Selling on the Web Chapter 3 - PowerPoint Presentation

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Selling on the Web Chapter 3 - PPT Presentation

1 Cengage Learning 2015 Learning Objectives In this chapter you will learn about What a revenue model is and how companies use various revenue models How some companies change their revenue models to achieve success ID: 659175

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Slide1

Selling on the Web

Chapter 3

Learning Objectives

In this chapter, you will learn about:What a revenue model is and how companies use various revenue models

How some companies change their revenue models to achieve success

Revenue strategy issues that companies face when selling online

2Slide3

Learning Objectives (cont’d.)

How to create an effective business presence on the WebWhat factors enhance Web site usabilityHow companies use the Web to connect with customers

3Slide4

Introduction

Online business example: progressive insuranceFirst auto insurance company to launch a Web site (1995)First to sell policies online (1997)

Started providing competitor’s rates in 2002Introduced female character “Flo” in 2008Advertising and brand strategy

4Slide5

Revenue Models for Online Business

Web business revenue-generating modelsWeb catalogDigital content

Advertising-supportedAdvertising-subscription mixedFee-basedSame model can work for both sale typesBusiness-to-consumer (B2C)

Business-to-business (B2B)

5Slide6

Web Catalog Revenue Models

Adapted from mail-order (catalog) modelSeller establishes brand imagePrinted information mailed to prospective buyers

Orders placed by mail or phoneExpands traditional modelReplaces or supplements print catalogsOrders placed through Web site Creates additional sales outlet for existing companies

6Slide7

Web Catalog Revenue Models (cont’d.)

Discount retailersSome discounters began as retail operations online, e.g., Overstock.comTraditional retailers now using Web catalog revenue model: Costco, Kmart, Target, and Walmart

Multiple marketing channelsAllows more customers to be reached at a lower costMarketing channel examplesPhysical stores

Web sites

Mailed catalogs or newspaper insert

7Slide8

FIGURE 3-1 Combining marketing channels:

two retailer examples

Web Catalog Revenue Models (cont’d.)

Adding the personal touchMany adapted catalog sales model to WebDisplay clothing photos categorized by type

Prices, sizes, colors, and tailoring detailsWant customers to examine clothing online Place orders through Web siteLands’ End online Web shopping assistance

Lands’ End Live (1999)

Some sites offer text and video chat

9Slide10

Web Catalog Revenue Models (cont’d.)

Personal shopperLearns preferences and makes suggestionsVirtual modelAllows customers to try clothes

Graphic image built from customer measurementsProblem: varying computer monitor color settingsSolutions: send fabric swatch on request and/or offer generous return policies

10Slide11

Fee-for-Content Revenue Models

Firms owning written information or information rightsEmbrace the Web as a highly efficient distribution mechanismUse the digital content revenue model

Sell rights to access information they ownLegal, academic, business and technical contentLexisNexis: offers variety of information services for lawyers and law enforcement officialsSubscriptions and individual access rights to online academic journals and other publications

11Slide12

Fee-for-Content Revenue Models (cont’d.)

Academic information aggregation servicesPurchase and resell rights in subscription packages to schools, libraries, companies, and not-for-profit institutionsDow Jones provides business-focused publications online

Newspaper, magazine, and journal materialsFactiva: subscriptions to individuals for purposes of business research, job searches, or investment analysis

12Slide13

Electronic Books

Can be read or listened toAvailable to a variety of devicesAmazon.com’s Kindle

Barnes & Noble’s NookKobo GloiTunes and Google play sell books and music Physical and electronic books will coexist for years to come

13Slide14

Online Music

Recording industry slow to embraceLargest stores: Amazon MP3, Apple’s iTunes, Google PlaySubscription services to stream music

Pandora Internet Radio, Spotify, RhapsodyComplicationsNo single store offers all musicIndividual stores promote their own music file formatsSome artists/recording companies partner with specific store or boycott online sales altogether

14Slide15

Online Music (cont’d.)

Digital Rights Management (DRM) softwareIntended to curtail music piracyAmazon MP3 store

First to offer DRM-free MP3 formatMusic industryReports increased sales in 2013First time in 14 years

15Slide16

Online Video

Can be sold or rented onlineDownloaded or streamedPast limitations

File sizeConcern about cannibalizing sales in other channelsTechnological barriers around devicesOvercoming the issuesNew technologies improving delivery

Companies incorporating online distribution into revenue strategy

Video delivery technologies becoming transparent

16Slide17

Online Video (cont’d.)

NetflixOnline accessDVD rentals by mailTelevision shows available online

HuluTV.comYouTube

17Slide18

Advertising as a Revenue Model Element

Advertisers’ fees in place of users’ subscriptionsAdvertising-supported revenue modelsUsed by United States broadcast network television

Provides free programming and advertising messagesSupports network operations sufficiently

18Slide19

Advertising-Supported Revenue Models (cont’d.)

Online advertising challengesDifficulty of measuring and charging site visitor viewsStickiness

Keeping visitors at site and attracting repeat visitorsExposed to more advertising in a sticky siteObtaining large advertiser interestRequires demographic information collection

Characteristics set used to group visitors

19Slide20

Advertising-Supported Revenue Models (cont’d.)

Can obtain large advertiser interest by:Using a specialized information Web siteDraw a specialized audience certain advertisers want to reach

Examples:The Huffington Post and the Drudge ReportHowStuffWorks

20Slide21

FIGURE

3-2 Three strategies

for an advertising-supported revenue model

Advertising-Supported Revenue Models (cont’d.)

Web portals (portal)

Site used as a launching point to enter the Web

Almost always includes a Web directory or search engine

Often includes other features

Web directoryList of hyperlinks to Web pages

General interest strategy

Example: Yahoo! portal search engine

Presents search term-triggered advertising on each page

22Slide23

Advertising-Supported Revenue Models (cont’d.)

Specific interest strategy

Examples: C-NET and Kayak

argeted advertising

23Slide24

Advertising-Supported Newspapers

Newspapers or magazines publish online version of print contentSell advertising to cover Web site costsNewspaper’s Web presence

Provides greater exposure and advertising audienceCan divert sales from the print editionMixed-revenue modelSome content free, other content for purchase

Paywall

Point at which fees begin

24Slide25

Advertising-Supported Online Classified Ad Sites

Targeted classified advertising sitesCan command higher rates than general advertisingGrowth of classified advertising Web sites

Very bad for newspapersExample: CraigslistWeb employment advertisingMost successful targeted classified advertising categoryExamples: CareerBuilder.com, The Ladders, and Monster.com

25Slide26

Advertising-Supported Online Classified Ad Sites (cont’d.)

Used vehicle sitesAutoTrader.com

Other similar sites, e.g., used musical instruments, comic books, and used golf equipmentAdvertising-subscription mixed revenue modelsSubscribers pay fee and accept some advertising

Less advertising than advertising-supported sites

Varying levels of success

Examples

The Wall Street Journal, The New York Times© Cengage Learning 2015

26Slide27

FIGURE

3-3 Revenue models used by online editions of newspapers and magazines

Advertising-Subscription Mixed Revenue Models (cont’d.)

ESPNLeverages brand name from cable television businessSells advertising; offers free information

Mixed model includes advertising and subscription revenue (collects insider subscriber revenue)Consumers Union (ConsumerReports.org)Purely a subscription-supported siteNot-for-profit organization with no advertising

Free information

Attracts subscribers and fulfills mission

28Slide29

Fee-for-Transaction Revenue Models

Service fee chargedBased on transaction number or sizeWeb site offers visitor transaction information

Personal service formerly provided by a human agentValue chainDisintermediationIntermediary (human agent) removedReintermediation

New intermediary (fee-for-transaction Web site) introduced

29Slide30

Fee-for-Transaction Revenue Models (cont’d.)

Stock brokerage firmsTwo rounds of disintermediation

Original full-line brokers charged relatively high commissionsCompetitive edge by offering more and better advice1970s: deregulation resulted in discount brokersFirst round: individual stockbrokers disintermediated from the industry value chain

30Slide31

Fee-for-Transaction Revenue Models

(cont’d.)

1990s: second round disintermediation as discount brokers faced competition from online firms

Discount brokers and full-line brokers opened new stock trading and information Web sites

Brokerage firms withstanding economic downturn in 2008 offer primarily online services

Example: TD Ameritrade

31Slide32

Fee-for-Transaction Revenue Models (cont’d.)

Insurance brokersQuotesmith offered Internet policy price quotes directly to public (1996)

Independent insurance agents: disintermediatedInsurance policy information, comparisons, sales sitesInsWeb, Insurance.com

Progressive Web site

Provides quotes for competitors’ products too

The General (General Automobile Insurance Services) Web site

Option for motorists who may be rejected by other plans© Cengage Learning 2015

32Slide33

Fee-for-Transaction Revenue Models (cont’d.)

Event ticketsWeb allows event promoters to sell tickets from one virtual location to customers worldwide

Online agencies earn a fee on every ticket soldTicketmasterWeb created secondary ticket market (StubHub, TicketsNow)Brokers connecting ticket owners with buyers

Earn fees on tickets resold for others, buy ticket blocks

Web created easy-to-find central marketplace, facilitating buyer-seller negotiations

33Slide34

Fee-for-Transaction Revenue Models (cont’d.)

Online banking and financial servicesNo physical product

Easy to offer on WebSlow to take off due to concerns about securityApproachesUse existing bank’s identification and reputationStart online bank not affiliated with existing bank

(First Internet Bank of Indiana)

34Slide35

Fee-for-Transaction Revenue Models

(cont’d.)

Online banking and financial services (cont’d.)

Growing participation as services become more widely available

Bill presentment service

Account aggregation tools

35Slide36

Fee-for-Transaction Revenue Models (cont’d.)

TravelTravel agency revenue model: receive fee for facilitating a transactionTravel sites generate revenue through:

CommissionsWeb site advertising fees (advertising-fee revenue model)Popular travel Web sitesTravelocity (based on Sabre)

Expedia (Microsoft subsidiary)

Orbitz (consortium of major U.S airlines)

36Slide37

Fee-for-Transaction Revenue Models (cont’d.)

Travel (cont’d.)

Traditional travel agents squeezed out

Surviving smaller travel agents specialize in cruises

Assisted by Web sites, e.g., VacationsToGo.com, with detailed cruise information or discounted package deals

Reintermediation strategy: cater to a target audience (WaveHunters.com)

Also supplemented by online advertising revenue

37Slide38

Fee-for-Transaction Revenue Models (cont’d.)

Automobile salesWeb sites implement the fee-for-transaction revenue model differently

Information service (Autobytel, Edmunds.com)Customer selects specific car; site determines price and finds local dealerLocate local dealers; car sells at small premium over dealer’s nominal costDealer charged a fee for service

Car salesperson: disintermediated

Web site: new intermediary (reintermediation)

38Slide39

Fee-for-Transaction Revenue Models (cont’d.)

Real estate and mortgage loansBrokerage firms and individual real estate brokers feature online information on properties

National Association of Realtors Web siteRealtor.com2008 financial crisisDramatically reduced number of mortgage brokers in business

Successful online mortgage brokers

E-LOAN

Industry is resistant to disintermediation

39Slide40

Fee-for-Service Revenue Models

Companies offer Web serviceFee based on service valueNot a broker service

Not based on transactions-processed number or sizeOnline gamesSales revenue sourceAdvertising (older concept); pay-to-play for premium games; subscription feesSome elements of advertising

40Slide41

Fee-for-Service Revenue Models (cont’d.)

Professional servicesLimited Web useState laws prohibit extension of practice

Instances of unlicensed practice can arisePatients or clients may set appointments and receive online consultationPatient/client privacy concernsLaw on the Web site

Legal consultations to United Kingdom residents

CPA Directory

United States accounting professionals site

41Slide42

Fee-for-Service Revenue Models (cont’d.)

Professional services (cont’d.)Martindale.comOnline version of Martindale-Hubbell lawyer directory

Prevalence of Web sites presenting health informationDifficulty of diagnosing without physical examOnline consultations are emergingCope Today Web site

Online consultations for U.S. patients

42Slide43

Free for Many, Fee for a Few

Economics of manufacturingDifferent for physical and digital productsUnit cost high percentage of physical products

Unit cost very small for digital productsLeads to a different revenue modelOffer basic product to many for freeCharge a fee to some for differentiated products

Examples: Yahoo e-mail accounts

Inverse logic applied to physical products: free samples to entice sales (cookie samples)

43Slide44

Changing Strategies: Revenue Models in Transition

Companies must change revenue modelTo meet needs of new and changing Web users

Some companies created e-commerce Web sitesNeeded many years to grow large enough to become profitable (CNN and ESPN)Some companies changed model or went out of businessCase studies of strategies that evolved from experience and adaptations to change

44Slide45

Subscription to Advertising-Supported Model

Slate magazineUpscale news and current events

Success expectations were highExperienced writers and editorsAcclaim for incisive reporting and excellent writingInitial revenue source

Annual subscription did not cover operating costs

Now an advertising-supported site

Part of the Bing portal

Value to Microsoft: increase the portal’s stickiness© Cengage Learning 2015

45Slide46

Advertising-Supported to Advertising-Subscription Mixed Model

Salon.comAcclaimed for innovative content

Initial revenue sourceAdvertising-supported siteNeeded additional money to continue operationsNow offers optional subscription versionAnnual fee for Salon Core (premium)

Free of advertising

Additional content

Downloadable content

46Slide47

Advertising-Supported to Subscription Model

Northern Light search engine includes own databaseResults include Web site links and abstracts of its owned content

Initial revenue sourceCombination of the advertising-supported model plus a fee-based information access serviceAdvertising revenue: insufficient to cover serviceConverted to new subscription-supported revenue model

Annual subscriptions to large corporate clients

Main products today include SinglePoint search engine

47Slide48

Multiple Changes to Revenue Models

Encyclopedia BritannicaInitial Web offerings (1994)Britannica Internet Guide

Encyclopedia Britannica OnlineInitial revenue sourcePaid subscription site had low subscription salesConverted to free advertiser-supported site (1999)Advertising revenues declined

48Slide49

Multiple Changes to Revenue Models (cont’d.)

Encyclopedia Britannica (cont’d.)2001: returned to mixed model with subscription plan and free contentSubscriptions comprise the major revenue source

Additional revenue from online products store salesNew York Times Web site’s ability to adapt1990s: advertising supported with subscription fee for specific access to premium crosswords, chess column and archived articles

2005: additional content required subscription

49Slide50

Multiple Changes to Revenue Models (cont’d.)

2007: returned to advertising-supported with free access2011: mixed revenue modelFirst 20 articles/month free

Subscription plans for continued accessPay wall: barrier triggered by specific usage levelPrint subscribers have unlimited access

50Slide51

Revenue Strategy Issues for Online Businesses

Channel conflict and cannibalizationCompany’s Web sales activities interfere with existing sales outlets

Levis and Maytag Web sitesWeb sites no longer sell productsSites now provide product and retail distributor informationEddie Bauer

Online purchases returnable at retail stores

Required compensation and bonus plans adjustments to support Web site

Channel cooperation made it successful

51Slide52

Revenue Strategy Issues for Online Businesses (cont’d.)

Strategic alliancesTwo or more companies join forces

Undertake activity over long time periodYodlee account aggregation services providerYodlee concentrates on developing the technology and servicesBanks provide the customers

Amazon.com

Joined with Target and many smaller companies

52Slide53

Revenue Strategy Issues for Online Businesses (cont’d.)

Luxury goodsDifficult to sell online

Customers want to see product in person or touchOvercome by some sites by limited online offeringsChanelCalvin KleinJewelry sales have grown rapidly in recent years

Blue Nile, Ice.com, and Costco

Supported by:

General availability of independent appraisal certificates

53Slide54

Electronic Commerce,

Eleventh

Edition

Revenue Strategy Issues for

Online Businesses (cont’d.)

Overstock sales strategies

Physical outlet stores being replaced with overstocks Web page sales

Reach more people than physical outlet stores

Frequent updates possible

54Slide55

Creating an Effective Business Presence Online

Organization’s presencePublic image conveyed to stakeholdersUsually not important

Until growth reaches significant sizeStakeholders Customers, suppliers, employees, stockholders, neighbors, and general publicEffective Web presenceCritical even for smallest and newest Web operating firms

55Slide56

Identifying Web Presence Goals

Business physical spaceFocus: very specific objectivesNot image driven

Must satisfy many business needsOften fails to convey a good presenceWeb business siteIntentionally creates distinctive presencesGood Web site design provides:

Effective image-creation/ image-enhancing features

56Slide57

FIGURE 3-5

Web presence objectives and strategies

Making Web

Presence Consistent

with

Brand Image

Different firms establish different Web presence goalsCoca Cola Web site pagesUsually include trusted corporate image (Coke bottle)

Image: traditional position as a trusted classic

Pepsi Web site pages

Hyperlinks to activities and product-related promotions

Image: upstart product favored by younger generation

Auto manufacturers’ Web sites

58Slide59

Not-For-Profit Organizations

Web sites’ key goalsInformation disseminationSuccessful site key elements

Integrate information dissemination with fund-raisingProvide two-way contact channelAmerican Civil Liberties Union (ACLU)Serves many different constituenciesWeb sites used to stay in touch with existing stakeholders and identify new opportunities for serving them

59Slide60

Web Site Usability

Current Web presencesFew businesses accomplish all goalsMost fail to provide visitors sufficient interactive contact opportunities

Improving Web presenceAccessible to more peopleEasier to useEncourage visitors’ trust Foster feelings of loyalty toward the organization

60Slide61

How the Web Is Different

Simple mid-1990s Web sitesConveyed basic business informationNo market research conducted

Web objectives often unmetFailure to understand how Web differs as a media for presence-buildingWeb sites designed to create an organization’s presenceContain links to standard information set

Success dependent on how this information offered

61Slide62

Meeting the Needs of Web Site Visitors

Successful Web businesses: Realize every visitor is a potential customer (partner)Varied motivations of Web site visitors

Learning about company products or servicesBuying products or servicesObtaining warranty, service, and repair policy informationObtaining general company information

Obtaining financial information

Identifying people

62Slide63

Meeting the Needs of Web Site Visitors (cont’d.)

Varied motivations of Web site visitors (cont’d.)Obtaining contact informationFollowing a link into the site while searching for information about a related product, service, or topic

A challenge to meet all motivationsVisitors arrive with different needs, experience, and expectation levels

63Slide64

Making Web Sites Accessible

Build interface flexibility optionsText-only versionW3C Accessibility Initiative site offers useful links regarding disabilities

Selection of smaller graphic imagesChoice of streaming media connection typeUser-specified information attributesControversial Web site design issues

Adobe Flash software use

Some tasks lend themselves to animated Web pages

Does not work on Apple iPhone or iPad

64Slide65

Making Web Sites Accessible (cont’d.)

FIGURE 3-8

Accessibility goals

for business Web sites

Trust and Loyalty

Creates relationship valueSustained good service leads to seller trustDelivery, order handling, help selecting product, and

after-sale supportRepeated satisfactory service builds customer loyaltyCustomer service weaknessesLack of integration between call centers and Web sites

Growing disappointment in e-mail responsiveness

66Slide67

Usability Testing

Testing/evaluation of Web site to ensure

ease of use by visitorsRecognized importance of usability testingAvoids Web site frustration (difficulty and confusion)Customers leave site without buying anything

Simple site usability changes

Include telephone contact information

Staff a call center

Learn about visitor needs by conducting focus groupsUsability testing costLow compared to Web site design costs

67Slide68

Customer-Centric Web Site Design

Important part of successful electronic business operationFocus on meeting all site visitors’ needsCustomer-centric approach

Putting customer at center of all site designsFollow guidelines and recommendationsMake visitors’ Web experiences more efficient, effective, memorableGive special considerations for mobile devices

Provide substantial “content for your click”

68Slide69

Using the Web to Connect with Customers

Important element of a corporate Web presenceIdentify and reach out to customers

69Slide70

The Nature of Communication on the Web

Communication modesPersonal contact (prospecting) modelIndividually search for, qualify, and contact potential customers

Mass mediaDeliver messages by broadcastingAddressable mediaAdvertising efforts directed to known addresseeInternet medium

Occupies central space in medium choice continuum

70Slide71

FIGURE 3-9 Business communication modes

The Nature of Communication on the Web (cont’d.)

Characteristics of communication modesMass media: one-to-many communication modelSeller is active; buyer is passive

Personal contact: one-to-one communication modelInterchange in framework of existing trust relationshipThe Web: one-to-one, many-to-one, and many-to-many communication modelsBuyer as active participant in determining length, depth, and scope of search

Selling on the Web Chapter 3 - PowerPoint Presentation

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