Introduction to E-commerce

Author: Chen Deren et al. / Country:
Publisher:
Publishing Date: 2002-04-01
Features:
1. Surprising High Growth and High Return
Dell's net income in fiscal year 1998 had grown to $18.2 billion, an increase of 48% compared to 1997, which was four times the industry average growth rate, and the return on investment was 186%. Over the past two and a half years, the stock price had more than doubled, creating the industry's largest share price yield. What made these records possible? The Internet? Partly correct, but it's important to study the factors behind the homepage on the Internet.
2. Benefiting from the Internet
In July 1996, Dell began online sales and services based on the Internet through its website at www.dell.com. By autumn 1999, Dell was selling $15 million worth of products daily through the Internet, and online sales accounted for 27% of total revenue. In the near future, Dell expects online sales to account for 50% of total revenue.
3. Dell's Internet Products
Dell sells all the products it produces on the Internet: desktop computers, workstations, notebooks, network servers and storage devices, software, and peripherals (such as ZIP drives, printers, etc.). These products are also sold via telephone, fax, and mail, and call center services complement the Internet homepage. The homepage also provides information on services, support, and the company.
4. Dell's Key Success Factors
Dell's success story is very impressive, and competitors may try to imitate Dell's strategy, but it's difficult to achieve. Why? We can study the following six reasons:
(1) Advanced Network Applications. Dell is a network-based computer seller, connecting end consumers and the supply chain better. Dell fully and creatively uses the web. Dell allows business buyers to download the homepage.
(2) Price Competitiveness of Mass Customization. Selling directly to both small-scale individual consumers and corporate buyers means the manufacturing system must be flexible to adapt to small orders for customization. To maintain price competitiveness without extending delivery times, efficient procurement of small quantities of parts from suppliers, a flexible manufacturing system, and cost-effective transportation are essential. Dell Computer was born from the spirit of telemarketing, and the Internet is just another medium for communicating with distant consumers. Dell didn't need to change its business strategy to adopt e-commerce. However, other companies are not in this situation. Changing the basic business strategy can be very difficult, costly, and time-consuming.
(3) Database Marketing and Consumer Proximity. Dell's direct relationship with all its consumers enables one-to-one database marketing. Dell can study its customers by observing how they use the website. For this purpose, the database is used as a tool for data mining (e.g., statistical analysis), inductive research, and neural network modeling to segment consumers. This is essential for emphasizing and deepening personalized relationships. It can also be used for advertising and consumer services.
(4) Global Reach and Value-Added Services at a Single Link Point. Dell has over 10,000 service providers worldwide, offering technical support, system decommissioning, network, and product maintenance services. With financial support for products and services at the corporate level, the Internet provides an effective single-point link for these services. The Internet makes it easier and less costly for customers to do business with Dell, as customers spend their own time obtaining services online, which previously required calls to the call center. The Internet can also be effectively used to strengthen relationships between suppliers and consumers.
(5) High Reliability and Good Reputation. If a product lacks high reliability, consumers may hesitate to place an order without trying it first. Dell is well-prepared in this regard. Dell's products, OptiPlex and Dell desktops, have won unprecedented awards for performance, reliability, and service. Consumers don't need to worry about the reliability of the Dell brand.
(6) Transportation Support. One of the inherent disadvantages of telemarketing is relatively long delivery times. To overcome this, Dell provides estimated delivery times and online order tracking for every order. When the product list/components are available, Dell will send a simple confirmation within 2–3 days, on average within 5 days, and complex orders within 7–10 days. However, if components are not available, Dell will estimate the delivery time and notify the consumer.
We have understood how Dell succeeded and why other manufacturers find it difficult to replicate this success. Major manufacturers cannot ignore the opportunities of direct sales, but managers are concerned about the extent of strategic change. In this process, the final deciding factor will be the economics of e-commerce, i.e., whether the benefits of e-commerce outweigh its implementation costs? The main benefits of implementing e-commerce include: increased revenue, enhanced consumer relationships due to online services and support, and reduced sales and purchasing costs. The benefits will depend on each company's initial business position and its potential to change its business structure to a telemarketing and made-to-order production system.
The basic costs of implementing e-commerce include: development and maintenance of the homepage system, purchase and operation of server and network equipment, order fulfillment, payment collection, and call center operations. However, when managers recognize the need to change the way of doing business, a more fundamental cost arises, such as changing the main sales channels and manufacturing systems.
II. Reactive and Partial Direct Sales vs. Proactive and Full Direct Sales
Unlike proactive and full direct sellers, other companies, whom we call reactive and partial direct sellers, primarily sell their products through traditional channels such as distributors, department stores, discount stores, and specialty stores. However, they also have online websites. Most computer manufacturers fall into this category. We predict that in the near future, all major manufacturers will adopt either proactive or reactive direct sales strategies. In this section, we will study Ford as a case of reactive and partial direct sales.
Ford, like other car manufacturers, cannot immediately shift its entire sales channel to the Internet. Therefore, it has set up an e-commerce store as a supplementary sales channel.
Case 2.2 Reactive and Partial Direct Sales: Ford's Case
The advantage of online ordering is bypassing dealers, thereby reducing sales prices and/or increasing profits. However, because many consumers do not have the opportunity to go online or are unwilling to shop online, car manufacturers cannot completely eliminate dealers. In such a situation, without the cooperation of dealers, the orders directly received by car manufacturers cannot be fulfilled, making dealers the best partners. An order received can be assigned to the nearest dealer who has the car the customer needs. Through this collaboration, car manufacturers can share dealer inventories via a public network like ANX (Automotive Network Exchange). Ford has implemented changes in reactive direct sales (see www.ford.com).
To order a new car online, you need to select the brand, body style, optional packages, exterior color, and interior design. Then, the online shopping system provides a equipment list, including the suggested retail price. You can change your previous selections to fit your budget, and finally confirm your order. Next, you decide whether to relax or complete the purchase with the help of a payment calculation system. Ford's system starts searching for nearby dealers and sends the equipment list to that dealer. This dealer will contact you, including the price and whether the equipment you confirmed is available. Here, you have the opportunity to negotiate.
In the current process, buyers cannot get information about whether the dealer's inventory matches their confirmed order. In this sense, the current system is a semi-automated support system. In the future, buyers will have this information, as well as an estimated time to prepare a customized car that is not in stock.