TUTORIAL SIX

Read or listen to the podcast on the Digital Enterprise on digital markets, then answer the questions about an online shopping experience you have had. There are three questions to answer.

Question 1

a) What experiences have you had with shopping online?

A. Truth be told, I have never purchased anything online. However, in order to complete this week's tutorial I shall use the experiences of my friends. 

b) Describe a good experience.

A.  A good experience when shopping online can be when you purchase a product at a cheaper price than retail prices, you receive the product quickly and it is everything you expected it to be. Sometimes, you can find things online that you can't find in your home country even. This is also a good experience especially if the thing you are looking for is really important to find for you. An example of a good experience would be buying books online for much cheaper than if you bought it here. Once I wanted a particular textbook, that costed around 8,000 rupees here in Sri Lanka. I told my friend to find it and he managed to buy a second hand version for me at just $3.50, which converts to around 500 rupees here, and the book was almost in perfect condition as well. 

c) What did you like about the online store you used?

A.

• You don't have to leave your home
• Your product is tracked so you can see its journey to your house
• You can compare prices
• Global access from any location
• You can compare products from different sites with the click of a button
• Quick delivery

d) Describe a bad experience.

A. One example I can account is purchasing an expensive item through eBay, and then depositing the money itself but never receiving the product. When you go to talk to the seller on the phone, they say that they are agents and that they are third parties and are not accountable even if you don't receive your money back. Sometimes the product is of really bad quality and nothing like the picture of it posted on the net. 

e) What problems did you have with the online store?

A. When you need a product really quickly and you find it on a site, that doesn't inform or instruct well, the most frustrating issue would be having to wait for a long time until they answer your questions about it. 

f) What features make an online store more appealing?

A.

• Discounts for doing your shopping online
• Access to items not available in stores, let alone your country
• Convenient, can be done from the comfort of your home, without having to travel anywhere
• anywhere, anytime
• Little effort needed
• More information provided online.
• Can be cheap sometimes.

g) What features make an online store less appealing?

A.

• Fraud and security concerns
• Lack of cost disclosure
• No hands on inspection
• Privacy issues
• Receiving annoying emails after purchase
• Website blocks and technical issues
• When the website is not very informative and they take a long time to answer your inquiries.

h) Should we expect to see the prices of goods and services rise or fall due to the migration of consumers online?

A. They should fall as more and more people start to do business online. By cutting out the market entry cost and no overheads, businesses can sell at a better price. As consumers shopping online, we can easily compare prices due to their transparency and this again generates greater competition and again reduces prices ultimately. 

I have included an additional reading from MIT (Understanding Digital Markets). After reading it please discuss the following statements and indicate if you agree with them or not. Please note there may not be a right or wrong answer.

Question 2

a) The dispersion of prices (that is, the spread between the lowest and highest price for a particular product) will narrow.

A. Yes the price dispersion will narrow, because as I feel, more and more people will start to do businesses online, there will be more and more competitors, being the prices closer together, as business try to get a competitive edge. I think more people will start to do businesses online because it is easier, and costs for overheads and maintenance are almost nil and there is not need for a middle man. Everything can be done via the internet. So as more people and businesses start online, there will be more competitors and the prices will narrow. 

b) The importance of brand names will decrease.

A. No, they will remain important, especially as there is always people who want to be trendy and go for the higher classed brands. And it is general human nature that people are afraid to take risks and buy something from a site of an unknown product, especially if there is missing information. They will then always go for the brands they do know and trust, especially because they know that, businesses would try their best to give good quality products and services and not do a fraud in order to keep the brand name polished and clean. 

c) Price competition will make all products cheaper.

A. Yes, price competition will make products cheaper. However, there is a limit to how low they can go if quality is valued. 

d) Digital markets will become dominated by a handful of mega-sites, like Amazon.com.

A. Yes. People want to purchase from a place that is trusted, therefore by building a name like Amazon, a business can get more customers and people will gladly go there to shop. For this, extensive advertising is necessary. 

e) How do you think the balance of power between buyer’s and seller’s will change?

A. I think it will shift towards buyers. This is because "information is power" and we are becoming more informed and empowered in making decisions regarding purchases. We are more aware of prices and have a whole world of other products to browse and choose from, therefore our power has increased. 

f) Prices are clustered online.

A. I disagree because it would be such a huge, complicated job. It would be easier for the business to let the customer do the work and would be more inclined to undercut one another. One example is in the report where Book.com has a compare button to see if their prices are lower. 

g) Online prices are elastic. ( i.e. immune to change up and down with demand)

A. I agree, because as with most goods, as prices rise, demand falls and as prices fall, demand rises. As with all market segments, the level of elasticity varies from market to market. 

h) Online prices are generally transparent (the extent to which prices for a given product or service are known by buyers in the marketplace.)

A. Yes. They are transparent. When comparing products between sellers that are identical we can achieve transparency but as to achieve full transparency we need to be aware of product heterogeneity. 

Question 3

a) What types of m-commerce services does your cell phone provider offer?

A. My cell phone offers in the way of m-commerce services the internet, which is available as long as there is service. My cell phone also allows me to download applications and games. It also offers access to emails, internet, skype, google map, gmail. 

b) Which of these services do you use?

A. GPS, internet, games, access to emails.

c) What types of transactions do you perform through your cell phone or other wireless device?

A. Mostly internet, sometimes internet banking, google maps, emails, facebook, etc. 

d) What types of transactions would you like to perform, but are currently unable to?

A. I would like to have voice recognition in my GPS as well, so that I can ask directions from Google maps perhaps and it would tell. 

e) What is your opinion of wireless advertising/mobile marketing?

A. I hate where i receive emails about special deals, which can be annoying and fill your inbox with so many unwanted messages. I like receiving SMS about appointments and credit card payments, etc. 

Further research
Chris Anderson, the editor of Wired Magazine, wrote a book called 'The Long Tail'. Anderson's theory of 'The Long Tail' has been widely acclaimed, but there has also been recent research which questions it's veracity. Conduct your own research about 'The Long Tail', and state your opinion in favour or against the theory. It is also worth reading about Pareto's Principle, the 80/20 Rule. How do the two relate to each other?

A. I agree. I don't feel that Anderson is saying that the head will be overtaken by tail, but that there is a possible market which is proven in businesses like Ebay and Amazon. The head symbolizes the products found in retail stores while the tail represents products only found on the Internet. I believe in time, the better we become technologically adapted, and aware, the tail will grow. 

The 80/20 Rule is a good management technique, it can be applied to almost anything. It is a great business rule, because it means that 80% of business or sales will be generated from 20% of your customers. In other words 20% of your efforts result in 80% of your business profits. 

The Long Tail theory is a concept that counters the 80/20 rule. It is derived from Pareto's thinking that a low demand can make up a market share that exceeds few of those that are in high demand effectively and collectively. Basically a large number of small customers can out-perform a small number of large customers. 

Source:  http://www.developer-resource.com/long-tail-vs-80-20.htm

Research Readings:

http://www.slate.com/articles/technology/technology/2008/07/long_tails_and_big_heads.html 

http://techcrunch.com/2008/07/02/poking-holes-in-the-long-tail-theory/ 

http://www.longtail.com/the_long_tail/2008/06/excellent-hbr-p.html 

http://www.developer-resource.com/long-tail-vs-80-20.htm

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