DIAMONDS FOREVER—ONLINE the Gem Market Is a Global One, with Hundreds of Thousands Online Competitors (Such As Tiffany’S at Tiffany.Com)
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Chapter Two: E-Marketplaces: Structures and Mechanisms 1 ONLINE FILE W2.1 DIAMONDS FOREVER—ONLINE The gem market is a global one, with hundreds of thousands online competitors (such as Tiffany’s at tiffany.com). of traders buying about $50 billion in gems each year. The Kogen makes only 20 to 25 percent profit, about half the age-old business is very inefficient: Several layers of inter- profit that other gem dealers make. Unsatisfied customers mediaries can jack up the price of a gem 1,000 percent can return merchandise within 30 days, no questions between its wholesale and final retail price. asked. The company uses both e-procurement and Chanthaburi (Thailand) is one of the world’s leading traditional methods to buy the least expensive gems from centers for processing gems. That is where an American, 60 different countries. Delivery to any place in the world Don Kogen, landed at the age of 15 to search for his is made via FedEx, at about $15 per shipment. To make fortune. He found it in about 10 years. After failing to his business even more competitive, Kogen is trying to become a gem cutter, Kogen moved into gem sorting, and reduce Thaigem’s huge gems inventory, which in 2002 soon he learned to speak Thai. For 3 years, he observed he turned over once in a year (his goal is to reduce it to how gem traders haggled over stones, and then he decided 6 months). to try the business himself. He started by purchasing Thaigem’s name is trusted by over 68,000 potential low-grade gems from sellers who arrived early in the customers worldwide. Kogen himself enjoys a solid morning and then selling them for a small profit to reputation on the Web. For example, he uses eBay to dealers from India and Pakistan who arrived late in the auction gems as an additional selling channel. Customers’ day. This quick turnover of inventory helped him build comments on eBay are 99 percent positive. By 2004, up his capital resources. Thaigem had become the EC arm of Thaigem Global Using advertising, he reached the U.S. gem market Marketing Ltd. and its sister company, NCS group and soon had 800 potential overseas customers. Using (a gemstone wholesaler). Thaigem sells both B2B and faxes, he shortened the order time, which resulted in B2C on the Web. decreasing the entire time from order to delivery. These various business methods enabled Kogen to grow his mail- order business to $250,000 a year by 1997. Questions In 1998, Kogen decided to use the Internet. Within a 1. Describe Thaigem’s B2B and B2C business models, month, he established a Web site (thaigem.com) and sold including its revenue model. How are logistics his first gem online. By 2001, the revenue from his online and payments organized? (Visit thaigem.com for business reached $4.3 million, and it more than doubled (to details.) $9.8 million) in 2002. Online sales account for 85 percent 2. During the 2000–2002 shakeout of dot-coms, of revenues. The buyers are mostly dealers or retailers such Thaigem prospered. Why do you think it was not as Wal-Mart or QVC, although he also sells to small buyers. affected by the dot-com downturn? Kogen buys raw or refined gems from all over the world, some online, trying to cater to the demands of his 3. Of the $45 billion annual sales in the gem industry, customers. Payments are made safely, securely, and only about 3 percent are done online. Do you think conveniently using PayPal (paypal.com). that selling gems online will grow to more than Thaigem’s competitive edge is its low prices. The 3 percent? Why or why not? proximity to gem-processing factories and low-cost labor 4. Go to bluenile.com and diamonds.com. Compare them enables Kogen to offer prices significantly lower than his with thaigem.com. How do they differ? REFERENCES FOR ONLINE FILE W2.1 eBay. stores.ebay.com (accessed January 2008). Thaigem.com. thaigem.com (accessed January 2008). Meredith, R. “From Rocks to Riches.” Forbes Magazine, August 8, 2002. 2 Part 1: Introduction to E-Commerce and E-Marketplaces Online File W2.2 Examples of Digital Products 1. Information and entertainment products: ◗ Paper-based documents: Books, newspapers, magazine journals, store coupons, marketing brochures, newsletters, research papers, and training materials ◗ Product information: Product specifications, catalogs, user manuals, and sales training manuals ◗ Graphics: Photographs, postcards, calendars, maps, posters, and X-rays ◗ Audio: Music recordings, speeches, and lectures ◗ Video: Movies, television programs, and video clips ◗ Software: Programs, games, and development tools 2. Symbols, tokens, and concepts: ◗ Tickets and reservations: Airlines, hotels, concerts, sports events, and transportation ◗ Financial instruments: Checks, electronic currencies, credit cards, securities, and letters of credit 3. Processes and services: ◗ Government services: Forms, benefits, welfare payments, and licenses ◗ Electronic messaging: Letters, faxes, and telephone calls ◗ Business-value-creation processes: Ordering, bookkeeping, inventorying, and contracting ◗ Auctions, bidding, and bartering ◗ Remote education, telemedicine, and other interactive services ◗ Cybercafes, interactive entertainment, and virtual communities Chapter Two: E-Marketplaces: Structures and Mechanisms 3 ONLINE FILE W2.3 HOW RAFFLES HOTEL IS CONDUCTING E-COMMERCE The Problem inventory. A direct-to-consumer model provides long-term Raffles Hotel, one of Singapore’s colonial-era landmarks, competitive advantages. It decreases dependence on is part of a worldwide group of luxury and business hotels. intermediaries, discounters, and traditional channels that Raffles Hotel operates in a very competitive environment. are slowly becoming obsolete. To maintain its world-renowned reputation, the hotel The Web site has recently been updated with spares no effort on every facet of its operation. The success improved booking functionalities and new interactive of the group and each of its hotels depends on the group’s features. The site includes information in multiple ability to attract customers to its hotels and facilities and languages to leverage the fast-growing Internet booking on its ability to contain costs. The group also operates the trends in some of the company’s key markets. Swissôtel brand of hotels worldwide. Both the Raffles and Swissôtel brands share a reservation system. The Results The Solution Increased bookings through Raffles’ proprietary Web sites To maintain its image and contain costs, Raffles must resulted in a strong growth of 77 percent in rooms revenue address two types of issues—B2C and B2B. On the B2C from this channel, exceeding both 2004’s strong growth of side, Raffles maintains a diversified corporate portal, 64 percent and the industry-wide 2004 Internet growth raffles.com, that introduces customers to the company and rate of 32 percent (as reported by TravelCLICK in its 2004 its services. The portal includes information on the hotels, eTRAK report). a reservation system, links to travelers’ resources, a CRM In 2005, the global portal community consists of program, and an online store for Raffles products. The Web over 5,900 organizations. Annually, more than 470,000 site capitalizes on the underlying qualities of the luxurious purchase order transactions worth over $200 million are Raffles hotel product to communicate to the online accrued. Forty-two active buying organizations including audience. It has a clearly defined and well-constructed hotels, offices, and retailers from around the world navigation that integrates the brand-level site with the provide more than $1 million in savings. The portal individual hotel Web sites. also generates regular reports for buyers, showing savings The Web site uses an architecture with logical and gained from this competitive pricing model. Buyers and consistent navigational tiers, which has proven to be a sellers garner improvements by using technology to highly successful approach. Based on the individual hotel increase productivity per human capital, linking to strategy, product mix, and target audience, the Web site supply chain solutions through the Internet, increasing navigation reflects the multitiered navigation structure. inventory management, procurement operations, and Each tier represents an order of authority that helps lay B2B collaboration in a knowledge-based environment. out the organization of the Web site. The tiered structure The hotel was purchased in 2006 by an investment group moves users comfortably and easily toward a set of that has made it the second-largest luxury hotel chain services, including the reservation process. This helps to in the world. focus on incremental reservations growth and dynamic content management. Questions The Web site has an integrated online reservation system that provides bookers with instant online booking 1. Identify the e-marketplaces in this case. facility. One section of the site, Raffles Direct, is designed 2. List all the EC mechanisms used by Raffles and how to provide the corporate market with a user-friendly tool they are used. to book with their negotiated rates online. The strategic 3. What other EC mechanisms would you recommend to focus of using the Internet as a key driver for distribution Raffles? is based on it being the ultimate direct-to-consumer distribution medium. It conforms to the lowest cost 4. List the EC business models used by the company. and most inexpensive method to distribute hotel room 5. List the type of transactions conducted by Raffles. 4 Part 1: Introduction to E-Commerce and E-Marketplaces REFERENCES FOR ONLINE FILE W2.3 Raffles.com. raffles.com (accessed January 2008). PR2005_1st/Jan05_eTRAK.html (accessed January TravelCLICK. “Major Hotel Chains Grew Internet 2008). Reservations by 24 percent 2004 YTD.” Hotelonline. Wikipedia. “Raffles Hotel.” 2007. en.wikipedia.org/ com, January 24, 2005. hotel-online.com /News/ wiki/Raffles_Hotel (accessed January 2008). ONLINE FILE W2.4 NTE EVENS THE LOAD The hauling industry is not very efficient. Although trucks buyers and sellers who could connect through it.