brand strength, reputation and experience. You may be able to deal more directly with customers and eliminate some of the markup (distribution costs). You're always open. Customers are seeking you out, thus you may rely less on intrusive and costly advertising and marketing. You are now a global player.
The real barriers tend to be:
Channel Conflict A drawback to online business occurs when traditional channel members react negatively or are affected negatively by your eCommerce activities.
Some of the problems are that you may be bypassing facilitators and intermediaries that support your traditional efforts. Online sales may reduce the sales volume in your existing channels. Manufacturers may not be willing or prepared to deal with you directly. The pace of sales and order fulfillment may change or match up poorly. Intermediaires may not choose to support your efforts.
Demand Driven, Pull Driven Market System Web business, as currently practiced, is biased towards customer demand; customers search for your products and seek out your services. Promotion and advertising is directed at the customers, whose demand "pulls" the products through the system a opposed to intermediaries "pushing" the products through the system. This doesn't have to be the way it is done but is the premise behind Web sites, search engines and Internet service companies (AOL, Priceline, etc.).
Mass Marketing & Production to Individual Targets & Customization Traditionally, most business is directed towards mass markets or large markets that are combined into large target segments. This allows us to advertise to many customers at once (tv, radio, newspaper, magazine) and mass produce products will minor variations in options. With an online business, each customer is a separate target to a greater degree for product customization, advertising and promotion, order processing and so on.
More importantly, it is
now possible to a greater degree to build one-to-one customer relationships
due to automated responses tied to electronic databases and electronic identifiers
Let's explore this idea.
Company Organization It is likely that you will need to rethink traditional lines of communication, decision making, authority & responsibility, and processes between departments and people within your company in order to serve customers of an online business. Just as every Web site exists on the Internet without hierarchy yet within a site a hierarchy may exist for the page organization and navigational links, your company may have to break the hierarchical model as well. Web writers coined a term: hyperarchy.
Database Management and Security This is really two linked issues.
An online business has all the advantages of customer, demand, order processing,
product, inventory and advertising information (and more) in digital form. The
possibilities for your business should be fairly obvious by now. The challenge
is in gaining customer trust for a new way of doing business. Much like the
challenge or convincing consumers to trust microwave cooking and to relearn
cooking habits, it is necessary to get consumers to relearn shopping and purchase
habits and to trust, what appears to many of them, to be a potentially intrusive
and risky business system.
|Database Wars: source S.F. Chronicle 6/14/01|
Just-In-Time JIT is an old logistics management concept for inventory control and efficiency that minimizes investment in inventory while maximizing cash flow for the company using it. The premise is to carefully match supply and demand so that products are created or purchased just in time to be shipped as rapidly as possible. This is not only possible through linked or common databases (as referred to above) but also expected by customers who are likely willing to wait a little longer for product delivery than if they went to a retail store but won't wait as long as they might for MOTO. (remember this one?)
Communication and Interactivity A substantive change from the traditional business model is that eCommerce and Web sites are interactive. This means that you have many businesses interacting with many customers through a one-to-one communication process rather than one-to-many. And, the communication is two-way, not one-way.
Digitalization At some point, an online business may have to physically package and deliver a product (not necessarily). However, the unique feature of eCommerce is the digitalization of the Web site and its contents. You need to think in terms of electronic catalogs, graphics, products & services, data storage & retrieval and advertising & marketing and the short life cycle of software, hardware and systems in the delivery of all this.
|24/7 is Not Just a Slogan|
Sell while you sleep! Perhaps the biggest transition is to realize that your Web business is open 24 hours a day, 7 days a week. Your customers may be anywhere on the planet, in any time zone and shopping at any hour. Day to them may be night for you. Consequently, your plans need to prepare for this customer and this customer's reasonable expectations of service from their point of view.
Some of the things to include in your site plan AND your business plan are: