E-Commerce Business Model - Assignment Example

E-Commerce Business Model Table of Contents Introduction 3 Difference between B2C and B2B 4 Task Analysis 4 Research with a Potential 5 Analysis of User Requirements 5 Analysis of E-Commerce Business Model 9 Timmer’s 8 Key Elements 10 Recommendations for E-procurement and E-marketing 13 Conclusion 16 References 17 Introduction The report is based on an analysis of business of an e-commerce website named ‘SportsDirect’. It was established in 1982 in Maidenhead, United Kingdom. At present, the e-commerce organisation has above 470 retail stores internationally. The organisation deals in different sports products such as sport boots and shoes, sports kits, sport equipment and fitness clothing among others. SportsDirect sales different kinds of famous sports brands such as Reebok, Nike, Dunlop and Adidas among others. With numerous well-known sports brands, SporstDirect can easily attract attention of a wide range of internet users. The main objective of the e-commerce organisation is to attract online customers and to increase the sales (SportsDirect, 2013). The following image will show screen-print of SportsDirect: Source: (SportsDirect, 2013) Difference between B2C and B2B SportsDirect follows Business-to-Consumer (B2C) business model. There are significant differences between Business-to-Business (B2B) and Business-to-Consumer (B2C) customers. Concerning B2C customers, it involves business transactions between organisations and customers. The basic concept behind this business model is that e-retailers can sell the products to the customers through various tools such as internet shops or telemarketing. On the other hand, in B2B business model, both purchasers and sellers are business organisations. The purchasing procedure in B2C and B2B is also dissimilar. In B2C, the purchasing method is simple where customers use their credit or debit cards along with providing other necessary information in order to make a sale. Conversely, in B2B business model, the payment can be done through invoice, especially for bulk purchases (Barkley & et. al., 2007). Task Analysis There is substantially more stake in sales opportunities in B2B websites in comparison to B2C websites. However, it can be observed that several B2B websites had faced bad customer experiences than B2C websites. Majority of B2B websites focus on designing websites for themselves rather than for the suitability of customers. Thus, this attitude creates a hindrance in the way of potential customers who use internet in order to discover organisations which can satisfy their requirements. However, it is worth mentioning that internet had significantly altered the relationship between organisations and customers where majority of interactions are demand oriented (BusinessWire, 2006). Research with a Potential Customer The quick development of collaborative internet services has resulted in a continually increasing number of e-commerce websites. With the increase in e-commerce functionality, the usage of web applications has become more complex than before. Thus, in order to fulfil the business objectives, e-commerce organisations must address and satisfy the requirements of customers. With respect to SportsDirect, the potential customers would be those who are engaged in sporting activities and are interested in purchasing products from sports brands (Schwarz & et. al., 2012). Analysis of User Requirements The requirements of potential customers from e-commerce website are as follows: Trustworthiness The most vital requirement of potential customers of e-commerce is trustworthiness. Every customer wants to develop dependable relationship with an e-commerce organisation in order to make purchase. Customers’ desire that their purchasing information along with other financial information are treated in a confidential and decent manner and are not abused. Furthermore, customers also require that they receive quality products from the supplier (Andersen & et. al., 2001). E-commerce organisations regularly offer several opportunities to the customers in order to enhance their sales. However, providing offers require obtaining information from customers regarding their desires and individual preferences. In this context, it can be stated that usually customers are unenthusiastic about providing personal information as they fear that those information can be shared to other organisations and they can get enormous amount of junk e-mails from both the particular e-commerce website and from other organisations. Furthermore, several customers generally feel in doubt about providing the credit or debit card information. This uncertainty can increase if the owner of e-commerce website is unclear or if the details about product figures are unavailable. Thus, appropriate management of customer information and maintenance of confidentiality are paramount requirements for potential customers of e-commerce organisations. Therefore, it is particularly important for the e-commerce organisation to precisely specify the purpose for asking about particular information and also to avoid querying unimportant information in order to gain trust. Besides, customers must not be excluded if they decline to interpret certain demanded information, rather, on the basis of available information about a customer, the e-commerce organisation should make the best possible profile (Andersen & et. al., 2001). The other important issue with respect to trustworthiness of an e-commerce website is specification of rights of customers about delivery of products, return of products and payment for purchase. Hence, if possible, a form of assurance from an authorized organisation can be beneficial for an e-commerce organisation in order to obtain trust from potential customers. Likewise, every transaction must be followed by complete description by outlining the order comprising the approximate delivery time. For ensuring trustworthiness, it is vital for customers to feel that their requirements are supported. Lastly, a clearly specified prospect to interact with a person or to get definite response to any enquiry within a specific time boundary is also of extreme importance for an e-commerce organisation to gain trust from customers (Andersen & et. al., 2001). Quality The quality of the product purchased is another vital requirement for a customer. E-commerce customers always select products on the basis of best value. With respect to quality of a product, the most influencing aspect for making purchase decision for e-commerce customers are merchandising, product worth and customisation (Schaupp & et. al., 2005). Merchandising in this context is defined as the aspect which is related with sales offerings. Customers are usually attracted by the extensiveness of e-commerce retail stores, but are at times disappointed with the low extent of product offerings. Thus, e-commerce organisations which offer a variety of products can usually attract more customers. Furthermore, customers also require getting those products from e-commerce which are difficult to acquire from traditional marketing networks. Customers expect e-commerce websites to provide a wide range of products because internet has a potentiality to find the specific products which are desired by customers. Hence, superior product portfolio can lead to positive perceptions of customers regarding a specific e-commerce website. The features customers’ desire from product qualities are broad product assortment, exclusive and speciality products and periodic products (Teece, 2010). With respect to product worth, reducing the product cost and increasing the product quality are major aspects desired by most of the customers of e-commerce. Product cost in this sense includes actual price of a product along with taxes, shipping charges and internet expenses. On the other hand, product quality is an intrinsic requirement of every customer. Customers of e-commerce expect standard quality products of known brands. The features of product quality which are evaluated by most of the customers in e-commerce are post purchase experience, perceived product quality and complete product cost (Schaupp & et. al., 2005). The other important aspect of product quality in e-commerce is product customisation. Product customisation is the capability of an organisation to modify a product on the basis of individual preferences. Customisation is extremely beneficial for organisations engaging in e-commerce. Since, tastes and choices of every customer are different, higher level of customisation is required by them (Schaupp & et. al., 2005). Shopping Facilities Shopping facilities are also important requirements for every e-commerce customer. The shopping experiences of customers comprise convenience, honesty and delivery time among other factors. With respect to convenience, it signifies the complete procedure of finding a product, time consumed on purchasing, after-sales service, comprehensive customer record and minimisation of general shopping effort. The aspect of convenience is a vital factor for customers and thus, it determines the selection of e-commerce websites in order to purchase any product. Thus, e-commerce websites must be designed in such a way so that it can help customers to minimise time on locating merchants, finding appropriate products and searching product offerings. Higher level of convenience attracts customers to purchase repeatedly (Schaupp & et. al., 2005). Honesty, on the other hand, is the perception of confidence on an organisation’s dependability and truthfulness. Honesty is the other vital shopping aspect which is required by every customer. The purchasing decision of customers is dependent on faith in the product and the organisation. The honesty of an e-commerce organisation is reflected on the capability to manage sales transactions and upon the knowledge to conduct business activities over the internet (Schaupp & et. al., 2005). The other vital requirement of customer with respect to shopping facility is delivery time. Delivery time denotes the total time taken from order placement to delivery of product. The entire delivery procedure comprises dispatching, transporting and distributing. Therefore, in order to provide quality shopping experience, e-commerce organisations must inform to the customers about possible delays in order to reduce disappointments when the delivery time is not satisfied (Schaupp & et. al., 2005). Analysis of E-Commerce Business Model There are essentially eleven business models which are usually used in e-commerce. The following figure will show the different business models used in e-commerce: Source: (Timmers, 1998) The above figure describes an e-commerce business model on the basis of two dimensions which are degree of innovation and degree of incorporation of functions. Thus, considering these two dimensions, it can be stated that e-shops are a traditional method of conducting business activities where organisations only engage in selling activities. On the other hand, value chain integration is the modern way of conducting business which is essentially based on effectiveness of information technology (IT). Thus, this business model can effectively add value by incorporating different functions. With respect to SportsDirect, it can be stated that the organisation use e-shop business model. SportsDirect promotes the products in the websites in order to make sales. The ordering and paying activities are combined with traditional marketing channels. Advantages pursued by SportsDirect are to raise the demand of products, search for inexpensive routes, increase the international presence and provide promotion to enhance sales. Similar to traditional business models, SportsDirect attempts to provide benefits to the customers by offering products with discounts, by providing wider product selection opportunity, by providing better product information, and by increasing the convenience of shopping while making product selection, product purchasing and product delivery. In summary, SportsDirect is engaged in one-to-one marketing. The sales revenue for SportsDirect is dependent on reduction of expenses, increase of sales and level of advertisement (SportsDirect, 2013). Timmer’s 8 Key Elements According to Timmer, there are eight key elements which must be addressed by an e-commerce organisation in order to succeed. The following figure will show the eight major elements of an e-commerce business model: Source: (Laudon & Traver, 2009) The report will describe two vital elements, namely revenue model and competitive environment Revenue Model Revenue model describes how an organisation can earn revenue, generate profit and generate higher return on invested capital. It is the objective of SportsDirect to earn significant amount of revenue and generate return on invested capital. For any business, only earning profits is not enough to become successful, rather, there is a need for producing returns that can surpass the investment amount. In e-commerce, there are several revenue models that can be followed by organisations such as advertisement revenue model, contribution revenue model, transaction fee revenue model, sales revenue model and member revenue model. With respect to SportsDirect, it can be specified that it follows the sales revenue model. SportsDirect derives most of the revenue by selling products to the customers (Laudon & Traver, 2009). Competitive Environment An organisation’s competitive environment takes into concern other organisations which also deal in similar kinds of products and services within same marketplace. Competitive environment refers to the existence of substitute products and possibility of new entrants in the market along with the bargaining power of suppliers and customers. The competitive environment of SportsDirect is influenced by several aspects such as number of active competitors, extent of business operations of competitors, market share of competitors and pricing of competitors (Laudon & Traver, 2009). SportsDirect typically faces two types of competition in the e-commerce market, which are direct competition and indirect competition. Direct competition arrives from other organisations which also deal in sports products in the similar market segment of SportsDirect such as Puma, Dick’s Sporting Goods, Callaway and Converse among others. On the other hand, indirect competitors are organisations which might perform in different market segment, but still compete indirectly with SportsDirect such as traditional retail stores which also deal in sports products (Laudon & Traver, 2009). Recommendations for E-procurement and E-marketing E-procurement is considered as a significant business model of e-commerce. Unlike e-shop model, e-procurement model deals in B2B customers. In e-procurement, organisations create the application of a business proposal, provide tender for products and purchase products from merchants. E-procurement websites are usually developed for serving in niche market segment or in a specific industry. Incorporating e-procurement business model within the existing e-shop model can provide several advantages to SportsDirect and its customers. For the customers, e-procurement can result in reduction of transaction expenses, rapid ordering of products, greater selection of suppliers and lower dissident purchasing. For SportsDirect, e-procurement can result in growth of sales, reduction of business operational expenses and development of performance (Neef, 2001). However, before SportsDirect rushes into a complete incorporation of e-procurement model, there is a need to consider whether the products are easily replaced by the substitutes. Since SportsDirect does not require very specific products e-procurement might work effectively with the existing e-commerce system. The other important aspect which needs to be considered by SportsDirect is level of competition between suppliers. Since, there are several suppliers from which SportsDirect obtains the products, creation of e-procurement network would be beneficial for the organisation to acquire the best products with appropriate cost. E-procurement must cover the following aspects such as internet ordering, electronic payment, e-marketing, and internationalisation among others. However, e-procurement strategies are not restricted to these aspects only (Woodward, n.d.). E-commerce provides different management tools which can influence customer interaction and enable the organisation to develop a successful website. It is recommended that in order to improve marketing strategies, SportsDirect must develop relevant, tailored and multi-stage marketing campaigns to attract potential customers. Furthermore, SportsDirect must be able to evaluate the effectiveness of the campaigns by viewing the number of site visits, page views and purchasing activities of customers (Oracle, 2011). There are several ways, through which SportsDirect can enhance the e-marketing experience and enlarge the internet business such as development of website design, creation of great website contents, and customisation of designs through mobile devices along with increasing its concentration on inbound marketing activities and most importantly optimisation of search engines. As most of the internet users depend on search engines in order to find appropriate products or services, search engine optimisation can help to increase the prominence of the e-commerce website for certain keyword phrases. The following are the recommendations which can help SportsDirect to enhance the e-procurement and e-marketing activities: Internet Ordering: SportsDirect can improve online ordering facilities by introducing immediate payment via ‘Purchase Card’. Purchase card can allow customers to enjoy low expenses with high volume of purchase. It is recommended that in order to develop internet ordering, SportsDirect can review the different areas of expenditure which can be reduced (Broxtowe Borough Council, 2007). Electronic Payment: In order to improve electronic payment system, SportsDirect needs to enhance the security measures which can effectively generate trust among the customers to provide valuable information. It is therefore recommended that SportsDirect can take several security measures according to the internet payment services. It will assist in mitigating different risks of internet payments such as hacking or identification theft. SportsDirect can take measures such as implementation of multiple layers of security in electronic payment system which can help to strengthen the defence of the organisation’s internet payment system (European Central Bank, 2012). Internationalisation: E-commerce permits SportsDirect to reach the international customers by website presence and hence to accelerate the marketing activities. However, in order to expand the international marketing activities, SportsDirect will require considering several aspects such as shopping preferences of customers in different nations, preferences of customers regarding website design and other technological concerns. The shopping preferences of customers vary according to the cultural aspects and economic infrastructure. Hence, internationalisation of SportsDirect will require better research on different preferences of customers with respect to online shopping. On the basis of research, the website features must be developed in such a way so that it can enhance the navigation speed, provide required information about product offerings, ensure minimisation of information gathering in the time of purchase, provide appropriate classification regarding the brand, introduce effective shopping cart by implementing useful information about purchases and amount and provide pictures or graphics when needed. These aspects will not only help to enhance the website hosting experience of customers but also can generate trust among international customers with different beliefs and considerations (Hwang & et. al., 2006). Conclusion The use of e-commerce is an integral part of business of SportsDirect. The organisation concentrates on its strength of internal IT procedure and the incorporation of all operational systems to ensure effective online purchasing environment. When conducting e-commerce activities, the focus of any organisation should be on developing the product portfolios and entire operational procedures i.e. from ordering of products to delivery of products. The e-commerce business environment is changing which compels SportsDirect to take effective measures to enhance the procuring, ordering, marketing and payment procedures. Finally, in all kinds of business, it is essential for an organisation to consider the requirements of customers. Addressing the requirements of customers from e-commerce websites can allow SportsDirect to develop appropriate strategies and build strong brand image in the minds of the potential customers. References Andersen, H. H. K. & et. al., 2001. Establishing Criteria for Evaluating Intelligent Agents in E-Commerce Establishing Criteria for Evaluating Intelligent Agents in E-Commerce. Risø National Laboratory. 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The Royal Borough of Kensington and Chelsea E – Procurement Strategy Implementation Plan. Strategic Procurement Unit. [Online] Available at: http://www.rbkc.gov.uk/pdf/E-procurement%20strategy%20plan.pdf [Accessed January 06, 2013]. Read More