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Lesson 10 Channel effect on e-Business models
Objective Illustrate sales channels.

Channel effect on e-Business models

e-business stages are cumulative; thus, each stage builds upon the last. The specific stage an organization is in varies upon the goals and objectives of the e-business.

Transcendental Flow
  • Text in the Image:
    • Horizontal Axis Label: "e-Business maturity"
    • Vertical Axis Label: "e-Business complexity"
    • Hierarchy of e-Business Stages (from bottom to top):
      • Static
        • product info
        • FAQ's
      • Interact
      • Transact
        • pricing & availability
        • validation & shipping
        • capture customer feedback
      • Enact
        • order placement
        • payment processing
        • order management
      • Relationship mgmt
        • integrated ordering
        • real-time processing
        • supply chain integration
      • Contextual mgmt
        • personalization
        • profiling
        • 1:1 marketing
        • customer care & support
        • brand extension
      • Transform (shown at the very top, without additional labels or annotations)
  • Relevant Features of the Diagram:
    • The diagram represents a progression of e-Business stages, where both e-Business maturity and e-Business complexity increase as you move upwards and to the right.
    • Each stage builds upon the previous one, adding more sophisticated features and management aspects.
    • The top-most level, Transform, signifies a point where e-Business reaches a high level of maturity and complexity, with a focus on advanced, personalized customer interactions.
    • Arrows and lines guide the reader’s eye from lower levels to higher ones, implying a pathway of development through each stage.
    • The black arrow pointing towards the Contextual mgmt stage highlights it as an important step before reaching the Transform stage.

Transcendental Flow: ebusiness stages where each stage builds on the previous stage.

Review of business stages

Regardless of business model or business stage, e-business architecture has created the most powerful sales channel[1] ever known. Each day, more and more people join the ranks of online shoppers. According to a recent report by Forrester Research, U.S. consumers will spend $20 billion on the Web in 1999. By 2004, this number is expected to mushroom to $184 billion.
  • Sales channel conflict
    The Internet has enabled businesses of all sizes to create a virtual storefront and enter the online marketplace offering their goods and services to a global audience. However, not all companies going online experience overnight successes. Companies that have been successful with brick and mortar[2] stores may experience sales channel conflict. Sales channel conflict arises when an additional sales channel is added to existing ones. These new channels can overwhelm and overload a market and may take time to become successful.

Agile Conversations

Channel Conflict Resolution

Borders Books established an online store without considering the ramifications this decision would have on its existing brick and mortar stores. Borders soon realized that their online store was decreasing the traffic in their brick and mortar stores. Despite increasing its sales channels, Borders was hurting its overall business. To address this problem and increase the foot traffic in its brick and mortar stores, Borders transformed itself into a meeting place. By establishing coffee shops within their stores and hosting live musical events, Borders was able to create a sense of community within the stores and maintain customer traffic in their stores. This solution has proved to be very successful for Borders. Today, Borders Books, along with its subsidiaries, Walden Book Company Inc. and Books etc., is the second largest operator of book superstores and the largest operator of mall-based bookstores in the world.
  • Project Evaluation: In project evaluation, the estimated profit generated from the new product must be reduced by the earnings on the lost sales. Another case of cannibalization is when companies open retail outlets too close to each other, in effect, competing for the same customers. The potential for cannibalization is often discussed when considering companies with many outlets in an area, such as Starbucks or Panera Bread. Cannibalization is an important consideration when an organization aims to carry out brand extension[3]. Normally, when a brand extension is carried out from one sub-category (Corona Extra) to another sub-category (Corona Light), there is a probability that part of the former's sales will be taken away by the latter.
    However, if the strategic intent[4] of such an extension is to capture a larger market of a different market segment notwithstanding the potential loss of sales in an existing segment. Hence, the move to launch the new product can be termed as "cannibalization strategy".

Corporate Cannibalism

A company engaging in corporate cannibalism is effectively competing against itself. There are two main reasons companies do this. Firstly, the company wants to increase its market share and is taking a gamble that introducing the new product will harm other competitors more than the company itself. Secondly, the company may believe that the new product will sell better than the first, or will sell to a different sort of buyer. For example, a company may manufacture mobile phones, and later begin manufacturing tablets. While both products appeal to the same general market (web users) one may fit an individual's needs better than the other. However, corporate cannibalism often has negative effects. For example, the car manufacturer's customer base may begin buying trucks instead of cars, resulting in good truck sales, but not increasing the company's market share. There may even be a decrease, which is also called market cannibalization.
Manufacturer Channel Sales Ecommerce
Manufacturer Channel Sales Ecommerce

Channel ebusiness

Cosmetic manufacturer Estee Lauder sells Clinique products directly to customers online. However, the company is aware that it may be a long time before its Web channel is successful. According to IDG.net, only 2% of its shoppers actually purchase Estee Lauder products online. The majority of online shoppers are window-shopping. The majority of Estee Lauder's sales come from their traditional sales channel: distributors.

Myth of Channel Death

Disintermediation explained

Lately, the concept of disintermediation has become a buzzword of concern to brick and mortar businesses and existing middlemen. For example, Home Depot was so concerned that suppliers would sell direct, that they announced they would not carry those manufactures that sold direct. Let us not be naive here, if a manufacturer goes online it will still need to find a virtual intermediary. In this case, the middleman has simply shifted. More importantly, however, companies are finding out that the Web is simply a new channel that does not need to conflict with their brick and mortar stores.

[1] Sales channel: The way in which a vendor communicates with and sells products to consumers. For example, physical storefront, catalog sales, telemarketing, and the Internet are all different sales channels.
[2] Brick and mortar: A traditional storefront that includes physical retail space. This is in contrast to a "virtual storefront" or a "click and mortar." Both of which refer to an e-Business with no physical retail space.
[3] brand extension: an instance of using an established brand name or trademark on new products, so as to increase sales.
[4]:
[5] Strategic intent: Strategic intent is the term used to describe the aspirational plans, overarching purpose or intended direction of travel needed to reach an organisational vision.

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