OPENING CASE STUDY:
WHAT’S REPLACING THE DAY AFTER THANKSGIVING FOR SHOPPING SALES?

You’ve heard that the most profitable retail shopping day before Christmas is the Friday after Thanksgiving. It’s often called Black Friday, because it’s the day retailers move out of the red and into the black on their income statements. But not anymore . . . Cyber Monday is quickly replacing Black Friday as the big shopping day. Cyber Monday occurs on the Monday after Black Friday weekend. Cyber Monday is the day when consumers go back to work and shop on the Internet for products they found on Black Friday on retail shelves. Almost 80 percent of online retailers state that sales significantly increased on Cyber Monday last year. And, yes, we are talking about people being at work and shopping for Christmas gifts. According to a BIG research/shop.org survey of 7,200 consumers, 37 percent stated that they have used or will use the Internet at work to shop for gifts online. While that creates a problem for productivity in the workplace, online retailers are redefining their business models to take advantage of Cyber Monday. Ice.com, an online jewelry retailer, sees this as a new business dimension, so much so that it’s offering free shipping and a gift-with-purchase promotion for everyone ordering products on Cyber Monday. According to Pinny Ginwisch, Ice.com founder and executive vice president of marketing, “The results are unbelievable.” Ice.com expects 400,000 to 600,000 visitors on Cyber Monday, almost double the usual traffic. Like all online businesses, Ice.com recognizes that danger lies within any opportunity. For example, increased Web traffic means potential processing delays. So, Ice.com is adding five backup servers just to handle the additional traffic and take over in event of a site crash. Ice.com has hired an additional 10 customer service representatives to handle ordering processing, and has prepared 4,000 packages of its most popular items ready to ship the day after Cyber Monday. Just like in the traditional brick-and-mortar business environment, in the world of e-commerce you must constantly strive to stay ahead of the competition. You have to determine innovative ways in which to offer products and services that your customers will perceive add value. And you must constantly reevaluate traditional business models such as Black Friday. Black Friday still has its place in the brick-and-mortar world, but Cyber Monday is now the big shopping day in the virtual world. If your organization doesn’t act on this information, you may be out business. In this chapter, we’ll explore the world of e-commerce, and we’ll continue to introduce you to many special considerations that you must take into account to be successful in e-commerce. Commerce will always be commerce—the buying and selling of products and services. But the “e” in e-commerce presents new challenges and opportunities. Questions
1. Do you shop for gifts online? If so, at what sites and for what occasions? No, i don’t buy gifts online.
2. What’s your take on people spending time at work to shop for personal items?

3. How can brick-and-mortar retailers take advantage of Cyber Monday?

CLOSING CASE STUDY ONE
WHEN YOU’RE BIG, YOU CAN BE YOUR OWN B2B E-MARKETPLACE

Business to Business (B2B) e-marketplaces are the growing trend in the B2B e-commerce business model. Businesses from all industries and countries can gather, perform commerce functions, share mission-critical information, and deploy infrastructure applications that allow those organizations to tie their internal systems to each other.

But some companies—the largest ones—don’t have to play in the generic B2B e-marketplaces. Instead, they can build their own and literally require that their suppliers participate. Once such company is Volkswagen AG. Its B2B e-marketplace is called VWgroupsuppl.com ( www.vwgroupsupply.com).

Volkswagen AG offers eight brands of automobiles — Volkswagen (passenger), Volkswagen Commercial Vehicles, Audi, Bentley, Bugatti, Lamborghini, Seat, and Skoda. In 2003, Volkswagen spent almost 60 billion euros, or approximately $77 billion, on components, automotive parts, and MRO materials for its manufacturing operations. When you spend that much money with your suppliers, you can open and run your own B2B e-marketplace.

VWgroupsupply.com handles 90 percent of Volkswagen global purchases. Almost all requests for quotes, contract negotiations, catalog updating and buying, purchase-order management, vehicle program management, and payments are handled electronically and online through VWgroupsupply.com.

Gains in efficiency and productivity coupled with material costs reductions have been tremendous. The cost savings alone generated over the last three years were more than 100 million euros, or approximately $127 million.

Volkswagen requires that each of its 5,500 suppliers use VWgroupsupply.com for any interactions. Suppliers place product and pricing catalogs on the system, respond to requests for quotes, and collaborate with Volkswagen engineers on new product designs, all in the safe and secure environment of Volkswagen’s proprietary B2B e-marketplace.

By requiring its suppliers to interact with Volkswagen in the e-marketplace, purchasing agents no longer have to spend valuable time searching for information and pricing. Volkswagen has, in essence, created a system that brings the necessary information to the purchasing agents. This new system within VWgroupsupply.com is called iPAD, or Internal Purchasing Agent Desk. Prior to the implement ation of iPAD, purchasing agents entering a purchase order for a vehicle front module had to use numerous separate systems to complete the process. They had to retrieve information from a supplier system and its database, query information in Volkswagen’s internal parts information system, obtain information from a request-for-quotes data-base, enter information into a contract negotiation transcript system, and interact with several other systems and databases. In all, the purchasing agent had to log into and use seven separate systems. Analysis revealed that Volkswagen purchasing agents were spending 70 percent of their time finding, retrieving, analyzing, validating, and moving information. This took away valuable time from such tasks as negotiating better prices with suppliers. Using a form of an integrated collaboration environment, or ICE, which we discussed in Chapter 2, purchasing agents now participate in a simple three-step process. First, iPAD captures and sends a business event to the purchasing agent, such as the need to order vehicle front modules. Second, iPAD attaches to that communication other necessary information such as information about potential suppliers, their costs, and other forms of analysis and descriptive information. Finally, iPAD sends the corresponding business processes and work flows to be completed electronically. It works much like a digital dashboard, which we also introduced you to in Chapter 2. When purchasing agents log onto the iPAD portal in the morning, they receive a customized Web page with announcements, business alerts, analyses, and digital workflows to be completed. The purchasing agents can set out immediately to complete the tasks for the day, without having to spend 70 percent of their time finding, retrieving, and analyzing information. iPAD even customizes the Web page according to the purchasing agent’s native language, something very necessary for a global manufacturer of automobiles with more than 2,000 purchasing agents worldwide.

Questions

1. Volkswagen operates its own proprietary B2B e-marketplace in which its suppliers participate. What are the disadvantages to Volkswagen of not using a generic B2B e-marketplace with even more suppliers? What are the advantages to Volkswagen of developing and using its own proprietary B2B e-marketplace?

Disadvantages:

➢ Volkswagen could be missing out on using a new supplier who are just started to enter into the market. The new supplier would mostly go to a generic e-marketplace and start its advertising campaign rather than using Volkswagen own proprietary B2B e-marketplaces. In such, to attract the attention of Volkswagen, the new supplier would have to go directly to Volkswagen by offline and not online.

➢ Volkswagen could out on some demand aggregation as it does not let other buyers participate in its e-marketplace.

➢ Volkswagen needs to put a lot of funds to maintain its owned B2B e-marketplaces.

Advantages: ➢ Volkswagen can determine and control how the e-marketplace will operate. ➢ Volkswagen can gather vast amounts of competitive intelligence on it suppliers. ➢ Volkswagen has greatly reduced supplier power because Volkswagen is the only buyer in its own B2B e-marketplaces

2. When Volkswagen needs a new part design, it uses VWsupplygroup.com to get its suppliers involved in the design process early. This creates a tremendous amount of interorganizational collaboration. What are the advantages to the suppliers and to Volkswagen in doing so? The suppliers could work closely with one of their biggest buyers, Volkswagen. They can be sure to develop the part exactly as what Volkswagen wants it. Besides, the suppliers could have better understanding on what Volkswagen wants and why it wants it. Furthermore, Volkswagen can work closely with the supplier and it could choose its most trusted suppliers. It can get the suppliers to design the exact product needed and it can utilize the expertise of the supplier organizations in designing a new part.

3. How is Volkswagen’s VWgroupsupply.com B2B e-marketplace an example of a vertical e-marketplace implementation? How is it an example of a horizontal e-marketplace implementation? Why is it necessary that Volkswagen combine both of these e-marketplaces into one e-marketplace? What would be the drawbacks to creating two different e-marketplaces—one for suppliers of direct materials and one for suppliers of MRO materials? Volkswagen’s e-marketplace is a vertical e-marketplace because it is only for it and suppliers in the automotive industry. Volkswagen’s e-marketplace is a horizontal e-marketplace because it also include suppliers to MRO materials that Volkswagen needs. Both of these beinge combined because Volkswagen is the only participation in this e-marketplace and needs both direct and MRO materials. By creating two different e-marketplaces, Volkswagen would be duplicating many processes and have redundant information.

4. To make effective purchasing decisions, Volkswagen’s purchasing agents need business intelligence. What kind of business intelligence does iPAD provide to purchasing agents for carrying out their tasks? What additional kinds of business intelligence not discussed in this case could Volkswagen’s purchasing agents take advantage of to make more effective decisions? IPAD provides a variety of business intelligence including the need for inventory parts, lists of potential suppliers, and the costs of the parts for each supplier. The iPAD system could include other forms of business intelligence (and it may very well) including suppliers according to their number of defective parts per million and suppliers according to how long they take to deliver their parts

5. IPAD manages the workflow for purchasing agents. Describe how iPAD manages this process including information provided, steps to be executed, and the presentation of information. IPAD provides the necessary information in the native language of the purchasing agent (which is the presentation of information through a Web browser) including the needed inventory, the list of potential suppliers, and the costs associated with each supplier. The steps in the workflow process include: 1) presenting the business event 2) providing the supporting information 3) sending the work flows electronically once they are completed.

CLOSING CASE STUDY TWO
E-BUSINESS TREND: FAR-EAST E-COMMERCE EXPLOSION

Although most parts of the world lag behind the United States in terms of technology penetration (to the public at large), some parts more readily embrace new technology advances. For example, only 22.6 percent of U.S. citizens describe using a cell phone to access the Internet as important or very important. Compare that to Western Europe (30.4 percent), Eastern Europe (53.9 percent), Asia (56.4 percent), and Latin America (63.5 percent). That should concern some of the U.S. based e-commerce leaders. Take, for example, Myspace. Myspace has 92 million registered users but only 23 percent of the U.S. 20-something group are among those 92 million. On the other hand, Cyworld, the South Korean version of Myspace, boasts only 18 million users but 90 percent of the South Korean 20-something use Cyworld. Cyworld (“cy” is Korean for “relationship”) is an interesting blend of a social networking site, blogging site, Flickr (a photo sharing Web site at www.flickr.com), and videogamelike avatars. Unlike the text-heavy bulky sites like Myspace, Facebook, Friendster, and Yahoo 360, Cyworld lets a user create an avatar called a mini-me. You can dress up the mini-me according to your mood on anyparticular day and even change hair styles. From your personal space, called a mini-room (which you can also decorate to your tastes), you can send out your mini-me to visit other people. Cyworld is free to use, just like most other social networking sites, but it generates revenue by having users pay for virtual furniture and wall art for their mini-rooms and also to accessorize themselves in their virtual mini-mes. This may seem like an odd way to generate revenue, but Cyworld generates $7.78 annually per user while Myspace generates only $2.17 annually per user. The creators of Cyworld are not content with owning the South Korean social networking market. Recently, Cyworld launched in Japan and China (where it already has 1.5 million users). Moreover, Cyworld spent almost a year “Americanizing” its site and launched it in the United States, going head-to-head with Myspace and the other popular social networking sites aimed at the 20-something group (“digital natives” and “screenagers”). Another Asian entrant into the hotly contested e-commerce space is TaoBao ( www.taobao.com), China’s main competitor to eBay. If you visit, Taobao’s Web site, it’s in Chinese but the look and feel are similar to eBay. But don’t get the idea that Taobao is copying everything that eBay is doing. On a recent trip to China, eBay CEO Meg Whitman learned that Taobao was allowing buyers and sellers to instant message through the Taobao auction system. Meg came home and declared that eBay needed to do the same. In the Chinese Consumer to Consumer auction space, eBay China holds a 29.1 percent market share. Taobao owns a remarkable 67.3 percent. If Taobao ever comes to the United States, it will give eBay a run for its money until the final gavel falls.

Questions
1. According to Porter’s Five Forces Model (from Chapter 1), how would you characterize the competitive space in which Cyworld and Myspace operate according to buyer power, supplier power, threat of substitute products or services, threat of new entrants, and rivalry among existing competitors? Pick one of Porter’s Five Forces and describe what Cyworld has undertaken to shift that force in a positive way in its direction. Porter’s Five Forces Model is a tool that helps build a business strategy when trying to be attractive amongst an overfilled industry based on five key steps: buyer power, supplier power, threat of substitute products or services, threat of new entrants, and rivalry among existing competitors. Buyer power is the consumers ability to make choices to create or buy a product. Myspace and Cyworld both allow users to customize their respective products in social networking. Cyworld is making more money per user than any United States based social networking sites, which includes Myspace and Facebook. Cyworld is not only attracting users with it’s innovative virtual reality setting, it allows users to buy cyber products to customize their personal space. Myspace allows users to make unique pages for free, based on the knowledge of coding websites. Overall Cyworld has a stronger buying power than Myspace in terms of profitable users but Myspace allows it’s users free options, which can accompany a broader range of customers. Supplier power is the consumers choices are limited on the number of companies to buy their products. Myspace and Cyworld have a high supplier power because they offer different ways of presenting their services to the customers, so they are more likely to have a larger user base for their unique product. Threat of substitute products or services is the amount of alternatives to a product or service. Both of these companies were some of the first to enter into the social networking markets and have limited competition or choices for the consumers which means their threat of substitute is low. Threat of new entrants is a competitors ability to enter into a market and the barriers it presents.

2. In our discussions of customers and their perceptions of value, we noted that customers tend to categorize products and services as either convenience or specialty. How would you characterize the products and services on Consumer to Consumer e-commerce auction sites such as Taobao and eBay—convenience, specialty, or perhaps a combination of the two? Justify your answer. Customers categorize products into two categories, convenience and specialty. Convenience products are goods in which consumers are willing to invest limited shopping efforts. Where as specialty products are goods that appeal to a narrow market of consumers depending on their uses for it. I would categorize the products that are being auction on the website to be a combination of both products because both sites allow the users to sell the goods, not the company itself. They provide a service that gives the consumer limited shopping efforts in finding the desired merchandise and offering them the ability to find goods that are attractive to a small group of buyers.

What sort of payment options does eBay provide? You may have to visit eBay’s site to learn this information. If Taobao were to enter the U.S. market, would it have to offer similar payment options? That is, are these payment options entry barriers? Is there room for innovation in the payments space? If so (and the answer is yes), describe it. eBay provides a number of secure methods when paying for a product through it’s website. eBay allows for users to pay with a number of different authorized credit card companies, as well as providing their own specialized service, PayPal. This secure service can be used for many online transactions, not just for eBay’s personal website. By offering their own online secure method of paying for products, it allows for the consumers to feel comfortable with their personal information and with the paying/receiving of a product sold through its service. They also offer an option to allow the consumer the opportunity to apply for a “90 day” delayed payment and loan system with little to no interest for the first 6 months after the 90 day period. A barrier to entering into a market is known as high start-up cost or other obstacles that prevent new competitors from easily entering into an particular industry. For example, eBay offers many services to pay for products sold through it’s website. By offering an eclectic number of services to provide payments they have created a barrier for competitors that are trying to enter the e-commerce auctioning business. Their payment methods are secure and offer a service that they created to help customers feel safe and content using their website as well as the payment service; securing the payment and the product for both the seller/buyer.

4. Privacy is an overriding concern today on the Internet. At sites like Cyworld and Myspace, some people often divulge too much information such as a full name, an address, and even a phone number. From an ethical point of view, do you believe that social networking sites have an obligation to protect users from cyber stalkers? If you believe the answer is no, justify your answer. If you believe the answer is yes, describe what steps can be undertaken to protect users. Privacy is defined as the state of being free from being observed, disturbed or public attention. Social networking sites built their business by take a users information and selling it to advertiser that in return fund their respective services. On these particular websites it is very dangerous for users who are not skilled or knowledgeable of the risk involved when divulging their personal information to these social networking sites. These sites have the obligation to protect their customers from prying or malicious information gathers by offering tools to prevent and educate the users on the risk involved when airing too much information. If the website is popular among users like Myspace and Cyworld, then the consumers will have an increased uncertainty on the security of the users personal information as well as malicious attacks to gain this valuable information. The people using this service should have the ability to know what information is being used for the advertisers that fund the operations as well as protecting users from evil-intended attacks. These sites should allow privacy controls that are simple to use and to see what information can be viewed from outside third-party sources, steps that these sites have taken to protect their customers.

5. One key to consumer retention is creating a “sticky” Web site. Review the virtual environments for both Cyworld and Myspace. Which do you think is more “sticky” and better retains consumers? What is your definition of “sticky”? Based on my research, Cyworld had a “stickier” social networking site. It is a website that users could spend hours upon hours of time creating, editing or socializing amongst the many users. The user is able to put a lot personalized stuff ranging from video games to furniture to make their personal space a place for the users to escape and keep busy. Allowing users to virtually visit other people is an amazing idea because now the consumers are able to simulate physical world hang outs without leaving the comfort of your home. On my definition, “sticky” would be any website that does not conform to the competitors and offer a unique, attention grabbing site that make consumers addicted to the contents or services. Both websites allow this to take place and create a sticky environment but Cyworld makes a different experience that is time consuming and interesting; making it strong contender in a wide-ranging competitive market.