Clean Ch 10

36) What is dynamic pricing and how is it used in e-commerce?

36 In dynamic pricing, the price of a product varies depending on the demand characteristics of the customer or the supply situation of the seller. For instance, online retailers from Amazon to Walmart change prices on many products based on time of day, demand for the product, and users' prior visits to their sites. Using big data analytics, some online firms can adjust prices at the individual level based on behavioral targeting parameters such as whether the consumer is a price haggler (who will receive a lower price offer) versus a person who accepts offered prices and does not search for lower prices. Prices can also vary by zip code, with higher prices set for poor sections of a community. Uber, along with other ride services, uses surge pricing to adjust prices of a ride based on demand (which always rises during storms and major conventions).

37) Describe the use of personalization and customization in e-commerce. What business value do these techniques have?

37 In personalization, merchants can target their marketing messages to specific individuals by adjusting the message to a person's name, interests, and past purchases. For example, Amazon.com greets each logged in user with their user name. With customization, merchants can change the delivered product or service based on a user's preferences or prior behavior. The Wall Street Journal Online allows you to select the type of news stories you want to see first and gives you the opportunity to be alerted when certain events happen. The ability of Internet technology to track customer behavior at websites, along with records of purchases and other behavior, allows merchants to create a detailed profile of a customer. These profiles can be used to create unique personalized web pages that display content or ads for products or services of special interest to each user, improving the customer's experience and creating additional value. The business value of personalization is reduced marketing costs, as you spend only the money to target customers that are more likely to be receptive and are more profitable, and improved sales results, from increased customer response to personalized sites that better serve their own purposes and shopping needs. Personalization can achieve some of the benefits of using individual salespeople for dramatically lower costs.

53) YouTube uses a form of dynamic pricing.

53-F

54) eBay is an example of the market creator business model.

54-T

55) Yahoo is an example of the portal business model.

55-T

56) Podcasting allows subscribers to listen to live, streaming radio and other audio content.

56-F

57) In the affiliate revenue model, firms derive revenue by selling information or services through partner e-commerce sites.

57-F

58) List and describe at least five different Internet business models. Which of these models do you think would be the riskiest for a startup business today? Support your answer.

58: Internet business models include: e-tailer, transaction broker, market creator, content provider, community provider, portal and service. The choice of riskiest model will depend on the individual student. A sample answer is: Today the riskiest model would be a content-provider, because most, if not all, of the major offline entertainment and content producers such as television networks and newspapers are online. They would be your competitors, and already have the means for content creation and distribution in place. All of the other business models do not have the risk of creating brand new content.

59) List and describe the three main categories of e-commerce. Which do you think is ultimately the most valuable to the individual consumer? Support your answer.

59: Business-to-consumer, business-to-business, and consumer-to-consumer. All three are valuable to the consumer, but in the long run, business-to-business may be the most valuable to the individual consumer because it will reduce prices and increase both goods and services. (Other opinions, of course, are supportable.)

60) What methods could a portal use to generate revenue? Which do you think might be most successful, and why?

60: Advertising, subscriptions, selling collected marketing information, and directing buyers to sellers could all generate revenue. Student evaluations will vary. A sample answer is: I would think the most successful method would be through collecting marketing information, because as a portal that links to large amounts of external information and attracts repeat customers, the portal would have the opportunity to gather a lot of information about each user.

61) You are consulting for Lucky's, a chain of gas stations. What types of e-commerce opportunities, if any, are relevant to Lucky's? Could Lucky's make use of any Internet business models for this opportunity?

61 Student answers will vary. A sample answer is: In terms of B2B e-commerce, Lucky's might be able to procure goods over the Internet, use a private industrial network to coordinate their supply chain with suppliers and manage inventory. Depending on the structure of the gasoline retail business, industry net marketplaces and exchanges might be of use. In terms of B2C e-commerce, there are not many opportunities, as it is inefficient to sell gasoline over the Internet. Lucky's could make sure that its stations are listed in popular location-based mobile services that help drivers find nearby gas stations.

62) List and describe the top five methods of online marketing and advertising formats, in terms of estimated 2018 revenue.

62 The top five methods of online advertising are: display ads, which are banner ads with interactive features that increasingly are behaviorally targeted to individual web activity (an estimated $46.1 billion); search engine marketing, which employs text ads targeted at precisely what the customer is looking for at the moment of shopping and purchase (an estimated $42.1 billion); video ads, which are the fastest-growing format, and use engaging, entertaining, interactive video that are also often behaviorally targeted (an estimated $14.4 billion); rich media ads, which use interactive, targeted, entertaining animations, games and/or puzzles (an estimated $11.7 billion); and online classified, such as job, real estate, and services ads (an estimated $2.1 billion).

70) Rich media advertisements are used to strengthen brands.

70-T

71) Behavioral targeting occurs at individual websites and within apps.

71-T

72) Advertising networks track a user's behavior at thousands of websites.

72-T

73) Viral marketing is like traditional word-of-mouth marketing except that it is spread via online communities.

73-T

74) Search engine marketing is the largest form of web marketing.

74-F

75) You have been hired as a marketing consultant by a law firm in Los Angeles that specializes in juvenile justice. What ways can you use the Internet as a marketing tool and to advertise the firm's services?

75 Student answers will vary. A sample answer is: For marketing research, you could advertise on search engines. You could pay for marketing research at relevant portals. You could also collect customer information from the company's website. You could monitor relevant blogs to see what issues are of concern in juvenile justice, so as to address these concerns in your advertising campaigns. To advertise, you could advertise on search engine results and at relevant portals or legal information content providers. If it were feasible, you could create a juvenile justice portal and blog for the company in order to attract users from whom you could gather market research as well as promote your services. You might also want to investigate social network marketing—assuming that your clients might be the best leads for other clients.

76) Website tracking software can log the path a customer took through the website, the time spent on the site, and what geographic area, in general, the customer is from, all of which can help in customer analysis. It can also log the customer's operating system and which browser the customer is using. How could these last two data items be of interest to a company? Give examples.

76: Student answers will vary, but should include an understanding that customer OS and browser interact technologically with a website and might be relevant in data analysis. An example is: Customer OSs and browsers could help a company determine what technical functionalities could be used in the site. For example, if it found out that a significant percentage of its users are using mobile browsers, they might want to make sure that the website is easily used by various mobile devices. Secondly, this data might be relevant in data mining or other analysis. For example, a retail clothing company might find that a significant portion of their most valued customers use an Apple operating system, and from other data analysis know that Apple users are more likely to purchase cashmere sweaters. Then the company may want to place a greater emphasis on selling the cashmere sweaters.

85) EDI standards that take advantage of network communications have yet to be fully implemented at the industry level.

85-F

86) Net marketplaces may either support contractual purchasing based on long-term relationships with designated suppliers or short-term spot purchasing.

86-T

87) Exchanges have become one of the most popular types of Net marketplace because they encourage competitive bidding that drives prices down.

87-F

88) Indirect goods are not involved firsthand in the production process.

88-T

94) Define location-based services and describe the main categories of these services. Which of the categories do you feel has the most potential in terms of e-commerce revenues, and why?

94 Location-based services are services that use GPS mapping services available on smartphones to deliver value-added services. They include geosocial services, geoadvertising, and geoinformation services. A geosocial service can tell you where your friends are meeting. Geoadvertising services can tell you where to find the nearest Italian restaurant, and geoinformation services can tell you the price of a house you are looking at, or about special exhibits at a museum you are passing. Student answers as to the most valuable of these services will vary; an example is: I feel that geoadvertising services have the most potential for profit, as it is based on a profit-making mechanism: advertising. Geosocial services and geoinformation services, by themselves, are more content- and communication-oriented.

95) What are geosocial services and how are they being used?

95 Geosocial services help you find friends, or your friends to find you, by checking in to the service, announcing your presence in a restaurant or other place. Your friends are instantly notified. About 20 percent of smartphone owners use geosocial services. One example of a firm using geosocial services is Foursquare. Foursquare provides a location-based social networking service to 50 million registered individual users, who may connect with friends, update their location, and provide reviews and tips for enjoying a location. Points are awarded for checking in at designated venues. Users choose to post their check-ins on their accounts on Twitter, Facebook, or both. Users also earn badges by checking in at locations with certain tags, for check-in frequency, or for the time of check-in.

52) As described in the opening case, what is YouTube's revenue model?

A) Advertising

40) Which of the following types of e-commerce involves businesses selling goods and services directly to individuals via the Internet?

A) B2C e-commerce

39) Craigslist is an example of:

A) C2C e-commerce.

43) Which of the following Internet business models involves a merchant creating an online digital environment that enables people with like interests to share information?

A) Community provider

91) Geoadvertising sends ads to users based on their:

A) GPS locations.

89) Which of the following is the largest mobile advertising market?

A) Google

9) Which of the following dimensions of e-commerce technology has the potential to raise the quality of information?

A) Information density

5) What standards are referred to when discussing universal standards as a unique feature of e-commerce?

A) Internet technology standards

15) Removing the business process layers in a distribution channel is called:

A) disintermediation.

47) Which of the following best illustrates the transaction fee revenue model?

A) eBay receives a small fee from a seller if a seller is successful in selling an item.

48) In the ________ revenue models, a firm offers some services for free but charges a subscription fee for premium services.

A) free/freemium

18) Compared to traditional goods, digital goods have:

A) greater pricing flexibility.

98) In planning a robust e-commerce presence, you will want to consider the blog platform as part of your ________ presence.

A) social media

20) What is the primary benefit to consumers of disintermediation?

B) Lower costs

3) A marketplace extended beyond traditional boundaries and removed from a temporal and geographic location is called a(n):

B) Marketspace

66) Which of the following marketing formats is sales-oriented, rather than branding-oriented or a mix?

B) Search engine

77) Which of the following statements about EDI is not true?

B) Today, EDI is only used for document automation.

96) Which of the following is a milestone for the Phase 1: Planning phase of developing an e-commerce presence?

B) Web mission statement

13) Information ________ exists when one party in a transaction has more information that is important for the transaction than the other party.

B) asymmetry

14) Changing the prices of products based on the level of demand characteristics of the customer is called ________ pricing.

B) dynamic

90) A new social mobile app you are developing allows users to find friends who are logged in and within a 10-mile radius. This would be categorized as a ________ service.

B) geoinformation

46) As described in the chapter case, Uber uses the ________ revenue model.

B) market creator

16) In digital markets:

B) menu costs decline.

44) Market creators:

B) provide a digital environment where buyers and sellers can establish prices for products.

42) Transaction brokers:

B) save users money and time by processing online sales transactions.

10) The effort required to locate a suitable product is called:

B) search costs.

4) When did e-commerce begin?

C) 1995

92) What percent of online retailers now have e-commerce websites?

C) 55 percent

65) Which of the following best describes the digital social graph?

C) A collection of millions of personal social graphs

41) As described in the opening case, what is the primary business model employed by YouTube?

C) Content provider

81) Which of the following statements about exchanges is not true?

C) Exchanges are the most successful form of B2B commerce.

50) Which of the following best illustrates the advertising revenue model?

C) Facebook provides a social network for free, but shows sponsored content in users' News Feeds.

69) ________ involves placing ads in social network newsfeeds or within traditional editorial content, such as a newspaper article.

C) Native advertising

67) Facebook's Like button is an example of which of the following?

C) Network notification

8) Which of the following dimensions of e-commerce technology involves the integration of video, audio, and text marketing messages into a single marketing message and consumer experience?

C) Richness

97) Which of the following is a milestone for the website development phase of building an e-commerce presence?

C) Website plan

68) An environment where consumers can share their shopping experiences with one another by viewing products, chatting, or texting about brands, products, and services is an example of:

C) collaborative shopping.

78) The process of sourcing goods and materials, negotiating with suppliers, paying for goods, and making delivery arrangements is called:

C) procurement.

11) Information density refers to the:

C) total amount and quantity of information available to all market participants.

6) All of the following are unique features of e-commerce technology, except:

C) transparency.

45) Which of the following best illustrates the sales revenue model?

D) Apple accepts micropayments for single music track downloads.

99) Which of the following is not one of four types of presence to be considered when building an e-commerce presence?

D) Corporate

38) Amazon.com is known primarily for its use of which of the following business models?

D) E-tailer

7) Which of the following dimensions of e-commerce technology involves engaging consumers in a dialogue that dynamically adjusts the experience to the individual?

D) Interactivity

51) Which of the following companies uses the subscription revenue model?

D) Netflix

21) What is the difference between personalization and customization, as applied to e-commerce technologies?

D) Personalization refers to adjusting marketing messages for a consumer; customization refers to adjusting a product or service based on a user's preferences.

1) What event marked the beginning of e-commerce?

D) The first paid advertisements placed on a website

49) Content providers use ________ systems to process large amounts of very small monetary transactions cost-effectively.

D) micropayment

79) A secure website that links a large firm to its suppliers and other key business partners is called a(n):

D) private industrial network.

19) Compared to digital goods, traditional goods have:

D) similar marketing costs.

64) Exposing an individual to ads that are chosen based on the choices of their friends is an example of:

D) social marketing.

2) All of the following are examples of "on demand" companies except

E) Instagram.

93) Which of the following is not an example of location-based services?

E) Netflix

82) Which of the following is an example of a direct good in the automobile industry?

E) Sheet steel

80) Which of the following statements about Net marketplaces is not true?

E) Some Net marketplaces are owned by a single firm and used to link solely to the firm's

83) Which of the following is an example of a private industrial network?

E) VW Group Supply

63) Ikea asked for the help of its customers in designing new furniture. This is an example of:

E) crowdsourcing.

17) Compared to digital markets, traditional markets have:

E) higher transaction costs.

12) Selling the same goods to different targeted groups at different prices is called:

E) price discrimination.

84) Procurement involves all of the following except:

E) production scheduling.

100) What are the steps involved in developing an e-commerce presence for a start-up company?

100 A one-year timeline for developing an e-commerce presence for a start-up company would involve the following: Phase 1: Planning, which involves envisioning the company's web presence and determining personnel, and producing a web mission statement; Phase 2, Website development, which involves acquiring content, developing a website design, arranging for hosting a website, and producing a website plan; Phase 3: Web implementation, which involves developing keywords and metatags, focusing on search engine optimization, identifying potential sponsors, and producing a functional website; Phase 4: Social media plan, which involves identifying appropriate social platforms and content for the company's products and services, and producing a social media plan; Phase 5, Social media implementation, which involves developing Facebook, Twitter and Pinterest presences, and results in a functioning social media presence, and Phase 6: Mobile plan, which involves developing a mobile media plan and considering options for porting the website.

22) E-commerce refers to the use of the Internet and the web to transact business.

22-T

23) Retail consumer e-commerce is growing at double-digit rates.

23-T

24) The Internet increases information asymmetry.

24-F

25) All previous mass media in modern history, including the printing press, use a broadcast model where content is created in a central location by experts.

25-T

26) Disintermediation provides major benefits to the consumer.

26-T

27) In general, for digital goods, the marginal cost of producing another unit is about zero.

27-T

28) Traditional online marketing, such as display ads, have been replaced by video ads.

28-F

29) Information asymmetry exists when there is more information about one product than there is about a similar product.

29-F

30) Cost transparency refers to the ability of consumers to discover what merchants actually pay for products.

30-T

31) Switching costs are the merchants' costs of changing prices.

31-F

32) Web personalization refers to targeting ad messages to a person's clickstream behavior.

32-T

33) What is the most profound way in which e-commerce and the Internet have changed the relationship between companies and their customers? Support your answer.

33 Student answers will vary. A sample answer is: The most profound way in which e-commerce and the Internet have changed this relationship is in the shrinking of information asymmetry. An information asymmetry exists when one party in a transaction has more information that is important for the transaction than the other party. That information helps determine their relative bargaining power. In digital markets, consumers and suppliers can "see" the prices being charged for goods, and in that sense digital markets are said to be more "transparent" than traditional markets. For example, until auto retailing sites appeared on the web, there was a pronounced information asymmetry between auto dealers and customers. Only the auto dealers knew the manufacturers' prices, and it was difficult for consumers to shop around for the best price. Auto dealers' profit margins depended on this asymmetry of information. Today's consumers have access to a legion of websites providing competitive pricing information, and three-fourths of U.S. auto buyers use the Internet to shop around for the best deal. Thus, the web has reduced the information asymmetry surrounding an auto purchase. The Internet has also helped businesses seeking to purchase from other businesses reduce information asymmetries and locate better prices and terms.

34) "Knowledge increases exponentially" is a phrase with which we are all familiar. How does this concept apply to the emergence of the digital firm? Support your contentions.

34 Student answers will vary. A sample answer is: The exponential increases of knowledge refer to shared information. For example, once the concept of a wheel is established, inheritors of that knowledge do not have to "reinvent the wheel." The Internet is a tool similar to the wheel: it is based on shared standards and universal tools. The Internet and shared networking technologies are allowing new techniques for attracting customers and selling customers to be developed and adapted very quickly. For example, although early Internet retailers had difficulty setting up secure credit card transactions and payment systems, today there are many systems in place as vendors step in to create shared tools for doing this. The Internet is fostering shared knowledge and, as such, propagating ever greater increases in that knowledge.

35) What are digital goods, and how does the Internet impact the market for digital goods?

35 Digital goods are goods that can be delivered over a digital network. Music tracks, video, Hollywood movies, software, newspapers, magazines, and books can all be expressed, stored, delivered, and sold as purely digital products. For the most part, digital goods are intellectual property, which is defined as "works of the mind." Intellectual property is protected from misappropriation by copyright, patent, and trade secret laws. Today, all these products are delivered as digital streams or downloads while their physical counterparts decline in sales. The impact of the Internet on the market for digital goods is nothing short of revolutionary. Businesses dependent on physical products for sales—such as bookstores, music stores, book publishers, music labels, and film studios—face the possibility of declining sales and even destruction of their businesses. In general, for digital goods, the marginal cost of producing another unit is about zero (it costs nothing to make a copy of a digital file such as a music file). However, the cost of producing the original first unit is relatively high—in fact, it is nearly the total cost of the product because there are few other costs of inventory and distribution. Costs of delivery over the Internet are very low, inventory costs are low, marketing costs often remain the same, and pricing can be highly variable. On the Internet, the merchant can change prices as often as desired because of low menu costs.