Electronic Commerce: The Strategic Perspective Electronic Commerce: The Strategic Perspective Richard T. Watson, Pierre Berthon, Leyland F. Pitt, George M. Zinkhan This book has been released under a Creative Commons Attribution 3.0 License Contents Preface v Richard Watson Book Outline vii 1. An Introduction 1 Richard T. Watson (University of Georgia, USA) 2. Electronic commerce technology 10 Richard T. Watson (University of Georgia, USA) 3. Web strategy: Attracting and retaining visitors 25 Richard T. Watson (University of Georgia, USA) 4. Promotion: Integrated Web communications 38 George Zinkhan (University of Georgia, USA) 5. Promotion and purchase: Measuring effectiveness 45 Pierre Berthon (Bentley College, USA) 6. Distribution 55 Leyland F. Pitt (Simon Fraser University, Canada) 7. Service 66 Leyland F. Pitt (Simon Fraser University, Canada) 8. Pricing 75 Leyland F. Pitt (Simon Fraser University, Canada) 9. Post-Modernism and the Web: Societal effects 86 Pierre Berthon (Bentley College, USA) iv Preface Richard Watson Electronic edition When the print edition became out-of-print, we applied for the return of copyright and released the book in this electronic format. We removed the more dated material, such as boxed insert examples of the use of the Internet, but otherwise essentially left the book as is because we believe the fundamental ideas are still relevant. We seek the support of the adopting community to refresh this book. If you have some suggestions for revision, then please contact the chapter editor. Print edition Since 1995, the four of us have had a very active program of research on electronic commerce. We have published more than 20 refereed articles on this topic and have collectively given dozens of seminars on electronic commerce in more than 20 countries for a wide range of corporations and universities. We have tested and refined our ideas by working with corporations to develop electronic commerce strategies. The focus of our work has been to address fundamental issues that are common to many business practitioners. Thus, we have frequently emphasized the strategic elements of electronic commerce. In particular, we have explored the impact that Internet technology has on marketing strategy and practice. We have reflected on the feedback provided by many who have attended our seminars, workshops, and classes, and commented on our publications. As a result, we have refined and honed our thinking, and this book represents the culmination of these efforts. This book reports the results of our research. It is written both for practitioners and business students. Managers wishing to understand how electronic commerce is revolutionizing business will find that our comprehensive coverage of essential business issues (e.g., pricing and distribution) answers many of their questions. Advanced business students (junior, seniors, and graduate students) will find that the blend of academic structure and practical examples provides an engaging formula for learning. The book’s title reflects some key themes that we develop. First, we are primarily concerned with electronic commerce, which we define as using technology (e.g., the Internet) to communicate or transact with stakeholders (e.g., customers). Second, we discuss how organizations must change in order to take advantage of electronic commerce opportunities. In this sense, our book offers the strategic perspective (i.e., the best way to operate a successful business in the 21st century). Third, with the growing importance of the Internet and related technologies, organizations must take electronic commerce into account when they are creating strategic plans. Thus, electronic commerce is a strategic perspective that all firms must adopt, both in the present and in the future. In other words, an organization that does not explicitly consider electronic commerce as a strategic imperative is probably making a crucial error. Here, we focus primarily on the opportunities and tactics that can lead to success in the electronic marketplace. v vi • ELECTRONIC COMMERCE: THE STRATEGIC PERSPECTIVE We live in exciting times. It is a rare event for an economy to move from one form to another. We are participating in the transition from the industrial to the information age. We all have an opportunity to participate in this historic event. The extent to which you partake in this revolution is determined, in part, by your desire to facilitate change and your understanding of how the new economy operates. We hope this book inspires you to become an electronic commerce change agent and also provides the wherewithal to understand what can be changed and how it can be changed. Book Outline This book contains eight chapters. Chapter One introduces the key themes for the book. Chapter Two briefly describes the technology that makes electronic commerce possible, while Chapter Three introduces the topic of Web strategy. The major functions of marketing are described in the next five chapters: Promotion (Chapter Four); Promotion and Purchase (Chapter Five); Distribution (Chapter Six); Service (Chapter Seven); and Pricing (Chapter Eight). The final chapter takes a broader, societal perspective and discusses the influence of electronic commerce on society. More details about each chapter are provided in the following sections. Chapter One: Introduction Chapter One introduces the key themes covered in this book. Chapter Two: The technology of electronic commerce Chapter Two deals with the technology that underlies electronic commerce. Specifically, we discuss the methods that computers use to communicate with each other. We compare and contrast: • the Internet (which is global in nature and has the potential to communicate with multiple stakeholder groups); • the intranet (which focuses on internal communications within the organization–such as communication with employees); • the extranet (which concentrates on exchanges with a specific business partner). At present, the majority of electronic commerce concerns business-to-business relationships and is strongly linked to this last category (the extranet, where organizations can conduct exchanges with other channel members). Chapter Two also introduces the security issues associated with electronic commerce. Security is important both for organizations and for consumers. As the Internet is used to facilitate exchanges, it has the potential to create new forms of money (e.g., electronic money). When the Spanish conquistadors discovered the gold mines of the New World and transported that gold (and silver) back to their home country, the amount of currency in Europe expanded dramatically. The result was an economic boom across all of Western Europe. Similar periods of economic prosperity followed the expansion of the money supply that resulted from the popularization of checks and, later, credit cards. As new forms of money are created in cyberspace, a similar phenomenon may transpire. That is, the expanding money supply (through the acceptance of digital money) is another reason that electronic commerce has the potential to transform the modern economy in a way that benefits both consumers and business owners. Chapter Three: Web strategy This chapter introduces elements of electronic strategy. In particular, we describe business practices that evolve because of the way that the Web changes the nature of communication between firms and customers. We describe attractors , which firms use to draw visitors to their Web site, including sponsorship, the customer service center, and the town hall. We discuss different attractor strategies that are appropriate, depending upon what material an organization wants to put on the Web. We describe the strategies behind various services that organizations can provide in cyberspace. vii viii • ELECTRONIC COMMERCE: THE STRATEGIC PERSPECTIVE Chapter Four: Promotion This is the first of a series of five chapters that discuss the four major functions of marketing: promotion, price, distribution, and product (service). As the Web is a new communications medium, we devote two chapters to promotion. In Chapter Four, we introduce a model for thinking about communication strategy in cyberspace: the Integrated Internet Marketing model. Chapter Five: Promotion and purchase Chapter Five describes new methods for measuring communication effectiveness in cyberspace. Specifically, we discuss the Internet as a new medium, in contrast to broadcasting and publishing. Currently, Web users perceive this medium to be similar to a magazine, perhaps because 85 percent of Web content is text. Other capabilities of the Web (e.g., sound) are not extensively used at this point. In Chapter Five, we present several metaphors for thinking about what the Web can be, including the electronic trade show and the virtual flea market. We link the buying phases to Web functions and capabilities (such as identifying and qualifying prospects). Measurement is a key theme in the chapter, so we describe the role of the Web in the marketing communications mix and introduce several formulas for measuring the success of Internet communications. Measurement of advertising effectiveness is a long-standing issue in marketing research. In some ways, this issue of communications effectiveness is almost impossible to answer. First, it is very difficult to isolate the effects of communication, independent from other important effects (such as changes in demand, price changes, distribution changes, or fluctuations in the economic environment). Second,