E-Commerce on Business Strategy Term Paper

Pages: 16 (4512 words)  ·  Bibliography Sources: 1+  ·  Level: College Senior  ·  Topic: Business

SAMPLE EXCERPT:

[. . .] The 21st century began with a dot-com bust as opposed to the dot-com boom of the late 1990s. It is estimated that 520 e-commerce businesses either stopped operating or declared bankruptcy in the years between 1999 and 2001. These closures and bankruptcies resulted in the layoffs of almost 100,000 employees, according to Fortune Magazine. Eventually, a number of e-commerce sites started to report profits in 2001 and 2002. Among these e-commerce sites were Amazon.com, Inc., headquartered in Seattle, Washington, which established many of the tools and strategies that are now routine in online retailing, and Expedia, an online travel site.. (Electronic Commerce," 2002)

Delighting customers is the clear determinant of e-business success or failure. Online shoppers want their lives to be made simpler with the offline world as their benchmark," said Chris Zook, who Heads Bain & Company's E-Commerce Practice. "For the most part, their needs are fairly simple: good secure service, fair pricing and timely fulfillment. The few companies that succeed in these areas have significant competitive advantages over their competitors and a business model that, in the long run, is best positioned for long-term success." (Pastore, 2000)

ActivMedia Research's study of e-commerce and profitability identifies four basic online strategies. The first of these strategies is the Niche Defense by Customer Satisfaction, which is a solid, long-term survival strategy. Many of the established offline companies that have a well developed, thriving offline presence usually adopt it. Growth Through Positive Cash Flow is the second strategy, which is undertaken by larger-sized companies for whom the Internet portion of business is a fairly small investment. Investment in Online Growth describes the strategy usually used by a young, financially healthy company that is faced with fierce competition.

Typically websites that are active have many transactions, a range of products and many visitors who frequently make multiple purchases annually. Aggressive Site Promotion businesses that utilize this strategy tend to lose sight of important corridors to success. In particular, these firms do not focus on developing a unique position, and instead make themselves vulnerable to competitors with superior and more differentiable products.

In white papers produced by Ernest & Young, Mark Doll describes the Internet as a dynamic, close-to-perfect information market in which competitors are only 'one click away'. For many retailers e-commerce can be an intimidating environment and an overwhelming challenge. While others, see the potential to dominate a new marketplace and establish themselves as a leader in an untouched customer base. Mark describes this as an intoxicating feeling. "Ernest & Young's e-tailing approach overcomes barriers toward making your online commerce goals a reality."

Ernst & Young LLP Releases e-Commerce White Paper in Conjunction with Real Strategies for Online Retail," 1999)

Business-to-business transactions are currently the dominant e-commerce applications. Additionally, Supply chain management tools dominate business e-commerce applications. Merchandise information delivery, payment terms, and instructions usually sent electronically. (Friel, 1999) This type of application can be incorporated into each party's business strategy. For instance, when a product is purchased off the shelf, a manufacturer will be able to reorder new inventory automatically as the product is scanned at the checkout. The supplier can also distribute daily whatever is required or requested by the customer. As a result the manufacturer can readily model parts inventory for itself so that it posseses as little finished goods as possible, and this continues down the value chain. (Friel, 1999) The business-to-business segment is expected to continue to be the largest e-commerce market. "This segment presents fewer conformity concerns than does the business-to-consumer segment, but businesses do face several definitional, sourcing, and nexus uncertainties." (Nellen, 2001)

Despite the predictions for consumer-driven e-commerce, business readiness far exceeds that of the consumer preparedness.

An increasing readiness for e-commerce is apparent in the business community, with the most notable change in the small business community. In 1995, only 41% of small business treasury personnel were outfitted with a PC and a modem, and an estimated 2% were using the equipment for online banking functions. (Friel. 1999) By 1997, 60% were outfitted with a computer and modem and an increased 18% were either using online banking functions or plan to began doing so this year. The National Association of Purchasing Management reported that 93% of purchasing managers had Internet access at the end of 1997 and an additional 5% of purchasing managers plan to get it soon. It is estimated that Business-to-business transactions currently accounts for 80% of e-commerce. The OECD believes that e-commerce sales were $26 billion in 1998 and will increase to $1 trillion by the year 2005. (Friel. 1999)

The Tourism Industry and Tour Operators

As you can see E-commerce has profoundly affected business strategies and internal processes. This is particularly true within the tourism industry. The January 2002 Jupiter Consumer Survey revealed that 77% of consumers who research and/or purchase their travel online visit more than one Web site to compare prices. The Internet will account for 22% of all travel bookings in 2007 which is an increase from only 11% in 2001. (Greenspan, 2002) "Tourism is an information-intensive industry in which electronic commerce is expected to play a significant role." (Electronic Commerce and Tourism, 2000)

The main factors of the tourism industry are governments, tour operators, hotels, airlines and other transport operators, and tourists or consumers. Each of these factors contributes to the development of the electronic commerce market as it relates to the travel industry. ("Electronic Commerce and Tourism," 2000)

Tourism as a product has a distinguishing feature that has propelled it into the forefront of the electronic commerce revolution: when tourism is sold it is little more than an information product. A consumer acquires product information through a media outlet, friends or a travel agent, based on his or her questions and expressions of interest. Finally the consumer pays for a reservation for travel, logging and other services. (Electronic Commerce and Tourism, 2000)

The travel business has changed dramatically over the past six years. It is estimated that 10 to 20% of U.S. travel agents have gone out of business. The mass departure began in 1995, when airlines started cutting agents' ticket commissions. Over the next three years, fees decreased from 10% for every ticket booked to 5%. The worst aspect of it is that 5% was capped at $50 per ticket; so even if an agent booked a $22,000 Paris-to-New York flight on the Concorde they wouldn't receive anymore than $50. Keep in mind that at the same time, Web sites like Expedia, Hotwire, Priceline and Travelocity arrived, which took business away from offline agents. Online bookings have been increasing dramatically. In the year 2000, they were up 110% for Travelocity and 117% for Expedia. Travelocity expects to be profitable by June; Expedia projects profits in early 2002. (Webber 2001)

The tourism industry is learning first hand that the Internet can satisfy travel nee needs far better than any other existing technology. More than any other means, the Internet empowers consumers to find information quickly and accurately on any destination or recreation that has captured their interest. Consumers have come to expect instant information and, increasingly, the possibility to design or customize the tourism product that is being sought and purchase it online. (Electronic Commerce and Tourism, 2000)

The utilization of the Internet and e-commerce in developed countries for purchasing tourism products is greater than ever.

Of the total e-commerce sales of USD 64 billion in 1999, travel, transport and hotel reservations as a group represented the largest category of Internet transactions, making up 38.5 per cent of total online sales. (Electronic Commerce and Tourism, 2000) major part of these transactions begins and is materialized in the United States of America. It is reported that Fifty- three percent of all travelers in the United States of America use the Internet and are responsible for approximately three-quarters of online sales. Online sales in Europe are forecast to increase substantially. In 1999 only 0.1 per cent of the European travel market, worth GBP 540 billion, was sold online and it is expected that Internet sales will have grown six-fold by 2002. For the United Kingdom there are estimates that 30 per cent of flight-only bookings will be made online by 2003, as well as sales of 15 per cent of standard packaged holidays and 20 per cent of last minute and late packaged holidays. (Electronic Commerce and Tourism, 2000)

According to a survey conducted by the Anite Travel systems, Of the 36 companies in the survey, only three said that e-commerce would not figure in their businesses within the next three years. Nearly two-thirds of respondents (64%)thought Internet-based distribution would account for up to a quarter of turnover in the same period, and 11% expect their entire business to be conducted online by 2002. (No Turning Back: Tour Operators and E-commerce, 2000) Travel Weekly's agency market survey found that a solid majority -- 78% of U.S. agencies -- now can access the… [END OF PREVIEW]

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