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.

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.

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".

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.

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.
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• Myth of channel death

  

• Merits of B2B E-commerce: B2B e-commerce generally exposes a selling or buying company to a larger pool of suppliers and corporate buyers. Transactions over the Internet help overcome geographical barriers, bringing business partners from around the world to the e-marketplace. A company may benefit from engaging in transactions with business partners beyond its local market. The web-based technology of e-commerce minimizes human error typically found in paper-based activities and supports timely, if not real-time, communication between and among partners. Unlike traditional and costly telecommunications networks, web-based technology makes Internet transactions affordable for most businesses involved in the e-marketplace. Furthermore, the presence of numerous intermediaries provides businesses with low-cost solutions for implementing a B2B e-commerce model.
• B2B E-commerce Models: B2B e-commerce models focus on improving the effectiveness and efficiency of supply chain management for business partners, suppliers, and company buyers. Supply chain management coordinates activities ranging from order generation and order taking to the distribution of goods and services for both individual and corporate customers. Interdependencies within the supply chain create an extended boundary that goes beyond an individual firm, meaning that individual firms can no longer maximize their competitive advantage by only reducing costs or prices. Material suppliers and distribution partners—such as wholesalers, distributors, and retailers—play essential roles in supply chain management. B2B e-commerce models foster partnerships with these entities along the supply chain, both upstream and downstream, to share beneficial information about the needs of end customers. The primary goal is to ensure that all upstream and downstream activities align effectively to meet the demands of final customers. Each partner in the chain should coordinate its production and business plans (e.g., order fulfillment, procurement, production, and distribution) with those of other partners to ensure that goods and services reach customers in the right place at the right time.
  B2B business models also address customer relationship management, the front-end aspect of a supply chain. An effective business model helps create more loyal customers who value quality and service over lower prices, supports customer retention, and fosters new customer acquisition by offering new quality products and services. The customer base can be segmented based on purchase and sales history, providing a foundation for promotions and discounts, thereby encouraging loyalty among existing customers.

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] 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.