Location of trading in online the marketplace

While traditional marketplaces have a physical location, an Internet-based market has no physical presence – it is a virtual marketplace. Rayport and Sviokla (1996) used this distinc­tion to coin a new term: electronic marketplace. This has implications for the way in which the relationships between the different actors in the marketplace occur.

The new electronic marketspace has many alternative virtual locations where an organization needs to position itself to communicate and sell to its customers. Thus one tactical marketing question is: ‘What representation do we have on the Internet?’ One aspect of representation that needs to be considered is the different types of marketplace location which indicate the balance of power in a relationship. Berryman et al. (1998) identified a useful framework for this, identi­fying three different types of location. Seller-controlled sites are the main home page of the company and are e-commerce-enabled. Buyer-controlled sites are intermediaries which have been set up so that it is the buyer who initiates the market-making. This can occur through pro­curement posting where a purchaser specifies what they wish to purchase, it is sent by e-mail to suppliers registered on the system and then offers are awaited. Aggregators involve a group of purchasers combining to purchase a multiple order, thus reducing the purchase cost. Neutral sites are independent evaluator intermediaries that enable price and product comparison.

The framework of Berryman et al. (1998) has been updated by McDonald and Wilson (2002) who introduce two additional locations for purchase which are useful (Table2.3).

A Seller-controlled sites are those that are the main site of the supplier company and are e-commerce-enabled.

B Seller-oriented sites are controlled by third parties, but represent the seller rather than providing a full range of options.

C Neutral sites are independent evaluator intermediaries that enable price and product comparison and will result in the purchase being fulfilled on the target site.

D Buyer-oriented sites are controlled by third parties on behalf of the buyer.

E Buyer-controlled sites usually involve either procurement posting on buyer-company sites or those of intermediaries that have been set up in such a way that it is the buyer who initi­ates the market making.

We will see in Chapter 7 that the most successful intermediaries such as Covisint are those which are not independent, but are seller-oriented or seller-controlled.

Evans and Wurster (1999) have argued that there are three aspects of navigation that are key to achieving competitive advantage online. These should be considered when selecting intermediaries. The three aspects are:

• Reach. Evans and Wurster say: ‘It [reach] means, simply, how many customers a business can connect with and how many products it can offer to those customers.’ Reach can be increased by moving from a single site to representation with a large number of different intermediaries. Allen and Fjermestad (2001) suggest that niche suppliers can readily reach a much wider market due to search-engine marketing (Chapter 8). Evans and Wurster also suggest reach refers to the range of products and services that can be offered since this will increase the number of people the company can appeal to.
• Richness. This is the depth or detail of information which is both collected about the customer and provided to the customer. The latter is related to the richness of product information and how well it can be personalized to be relevant to the individual needs.
• Affiliation. This refers to whose interest the selling organization represents – consumers or suppliers – and stresses the importance of forming the right partnerships. This particularly applies to retailers. The authors suggest that successful online retailers will provide customers who provide them with the richest information on comparing competitive products. They suggests this tilts the balance in favour of the customer.

It is also useful to consider the scale of e-commerce when evaluating the long-term potential of an e-commerce site and in particular business-to-business marketplaces or exchanges (Chapter 7, p. 400). Has the facility been set up by a single supplier or by multiple suppliers? Can it support many customers or is it available to a limited number of customers? Such questions need to be asked by companies developing an e-business strategy since it will govern who it is best to partner, both for procurement and for sales. Such questions are answered from a strategic perspective in later chapters. Figure 2.8 shows three alternatives across the continuum of trading for trading within the electronic marketspace.

The options can be summarized as follows:

• Sell-side at supplier’s site (typically one supplier to many customers). Examples: most e-tailers such as Amazon (amazon.com) or Dell (www.dell.com).
• Sell-side at distribution portal (some suppliers to many customers).
• Buy-side at buyer’s site (many (or some) suppliers to a single customer). Examples: first to set this up was General Electric Trading Post Network, now the GE subsidiary Global eXchange Services (gxs.com).
• Buy-side at procurement portal (many suppliers to selected customers).
• Neutral exchanges, marketplaces or hubs (many suppliers to many customers). Examples: VertMarkets (vertmarkets.com) and Global Composite (www.globalcomposites.com).

Markets can also be considered from another perspective – that of the type of commercial arrangement that is used to agree a sale and price between the buyer and supplier. The main types of commercial arrangements are shown in Table 2.4.

It can be seen from Table 2.4 that each of these commercial arrangements is similar to traditional arrangements. Although the mechanism cannot be considered to have changed, the relative importance of these different options has changed with the Internet. Owing to the ability to rapidly publish new offers and prices, auction has become an important means of selling on the Internet. A turnover of several billion dollars has been achieved by eBay from consumers offering items such as cars and antiques. Many airlines have successfully tri­alled auctions to sell seats remaining on an aircraft just before a flight, and this has led to the site www.lastminute.com which can broker or link to such offers.

An example of a completely new commercial mechanism that has been made possible through the web is provided by priceline.com (www.priceline.com). This travel site is characterized by its unique and proprietary ‘Name Your Own Price™’ buying service. Here, users enter the price they wish to pay for airline tickets, hotel rooms or car hire together with their credit card details. If priceline.com can match the user’s price and other terms with inventory available from its participating suppliers, the deal will go ahead. The brand has also been licensed overseas. In the UK, priceline.com has three core services: air­line tickets, hotels and car hire, and a similar service has been launched in Asia (Figure 2.9).

1. The importance of multi-channel marketplace models

In the previous section we discussed new types of online channels and intermediaries, but it needs to be stressed that in many categories, purchasers use a combination of channels. As consumers follow their customer journeys as they select products and interact with brands, they do not use the Internet in isolation – they consume other media such as print, TV, direct mail and outdoor. These media are still very important for marketers to communicate with customers who still spend the majority of their waking hours in the real world rather than the virtual world. It follows that an effective approach to using the Internet is as part of a multi-channel marketing strategy. This defines how different marketing channels should integrate and support each other in terms of their proposition development and communi­cations based on their relative merits for the customer and the company. The multi-channel approach is also a common theme throughout this book and we return to it in Chapter 4.

Developing ‘channel chains’ which help us understand multi-channel behaviour is a power­ful technique recommended by McDonald and Wilson (2002) for analysing the changes in a marketplace introduced by the Internet. A channel chain shows different customer journeys for customers with different channel preferences. It can be used to assess the current and future performance of these different customer journeys. An example of a channel chain is shown in Figure 2.10. A market map can be used to show the flow of revenue between a manufacturer or service provider and its customers through traditional intermediaries and new types of intermediaries. For example, Thomas and Sullivan (2005) give the example of a US multi-channel retailer that used cross-channel tracking of purchases through assigning each customer a unique identifier to calculate channel preferences as follow: 63% bricks- and-mortar store only, 12.4% Internet-only customers, 11.9% catalogue-only customers, 11.9% dual-channel customers and 1% three-channel customers. This shows the future potential for further growth and suggests that different strategies need to be developed to appeal to each group.

2. Different types of online intermediary

As we showed through Figure 2.3, identifying different types of online intermediary as potential partners to promote an e-business is a key part of marketplace analysis. In this sec­tion, we take a more in-depth look at the different types of intermediaries and the business and revenue models they adopt.

Sarkar et al. (1996) identified many different types of new intermediaries (mainly from a B2C perspective) which they refer to using the dated term ‘cybermediaries’. Hagel and Ray- port (1997) use‘infomediary’specifically to refer to sale of customer information. See Box 2.2 for further information on this concept and the related concept of the metamediary.

Some of the main new intermediaries identified by Sarkar et al. (1996) were:

• Directories (such as Yahoo!, Excite).
• Search engines (AltaVista, Infoseek).
• Malls (BarclaySquare, Buckingham Gate).
• Virtual resellers (own-inventory and sell-direct, e.g. Amazon, CDNow).
• Financial intermediaries (offering digital cash and cheque payment services, such as Digicash).
• Forums, fan clubs and user groups (referred to collectively as ‘virtual communities’).
• Evaluators (sites which perform review or comparison of services)

Timmers (1999) identified other sites which we will review later for their alternative revenue models. It is useful to review how the role of online intermediaries has changed since this time to evaluate the importance of different types of intermediaries today in reaching and influencing an audience. General directories are now less important and have mainly merged with search engines since search is now the preferred form of access through the search engines that have risen to the top of the pile, namely Google, Yahoo! and Microsoft Live. However, traditional directory owners such as the Yellow Pages (www.yell.com) and many small-scale directories of sites still exist in vertical sectors which give opportunities for visibility to be reviewed by companies.

Online shopping malls, which were online equivalents of the offline phenomenon, did not prove effective since there was no consumer benefit in visiting a shopping mall retailer when you could go direct to the retailer’s web site. Instead, sites in the evaluator category such as the price comparison search engines we considered earlier in this chapter such as Kelkoo and Pricerunner have become important destinations since they enable a choice of many suppli­ers across many categories based on price. E-retailers such as Amazon have remained important, but many such as CDNow have failed since they could not balance the expendi­ture on customer acquisition with the need to retain customers. These have been replaced by new e-retailers such as CDWow (www.cdwow.com) and Play.com (www.play.com). Many of the forms of digital currency such as Digicash and E-cash did not prove popular. Instead, PayPal (www.paypal.com) became popular and was purchased by eBay (www.ebay.com, see Case Study 1.3). The C2C virtual communities category described by Sarkar et al. has proved to be where many online users spend the most time, with specialist forums and chatrooms and the major social networks such as Bebo, Facebook and MySpace. For the younger age group, HabboHotel (www.habbohotel.com) has proved popular in many countries.

A more recent trend in consumer intermediaries is the growth of cashback sites. An inter­esting initiative blending search, comparison sites and cashback launched by Microsoft in 2008 is shown in Mini Case Study 2.2 on a new Microsoft cashback initiative in their Live Search. This is a typical powerplay between intermediaries which digital communications facilitates.

A further type of intermediary is the virtual marketplace or virtual trading community. These are of vital importance in the B2B marketplace. From the supplier’s or manufacturer’s perspective they provide a new channel for selling their products. If the marketplace is set up by major players in an industry such as the Covisint marketplace originally created by Ford, GM and DaimlerChrysler (www.covisint.com) it will probably be essential to trade with key customers via this method, since this will be a prerequisite for trading with the customer. From the viewpoint of the B2B customer procuring supplies, the virtual marketplace offers the opportunity for lower prices as pricing becomes more transparent, giving rise to greater price competition. The form of these marketplaces is considered in more detail in Focus on electronic B2B marketplaces in Chapter 7.

Portals

The concept of the portal evolved to reflect the range of services offered by some online intermediaries. The term ‘portal’ originated with reference to sites that were the default home pages of users. In other words, when users started their web browser, the first page they saw was their personal home page. When users use a newly installed browser it will be set up so that the home page is that of the company that produces it. In the case of Microsoft this is usually www.msn.com (the Microsoft Network) and for broadband provider Orange in Europe it is www.orange.com.

3. Types of intermediaries

Intermediaries vary in scope and the services they offer, so naturally terms have evolved to describe the different types. The main types of intermediary you will identify as part of an online marketplace analysis are shown in Table 2.5. It is useful, in particular for marketers, to understand these terms since they act as a checklist for how their companies can be repre­sented on the different types of intermediaries.

Table 2.6 shows the relative importance of different types of intermediaries according to an online audience panel measurement company. It is apparent that there is similarity in the top search engines, portals, social networks and media owners in the different regions. Com- score publishes data on other European, Asian and Latin American countries at www.comscore.com/press. In the UK, US properties dominate.

4. The importance of search engines

Search engines are a key type of intermediary for organizations marketing their services online, since today they are the primary method of finding information about a company and its products. Research compiled by Searchenginewatch (www.searchenginewatch.com) shows that over 90 per cent of web users state that they use search engines to find infor­mation online. Their importance can also be seen from their audience size in Table 2.2. Search engines also offer a directory of different web sites. We see how search engines work in more detail in Chapter 9 and also how companies can market themselves on the search engines through search engine optimization and paid search marketing. For marketplace analysis it is useful for companies to assess demand for products and brand preferences in different countries using tools such as the Google Keyword Tool (Figure 2.12) which shows the volume of searches by consumers related to clothes in the UK in a one-month period. CPC is the cost per click charged to advertisers. Google uses this tool to encourage advertis­ers to use its Adwords advertising service.

Source: Dave Chaffey (2010), E-Business and E-Commerce Management: Strategy, Implementation and Practice, Prentice Hall (4th Edition).