CH-4-5 Marketing on the Web – Electronic Commerce : Book Guide

This Document Contains Chapters 4 to 5 Chapter 4 Marketing on the Web Review Questions 1. Briefly explain why two different firms in the same industry might decide to use different marketing strategies. Answer: Firms in the same industry try to create unique brand presences in their markets. A company’s marketing strategy is an important tool for conveying its branding and advertising messages to current and prospective customers. 2. Name four elements that a company might choose to include in its marketing mix. Answer: The four elements include: • Product – the physical item or service that a company is selling • Price – the amount the customer pays for the product • Promotion – any means of spreading the word about the product • Place (also called distribution) – the need to have products or services available in many different locations 3. What are the four Ps of marketing? Answer: The four Ps of marketing are product, price, promotion, and place. 4. How do transaction costs play a role in determining customer value? Answer: The price element of the marketing mix is the amount the customer pays for the product. In recent years, marketing experts have argued that companies should think of price in a broader sense—that is, the total of all financial costs that the customer pays(including transaction costs) to obtain the product. This total cost is subtracted from the benefits that a customer derives from the product to yield an estimate of the customer value obtained in the transaction. 5. What are three elements of promotion that can be conducted online? Answer: On the Internet, possibilities abound for communicating with existing and potential customers. Three elements of promotion that can be conducted online might include an organization’s Web site, e-mail strategies, and social media. 6. What is a product-based marketing strategy? Answer: A product-based marketing strategy in one in which a company thinks of their business in terms of the products and services they sell. It is a logical way to think of a business because companies spend a great deal of effort, time, and money to design and create those products and services. 7. How can an external viewpoint help a company develop a customer-based online selling strategy? Answer: Marketing consultants often advise retailers to design their Web sites using an external viewpoint by imagining themselves as customers and creating enabling experiences that meet their needs. Instead of thinking of their Web sites as collections of products, companies can build their sites to meet the differing needs of various types of customers. The first step in building a customer-based marketing strategy is to identify groups of customers who share common characteristics (such a group is often called a demo graphic). Creating a Web site that acknowledges the differences among those groups and treats each accordingly can make the site more accessible and useful to each group. 8. What makes mass media advertising attractive to many companies? Answer: Its low cost per viewer makes mass media advertising attractive to many companies. The cost can be spread over the many people in its large audiences. 9. What makes mass media advertising ineffective in many online settings? Answer: Attempts to re-create mass media advertising on the Web are likely to fail because many people ignore or resist messages that lack content of any specific personal interest to them. 10. What type of promotional media works best for highly complex products or services? Answer: Highly complex products and services are best promoted through personal contact, which allows the potential customer to ask clarifying questions during the promotional presentation. 11. Many online retailers include blogs on their Web sites. Name and briefly describe one purpose for which an online retailer might use a blog? Answer: Many companies use blogs as a communication device. For example, retailers use blogs to give their online stores a personality and provide customers with a reason to visit their Web sites even if they are not shopping. 12. Briefly define psychographic market segmentation and explain how it differs from demographic market segmentation. Answer: In psychographic segmentation, marketers try to group customers by variables such as social class, personality, or their approach to life. For example, an auto company might direct advertising for a sports car to customers who are gregarious and have a high need for achievement. Demographic segmentation uses information about age, gender, family size, income, education, religion, or ethnicity to group customers. Demographic variables are frequently used by traditional marketers because research has shown that customers’ need for and usage of products are strongly related to these types of variables. 13. Name and briefly describe one category of usage-based market segmentation. Answer: Students responses will vary. Expect students to name and describe any one of the following: browsers, buyers, or shoppers. 14. Name and briefly describe one category of behavioral segmentation. Answer: Students responses will vary. Expect students to name and describe any one of the following: simplifiers, surfers, bargainers, connectors, routineers, or sportsters. 15. Why is touchpoint consistency an important feature of a company’s relationship with its customers? Answer: Companies should strive for a consistent customer experience at a particular lifecycle stage–that is, customers should experience the same level and quality of service whether they encounter the company online or offline. Online and offline customer contact points are often called touchpoints, and the goal of providing similar levels and quality of service at all touchpoints is called touchpoint consistency. 16. Outline the main characteristics of a Web site visitor who is in the exploration state of a relationship with the business owning the Web site. Answer: In the exploration stage, potential customers learn more about the company or its products. The potential customer might visit the company’s Web site to learn more, and the two parties will often communicate by telephone or e-mail. A large amount of information interchange can occur between the parties at this stage. 17. Briefly define conversion cost and explain why companies should calculate it. Answer: The total amount of money that a site spends, on average, to induce one visitor to make a purchase, sign up for a subscription, or (on an advertising supported site) register, is called the conversion cost. Companies have found that measuring acquisition, conversion, and retention costs is important because it gives them an idea of which advertising and promotion strategies are successful. 18. Why is acquisition cost for most online retailers higher than retention cost? Answer: The cost to acquire a new customer is higher than retention cost because the company must first draw the visitor to the site. Most companies are very interested in retaining customers because the cost of acquiring a new customer is between3 and 15 times (depending on the type of business) the cost of retaining an existing customer. 19. Why do most online advertisers comply with the Interactive Advertising Bureau’s display ad format standards? Answer: Most advertisers comply with the IAB standards because they know that almost very Web site will be able to display their ads in those formats properly. 20. What is an ad exchange network and how does it differ from a display advertising network? Answer: An ad exchange network is a network that coordinates ad sharing so that other sites run one company’s ad while that company’s site runs other exchange members’ ads. A display advertising network is a broker between advertisers and Web sites that carry ads. The larger networks, such as DoubleClick (owned by Google), offer many of the same services as comprehensive ad agencies. 21. What is an interstitial ad? Answer: An interstitial ad is an intrusive Web ad that opens in its own browser window, instead of the page that the user intended to load. 22. What is a pre-roll video ad and in what specific situations can it be used effectively? Answer: A pre-roll video ad is a form of a rich media ad that is used on Web sites that deliver video. It is used, for example, on a Web site that provides television shows or news updates. These sites will often include a pre-roll video ad at the beginning of the clip. A visitor opens the video and must view all or part of the ad before the content begins to play. To be effective, the video ad should be long enough to deliver the advertiser’s message, but not so long that the visitor loses interest. 23. Explain what online text ads are and briefly describe their advantages over online display ads. Answer: A text ad is a short promotional message that does not use any graphic elements and is often placed along the top or right side of a Web page. These ads are less obtrusive than display ads and that they are very effective because they reached people who were interested in learning more about something related to the advertisers’ products or services. 24. Briefly explain why mobile advertising is growing so rapidly. Answer: Mobile advertising is one of the fastest-growing types of online promotion. The rapid growth in the use of mobile devices and apps is driving this shift, which experts expect to continue as more people around the world use mobile devices to access the Internet. 25. What is a Web site sponsorship? Answer: Some Web sites offer advertisers the opportunity to sponsor all or parts of their sites. These site sponsorships give advertisers a chance to promote their products, services, or brands in a more subtle way than by placing display or pop-up ads on the sites (although some sponsorship packages include a certain number of display and pop-up ads). 26. As the terms are used in online advertising, what is the difference between an “impression” and a “click-through”? Answer: The loading of a banner ad on a Web page is an impression while the loading of an advertiser’s Web page that results from a visitor clicking an advertisement on another Web page is a click-through. 27. What are the basic ideas that underlie permission marketing? Answer: The basic idea behind permission marketing is that the company only sends specific information to people who have indicated an interest in receiving information about the product or service being promoted. For example, the practice of sending e-mail messages to people who request information on a particular topic is known as opt-in e-mail and is part of permission marketing. 28. Briefly define and distinguish between emotional and rational branding. Answer: Companies have traditionally used emotional appeals in their advertising and promotion efforts to establish and maintain brands. Branding experts Ted Leonhardt and Bill Faust have described “brand” as “an emotional shortcut between a company and its customer.” These emotional appeals work well on television, radio, billboards, and in print media because the ad targets are in a passive mode of information acceptance. However, emotional appeals are difficult to convey on the Web because it is an active medium controlled to a great extent by the customer. Marketers are attempting to create and maintain brands on the Web by using rational branding. Companies that use rational branding offer to help Web users in some way in exchange for their viewing an ad. Rational branding relies on the cognitive appeal of the specific help offered, not on a broad emotional appeal. For example, Web e-mail services give users a valuable service—an e-mail account and storage space for messages. In exchange for this service, users see an ad on each page that provides this e-mail service. 29. Briefly define the term “viral marketing.” Answer: Viral marketing are the tactics that rely on existing customers to tell other persons—the company’s prospective customers— about the products or services they have enjoy educing. 30. Briefly define search engine positioning and explain why companies use it. Answer: The combined art and science of having a particular URL listed near the top of search engine results is called search engine positioning, search engine optimization, or search engine placement. For sites that obtain most of their visitors from search engines, a high ranking that places their URL near the top of the list of links returned by the search engine is extremely important. 31. What is domain name parking? Answer: Domain name parking, also called domain name hosting, is a service that permits the purchaser of a domain name to maintain a simple Web site (usually one page) so that the domain name remains in use. The fees charged for this service are usually much lower than those for hosting an active Web site. Exercises 1. Many organizations find it difficult to incorporate a customer-based marketing strategy into their Web site designs. In about 100 words, explain why this is a challenge and outline things an organization can do to overcome these difficulties. Answer: A good first step in building a customer-based marketing strategy is to identify groups of customers who share common characteristics. Creating a Web site that acknowledges those groups and treats each differently can make the site more accessible and useful to each group. This is often difficult for organizations to accomplish because most managers, quite naturally, think about their Web sites as models of their activities, and they view those activities from their own internal perspective. Instead, Web sites should be constructed to reflect the external perspective of each different user group that might use the site. 2. One of the four Ps of marketing is price. In about 100 words, explain what elements are involved in price besides the amount of money a customer pays for a product. In your answer, be sure to consider the concept of customer value. Answer: The price element of the marketing mix is the amount the customer pays for the product. In recent years, marketing experts have argued that companies should think of price in a broader sense—that is, the total of all financial costs that the customer pays(including transaction costs) to obtain the product. This total cost is subtracted from the benefits that a customer derives from the product to yield an estimate of the customer value obtained in the transaction. The Web can create new opportunities for creative pricing and price negotiations through online auctions, reverse auctions, and group buying strategies. These Web-based opportunities are helping companies find new ways to create increased customer value. 3. In about 100 words, outline the ways in which a company can use the Internet to improve the logistics of a product’s distribution. Answer: The problem of getting the right products to the right places at the best time to sell them has plagued companies since commerce began. Although the Internet does not solve all of these logistics and distribution problems, it can certainly help. For example, digital products (such as information, news, software, music, video, and e-books) can be delivered almost instantly through the Internet. Companies that sell products that must be shipped have found that the Internet gives them much better shipment tracking and inventory control tools than they have ever had before. 4. In about 200 words, compare the use of a product-based marketing strategy to a customer-based product strategy. Include a discussion of the benefits and drawbacks of each and include at least one example of an online business that uses each strategy. Answer: Managers at many companies think of their businesses in terms of the products and services they sell. This product-based marketing strategy is a logical way to think of a business because companies spend a great deal of effort, time, and money to design and create those products and services. When customers are likely to buy items from particular product categories, or are likely to think of their needs in terms of product categories, this type of product-based organization works well. Two examples are Office Depot and Staples. However, customers who are shopping to fulfill a specific need, such as redecorating a room or choosing a graduation gift rather than to find a specific product, might not find these Web sites to be efficient to use. The approach to Web site design that accommodates the differing needs of various types of customers is called a customer-based marketing strategy. An example could be an online florist’s Web site that allows customers to specify an arrangement that includes specific flowers or colors (satisfying customers with a desire for a specific product), yet provide a separate shopping path for customers who want to buy an arrangement for a specific occasion (birthday, anniversary, Mother’s Day, and so on). 5. Assume you are the marketing director for Perfect Seasons, a new line of cookware designed by a famous celebrity chef. In about 200 words, describe how you would use the chef’s reputation to accomplish the differentiation elements of this new product line’s brand. Answer: Student responses will vary. Product differentiation is the first condition that must be met to create a product or service brand. The company must clearly distinguish its product from all others in the market. The chef’s reputation can be leveraged to: • Build brand equity • Build brand awareness • Help people remember ads (celebrity endorsements improve ad recall) • Make people believe the product contributes to superstar status • Inspire, delight, and entertain the consumer • Cut through the advertising clutter • Create a brand narrative • Speak to the quality of the products being offered • Craft an exciting story about the brand 6. One approach to customer-based marketing relies on identification of customer demographic groups. Find an online retailer that has incorporated customer-based marketing in its Web site design. In about 100 words, describe the Web site and outline how it offers various navigation paths for customers belonging to different demographic groups. Answer: Student responses will vary. An example could be the Verizon home page which offers links for residential, business, and wireless customers. The Business page breaks down the options further, offering links to separate pages for small business, medium and enterprise business, and government agency customers. 7. Visit Harry and David Gourmet Gifts to examine how that company implements occasion segmentation with its individual products and its monthly club services. Write a report in which you describe two clear examples of occasion segmentation on the site. Also identify two examples of product segmentation on the site and explain how the company uses its Web site design to channel customers into the segmentation path that is most appropriate for them. Your report should be about 200 words. Answer: Responses will vary. In general, the creation of separate experiences for customers based on their behavior is called behavioral segmentation. When based on things that happen at a specific time or occasion, behavioral segmentation is sometimes called occasion segmentation. Examples of occasion segmentation at http://www.harryanddavid.com/ include: • Easter Gifts: A wide assortment of gifts are available for Easter, including: ○ Easter Treats ○ Easter baskets ○ Spring Flowers and Plants ○ Easter Entertaining ○ The Perfect Picnic • Mother’s Day Gifts: Categories include: ○ Baskets and Gift Boxes ○ Bakery and Confections ○ Mother’s Day Brunch ○ Mother’s Day Flowers ○ Tea Time Once you enter the Home Page, you are directed (via the menu) to choose from the following product segments: • Holidays and Occasion • Gift Baskets and Towers • Pears and Fruit • Chocolates and Sweets • Bakery • Gourmet Food and Wine • Flowers and Plants • Clubs The site also uses bold graphics and enticing photos of fruits, flowers, cakes, chocolates, and cookies to help its audience to decide which group it belongs. 8. In two or three paragraphs, explain why mass media advertising is likely to be less successful online (either with computer or mobile device users) than with television viewers. Answer: Attempts to re-create mass media advertising on the Web are likely to fail. Many people ignore or resist messages that lack content of any specific personal interest to them. Mass media advertising campaigns that are successful often rely on the passive nature of the media consumption experience. People watching television or listening to radio are usually in a passive and receptive state of mind. Thus, advertisers can include messages in mass media advertising that recipients might not consider valid or convincing if they were actively evaluating those statements. The messages are accepted by recipients because they are in a non-questioning and passive state of mind. In contrast, Web users are actively engaged in the medium, with hands on the key boarder touchscreen, as they view Web pages. This active state of mind makes Web users far more likely to evaluate critically the advertising messages they see and less likely to accept the content of those messages in the same passive way that television viewers accept the content of television commercials. 9. In about 100 words, explain how the level of complexity of a product can affect a company’s choice of communication modes it might use to disseminate information about that product. Answer: The level of complexity inherent in the product or service is an important factor in media choice. Products that have few characteristics or that are easy to understand can be promoted well using mass media. Because mass media is expensive to produce, most companies use it to deliver short messages (although there are exceptions, such as infomercials). Highly complex products and services are best promoted through personal contact, which allows the potential customer to ask clarifying questions during the promotional presentation. 10. In about 200 words, explain how the achieved trust level of a company’s communications using social media compare with similar communication efforts conducted using mass media and personal contact. Answer: Blogs and social media provide ways for companies to engage in two-way online communications that more closely resemble the high-trust personal contact mode of communication than the low-trust mass media mode. They also allow companies to achieve these benefits without incurring the high cost of traditional personal contact techniques. 11. In about 100 words, briefly describe micromarketing and explain what weakness it shares with mass media advertising. Answer: In the early 1990s, firms began identifying smaller and smaller market segments for specific advertising and promotion efforts. This practice of targeting very small market segments is called micromarketing. However, the low cost per viewer of traditional mass media advertising campaigns becomes much higher when mass media methods are used to target very small market segments. This cost increase hampered the success of micromarketing strategies. 12. Assume you are a consultant to Top Spin, a tennis equipment manufacturer that sells its products directly to customers on the Web. Top Spin is considering the use of YouTube videos to promote its products. Some of the salespeople have suggested that the videos include detailed reviews of the company’s products and endorsements by top tennis players. Other marketing staff have suggested including instructional tips and videos of the equipment being used at famous resorts. Write a 200-word report in which you evaluate these two alternatives proposed by the salespeople and the marketing staff. Answer: Responses will vary. Possible content includes: • Tennis lessons ○ Beginner tips ○ How to serve ○ Backhand and forehand ○ How to improve your volley ○ Coordination and ball control • Tennis equipment ○ How to choose a racket ○ How to change the racket grip ○ What size tennis racket do I need? ○ What to look for when purchasing a racket ○ How to restring a tennis racket 13. Manufacturers of golf equipment often advertise on television broadcasts of golf tournaments; however, manufacturers of football equipment rarely advertise on television broadcasts of football games. In one or two paragraphs, explain why the advertising strategies of these two businesses differ. Answer: Golf tournaments tend to appeal to higher-income viewers. Other sports shows, such as football game broadcasts, appeal to viewers with more moderate incomes. As a result, programs that cover golf are more likely to include ads for investment and insurance products and luxury automobiles than are football programs. Also, because viewers of golf tournaments are likely to play the sport, these programs often include ads for game equipment. Football games rarely include ads for game equipment because few viewers of these games participate in the sport themselves. 14. In about 100 words, summarize the difficulties companies encounter when they attempt to measure the effectiveness of their online advertising campaigns. Answer: The effectiveness of online advertising is difficult to measure. In 2004, a joint task force of the Interactive Advertising Bureau (IAB) and the Institute of Practitioners in Advertising (IPA) created a set of media measurement guidelines that all online advertisers can use to produce comparable ad view numbers. Although the task force guidelines have helped to establish measures of ad views, it is difficult to assess the effectiveness of online advertising because site visitors change their Web surfing behaviors and habits as they gain experience using the Web. 15. In about 100 words, explain what online businesses can learn from data mining (or analytical processing) activities. Answer: Data mining (also called analytical processing) is a technique that examines stored information and looks for patterns in the data that are not yet known or suspected. In CRM, analysts might apply data mining techniques to the data warehouse and find that customers often buy two specific products at the same time. By offering both products together at a reduced price whenever a customer views either product page, the company could increase sales of both products 16. You have been employed by ESPN to sell space on its Web site to advertisers. Create a memo of approximately 200 words in which you describe the advantages of advertising on the site in a form that the company’s sales team can use as a resource when they are making presentations to potential advertisers for space on the main page. The company has a permission-based e-mail marketing system that you can include as part of an advertising package you sell to advertisers. Be sure to include the benefits to advertisers provided by this e-mail marketing system in your memo. Answer: Responses will vary but may include the following. Advantages of advertising on ESPN: • Premium audience ○ Male, young, and affluent ○ Millions of unique digital subscribers • Ad effectiveness ○ Live delivers the most engaged customers ○ M18-34 – 3hrs and 2 mins ○ M18-49 – 2hrs, 45 mins • Creative innovation ○ Native advertising – seamless custom brand integration into content and messaging ○ Homepage takeovers – high impact, maximum reach ○ Mega mobile – mobile takeover Advantages of permission-based e-mail marketing: • Can boost sales and product interest • Helps to build more targeted campaigns • Higher response rate • Can be used to build long term, trust based relationships with customers • Enhances the reputation of the company • Preserves the privacy of customers and improves the reputation of the company 17. Marti Baron operates The Cannonball, an online store that sells parts, repair kits, books, and accessories to hobbyists who restore antique model trains. Many model train hobbyists and collectors have created Web sites on which they share photos and other information about model trains. Marti is interested in creating an affiliate marketing program that would allow those hobbyists to place links on their sites to The Cannonball and be rewarded with commissions on sales that result from visitors following those links. In a 200-word memo to Marti, outline the steps she should take as she evaluates affiliate program brokers and other options for creating her affiliate network. Be sure to consider the characteristics of Marti’s business in your analysis. Answer: Responses will vary. Some questions she may consider include: • What levels of service are offered? Do they offer “do it yourself” or fully outsourced program management? • What pricing model is used? • What are the commission rates? • What levels of support are offered? • Is any customer tracking available? • How are payments processed? 18. You are the new marketing manager for the Midland Daily Courier, a weekly newspaper that publishes local news, high school sports results, and feature stories about local businesses and political issues. The paper also publishes several regular columns written by local experts on gardening, home repair, and crafts. Like many small weeklies, the Courier has seen its subscriber base shrink gradually over the past 10 years. The newspaper has a Web site on which it posts all of the display ads that run in the print edition, its free classified ads, and all of the news content from the print edition. Your job is to work with the publisher and the editorial staff to revive interest in the paper and devise marketing plans that will either increase subscriptions directly or generate increased interest and awareness of the newspaper’s value to potential subscribers. In about 400 words, provide a viral marketing plan that uses blogs and social media tools to generate interest in the Courier. Be specific about how you would promote each element of the newspaper’s offerings, including which tool you would use for which element. Answer: Student responses will vary. Some may suggest: • Sharing links to featured stories with bloggers (politics, gardening, sports, etc.) to encourage discussion. • Using Twitter to tweet headline news, sports results, etc. • Creating a Facebook Page that encourages photographers, reporters, and editors to post story developments before the story appears in the paper. • Soliciting advertisers to sponsor contests for readers and publishing the contest rules/guidelines in the paper. • Encouraging students to submit essays and publishing them on random days. • Getting involved in the local community by sponsoring events, adopting a high school team, etc. Cases C1.Mothshop Corporate 1. Answers will vary. Storytelling allows corporate marketers to share a company’s brand image through authenticity by being specific with a message or theme. A key element in any story’s success is its ability to convey an underlying, deep lesson to the consumer. Short-form writing can enhance the brand’s lessons and themes through coordinated and consistent messages in a variety of channels such as blog posts, tweets, YouTube videos, and other social media tools. 2. Answers will vary. Product: Under Arm our Elements include: • Brand is about energy and passion. It’s about an obsession with being better, stronger, and more powerful. Belief in invention and innovation and constantly offering newness. You can always expect the next great thing from Under Arm ours. • Personality is hard and edgy. The alternative-irreverent underdog. Challenge the status quo. Stand for athletic performance. Must maintain that authenticity. Communication media include: • Website, blog posts, Facebook, Google+, Pinterest, Twitter, Instagram, YouTube, and other social media tools. 3. Answers may vary. Storytelling is an essential part of an online game environment. The user is compelled by the themes or messages of a well-crafted story and becomes more engaged with the game’s experience. This concept can be very powerful in product marketing and promotions as consumers can be attracted to a particular brand through its message and theme, which is reinforced through effective storytelling. C2. Montana Mountain Biking 1. Responses will vary. The five stages of customer loyalty are as follows: Awareness The MMB logo is well known in the mountain biking community in the upper Midwest. Exploration Inquiries about expeditions and photos. Familiarity <20% (About 80 percent of the riders on any given expedition are repeat customers.) Commitment 80% (About 80 percent of the riders on any given expedition are repeat customers.) Separation < 20% 2. Responses will vary. An e-mail marketing campaign could be built around the ability to book expeditions on the Web site: • Introduce Expeditions, a new feature on your Web site that allows visitors to book tours – various packages should be offered. • Utilize the pictures you already have to showcase the trails. • Featured story: Tell heartwarming stories about previous expeditions. • Create an incentive to engage the customer – a discount, free jackets with the MMB logo, etc. • Provide customers with the option of sharing news about MMB with their friends 3. Answers may vary. MMB should first create a Facebook Page to build a community. This would allow the company to: • Share videos and photos of the trails • Invite fan participation in discussions about mountain biking • Share tips • Discuss expeditions 4. Answers may vary. Likely affiliate Web sites include those dedicated to mountain biking, adventure travel, Montana/Western U.S. tourism, and even landscape photography. Chapter 5 Business-to-Business Activities: Improving Efficiency and Reducing Costs Review Questions 1. What is the difference between outsourcing and offshoring? Answer: The use of other organizations to perform specific activities is called outsourcing. Offshoring is when the outsourcing is done by organizations in other countries. 2. What is business process offshoring? Answer: Many companies perform functions such as purchasing, research and development, record keeping, and information management at lower-cost locations around the world. This distribution of nonmanufacturing business activities to international suppliers is called business process offshoring. 3. What is impact sourcing? Answer: Impact sourcing is offshoring that is done by or through not-for-profit organizations who use the business activity to support training or charitable activities in less-developed parts of the world. 4. What activities are included in the procurement function called “sourcing”? Answer: The activities including in sourcing are: identifying suppliers and determining the qualifications of those suppliers. 5. Briefly outline the differences between direct materials and indirect materials. Answer: Direct materials are those materials that become part of the finished product in a manufacturing process. Steel manufacturers, for example, consider the iron ore that they buy to be a direct material. The procurement process for direct materials is an important part of any manufacturing business because the cost of direct materials is usually a very large part of the cost of the finished product. Indirect materials are all other materials that the company purchases, including factory supplies such as sandpaper, hand tools, and replacement parts for manufacturing machinery. 6. Briefly define the term spend as it is used in business purchasing. Answer: The total dollar amount of the goods and services that a company buys during a year is called its spend. By using Internet technologies in their purchasing, logistics, and support business processes, such companies can save billions of dollars each year. 7. What is spot purchasing? Answer: Spot purchasing is direct materials purchasing that occurs within a spot market. 8. What are MRO supplies? Answer: MRO supplies are commodity supplies, including general industrial merchandise and standard machine tools, that are used in a variety of industries. 9. What is a p-card? Answer: A p-card is a purchasing card usually issued by the Procurement Department in order to control MRO spending. These cards, which resemble credit cards, give individual managers the ability to make multiple small purchases at their discretion while providing cost-tracking information to the procurement office. 10. What is a third-party logistics supplier? Answer: A third-party logistics (3PL) provider is a transportation or freight company that operates all or most of a customer’s material movement activities. 11. Provide three specific examples of business support activities. Answer: Answers will vary. Responses may include activities in any of the following categories: • Making payments to suppliers • Processing payments from customers • Planning capital expenditures • Budgeting • Planning operations • Operating computing infrastructure • Hiring employees • Training employees • Evaluating employees • Administering benefit programs • Compliance with government record-keeping regulations • Creating and maintaining virtual collaborative research workgroups • Posting research results • Publishing research reports online • Connecting researchers to outside sources of research and development services 12. What is knowledge management? Answer: Knowledge management is the intentional collection, classification, and dissemination of information about a company, its products, and its processes. This type of knowledge is developed over time by individuals working for or with a company and is often difficult to gather and distill. 13. Provide one specific example of how a government unit or agency could use the Web to operate more efficiently or service its constituents better. Answer: Answers will vary. Students could cite an example where a government unit or agency could provide a service on the Web for convenience, such as paying taxes, renewing a driver’s license, registering to vote, etc. 14. What is a supply web? Answer: A supply web is an industry value chain that includes many participants that are interconnected in a web or network configuration. This term is used instead of “supply chain” because many industry value chains no longer consist of a single sequence of companies linked in a single line, but include many parallel lines that are interconnected in a web or network configuration made up of strategic alliances or complex configurations of outsourcing contracts. 15. Briefly describe the major problem faced by companies that want to use EDI for both U.S. and international transactions. Answer: The firms in the United States adhere to the EDI standards developed by the ASC X12 while businesses in other countries tend to use their own national standards. Although there have been attempts to find a universal standard, nothing has succeeded thus far. In the mid-1980s, the United Nations Economic Commission for Europe invited North American and European EDI experts to work together on designing a common set of EDI standards based on the successful experiences of U.S. firms in using the ASC X12 standards. In 1987,the United Nations published its first standards under the title EDI for Administration, Commerce, and Transport (EDIFACT, or UN/EDIFACT). The DISA and the UN/EDIFACT group have attempted to develop a single common set of international standards several times since 2000; however, these attempts have never succeeded. Today, both standards continue to exist. Companies that do business worldwide must either make their EDI software work with both standards or use a software product that does conversions between the standards. 16. Briefly explain the differences between direct connection EDI and indirect connection EDI. Answer: Trading partners can implement the EDI network and EDI translation processes in several ways. Each of these ways uses one of two basic approaches: direct connection or indirect connection. The first approach, called direct connection EDI, requires each business in the network to operate its own on-site EDI translator computer. These EDI translator computers are then connected directly to each other using leased telecommunication lines. Because dedicated leased-lines are expensive, only a few very large companies still use direct connection EDI To send an EDI transaction set to a trading partner, the VAN customer connects to the VAN using a dedicated telecommunications line and then forwards the EDI-formatted message to the VAN. The VAN logs the message and delivers it to the trading partner’s mailbox on the VAN computer. The trading partner then dials in to the VAN and retrieves its EDI-formatted messages from that mailbox. This approach is called indirect connection EDI because the trading partners pass messages through the VAN instead of connecting their computers directly to each other. 17. What is open EDI? Answer:Open EDI is EDI conducted on the Internet instead of over private leased lines. It is also called Internet EDI or Web EDI. 18. What is a supply alliance? Answer: The long-term relationships created among participants in the supply chain are called supply alliances. 19. What is a production strategy? Answer: Production strategy is the way a company achieves competitive advantage in its product creation activities; the two most common strategies are efficient processing (in which the company tries to make products as quickly or as inexpensively as possible) or market-responsive flexibility (in which the company tries to produce the specific products demanded by the market as it changes). 20. Briefly explain how a company could benefit from being part of an adaptive supply chain. Answer: When a company uses technology to respond quickly to changes in market demand and supplier conditions, it is said to have an adaptive supply chain, which can lead to higher efficiency, lower costs, and greater profits. Some specific benefits include: • Share information about changes in customer demand • Receive rapid notification of product design changes and adjustments • Provide specifications and drawings more efficiently • Increase the speed of processing transactions • Reduce the cost of handling transactions • Reduce errors in entering transaction data • Share information about defect rates and types • Better coordinate shipments with logistics partners and each other 21. What is the difference between collaborative commerce and EDI? Answer: Collaborative commerce means using Internet technologies to integrate the design, development, construction, testing, and refinement of products while EDI is the exchange between businesses of computer-readable data in a standard format. Companies use EDI and Internet links in order to achieve collaborative commerce. 22. Briefly explain the differences between passive RFID and active RFID. Answer: Active RFIDs have their own power supply while passive RFIDs do not need a power source. 23. What is a private industrial network (also called a private trading exchange)? Answer: The expanded arrangements of many private company marketplaces to include functions to allow supply chain participants to manage multiple functions including manufacturing, tier-one and tier-two suppliers, distribution centers, transportation, orders, invoicing, and payments is a private industrial network. Exercises 1. Impact sourcing, also called smart sourcing, was developed to provide opportunities for workers in less-developed countries. In two or three paragraphs, explain how and for what specific purposes impact sourcing can be used in developed countries. Answer: Responses will vary. Students could argue that impact sourcing could be used in developed countries to help benefit people living in poorer areas who may lack the resources to go to college. It could benefit people who may have grown up in government sponsored systems, such as foster care, who have the ability but may not have had the structure and opportunity. 2. The purchasing process in a business can be much more complex than most consumer purchasing processes. In about 100 words, outline the differences between a typical consumer purchase and a business purchase and explain why the business purchase decision is more complex in most cases. Answer: The business purchasing process is usually much more complex than most consumer purchasing processes. It includes many steps and also requires a number of people to coordinate their individual activities as part of the process. The following steps are involved: • Identify needs • Review vendor catalogs, Web pages, or databases • Define requirements • Send requests for quotes (RFQs) • Review quotes and select vendor • Approve purchase • Establish credit with vendor • Create purchase order • Send purchase order to vendor • Check availability and confirm purchase order • Arrange shipping • Perform inspections • Fulfill and ship order • Inspect shipment and process receiving documents • Transfer from Receiving Department to materials storage • Check receiving documents against invoice and purchase order • Record transaction in accounting records 3. Some business and political leaders argue that offshoring is dangerous because it can move jobs from developed countries to less-developed countries. Others argue that although offshoring might displace workers in the short run, in the longer term, everyone benefits by having developing economies create new industries, products, and markets for products and services that create high-level service and managerial jobs in the developed world. In recent years, some economists have argued that offshoring today is having a negative impact on service and professional employment in highly developed countries. Using resources in your library or online, write about 100 words in which you present two arguments for and two arguments against a U.S. company offshoring the management of its customer relationships to technical and managerial personnel in a less-developed country. Answer: Responses will vary. Arguments for: • Lower operational and labor cost • Eliminates staffing issues Arguments against: • Decreased customer satisfaction • Linguistic and cultural barriers 4. In a paragraph or two, explain how the Internet has reduced the spend of many U.S. manufacturing companies. Answer: Large manufacturing companies have annual spends that exceed $50 billion and process millions of purchase orders each year. By using Internet technologies in their purchasing, logistics, and support business processes (e-procurement and e-sourcing are two examples), such companies can save billions of dollars each year. 5. Would the use of purchasing cards be more helpful in controlling direct materials costs or indirect materials costs? In a paragraph or two, explain why. Answer: Most companies have a difficult time controlling indirect material (MRO) spending from a centralized procurement office because many MRO purchases are numerous and small in dollar value. One way that procurement departments control MRO spending is by issuing purchasing cards (usually called p-cards). These cards, which resemble credit cards, give individual managers the ability to make multiple small purchases at their discretion while providing cost-tracking information to the procurement office. 6. Using your library or your favorite search engine, identify the main reason a large transportation company might want to use p-cards for its MRO spending. Summarize your findings in two or three paragraphs. Answer: Responses will vary. Transportation companies may want to use p-cards for low value transactions. With p-cards, funds are readily available and as a result, payment processing times are reduced. 7. In about 100 words, explain why smaller companies might outsource elements of their human resources, payroll, or retirement plan management operations. Answer: Human resources, payroll, and retirement plan services are all areas in which small and midsized companies often look for outside help. These business processes are subject to many detailed rules and regulations that often require an expert to decipher. A wide range of companies offer human resource management services online. Firms such as Check Point HR offer a full range of services online; others, such as Advantage Payroll, specialize in payroll processing services, which are also available online. These business process outsourcing providers duplicate their clients’ human resources and/or payroll functions on a password-protected Web site that is accessible to clients’ employees. The employees can then access their employers’ benefits information, find the answers to frequently asked questions, and even perform benefit option calculations. Larger firms build these types of functions into their own internal systems. 8. You have just started work as an intern in the purchasing department of Westridge Laboratories, an independent materials testing lab. You do not know much about the business, but your supervisor has given you the task of learning more about gas chromatographs, an instrument that the labs use for several regular tests they conduct. Use the Thomas Net Web site to locate at least three of these lab instruments and write a report that describes them, including their prices, specifications, and the vendors who sell them. Answer: Answers will vary. Possible vendors include: Custom Solutions Group (http://www.customsolutionsgroup.org/) • Manufacturer of new and used gas chromatographs. Applications include natural gas and liquid gas, petrochemical, light hydrocarbon trace carbon monoxide and carbon dioxide, discharge helium ionization detector analysis. Bundles AMETEK PI Combustion (http://www.ametekpi.com/products/CE-Model-292B-Portable-Natural-Gas-Chromatograph.aspx) • Manufacturer of gas chromatography instruments including on-line natural gas chromatographs & portable natural gas chromatographs. On-line natural gas chromatographs are designed for continuous analysis of natural gas quality & are designed for installation in outdoor & remote locations. Portable natural gas chromatographs are designed for installation in field operations vehicles. Services include systems integration, web enabled remote services, training services & site survey analysis. MOCON Inc. - Baseline (http://products.baseline-mocon.com/category/on-line-gas-chromatographs) • ISO 9001:2000 certified manufacturer of standard & custom on-line gas chromatography (GC) analyzers/instruments & multipoint samplers. On-line gas chromatograph analyzers feature automatic baseline adjustment, digital/user definable analog/user definable logic outputs, on board short-term data storage & photoionization (PID)/flame ionization (FID) detectors. 9. In about 200 words, explain how using EDI can lead to supply chain efficiencies. Include in your discussion the merits of using either direct connection or VAN-based EDI and how a company would choose between these approaches. Answer: Many companies are using Internet and Web technologies to manage supply chains in ways that yield increases in efficiency throughout the chain. These companies have found ways to increase process speed, reduce costs, and increase manufacturing flexibility so that they can respond to changes in the quantity and nature of ultimate consumer demand. For example, Boeing faces a huge task in keeping its production on schedule. Each airplane requires more than one million individual parts and assemblies, and each airplane is custom configured to meet the purchasing airline’s exact specifications. These parts and assemblies must be completed and delivered on schedule or the production process comes to a halt. Using EDI and Internet links, Boeing works with suppliers so that they can provide exactly the right part or assembly at exactly the right time. Direct connection EDI requires each business in the network to operate its own on-site EDI translator computer. These EDI translator computers are then connected directly to each other using leased telecommunication lines. Because dedicated leased-lines are expensive, only a few very large companies still use direct connection EDI. Instead of connecting directly a company might decide to use the services of a value-added network; this approach is an indirect connection EDI. To send an EDI transaction set to a trading partner, the VAN customer connects to the VAN and then forwards the EDI-formatted message to the VAN. The VAN logs the message and delivers it to the trading partner’s mailbox on the VAN computer. The trading partner then dials in to the VAN and retrieves its messages. Some benefits to this include: • Users need to support only the VAN’s one communications protocol instead of many possible protocols used by trading partners. • The VAN can provide translation between different transaction sets used by trading partners (for example, the VAN can translate an ASC X12 set into a UN/EDIFACT set). • The VAN can perform automatic compliance checking to ensure that the transaction set is in the specified EDI format. • The VAN records message activity in an audit log. 10. Internet access from smartphones and tablet devices has greatly improved the work environment of long-distance truck drivers. Using your favorite search engine, identify at least three apps that a trucker might use to do two or more of the following: obtain routing information, manage fuel consumption, find truck stops or truck-friendly rest areas, record what they have hauled and where they have hauled it, track required permits, locate Department of Transportation weigh stations, maintain electronic log books, or find potential loads and place bids to carry them. For each app you identify, write a paragraph that explains what the app does, how much it costs, and on what type of devices it runs. Answer: Responses will vary. Apps include: • Trucker Tools: ○ Compatible with Android and Apple devices ○ Finds truck stops ○ Tracks a load – allows you to follow a load's route and receive updates on its location in real time. ○ Plans your route; saves on fuel ○ Accesses permits and factoring services through companies that compete for your business ○ Gets current local weather ○ Searches for nearby truck wash locations • Big Road ○ Works on most Android, iPhone and iPad devices ○ Keeps track of your duty status changes and builds a clean, compliant and fully editable log through the day. ○ Automatically calculates available drive time and recap ○ Sends driver logs, vehicle inspection reports (DVIR), and scans documents directly to your fleet from the app; prints or saves PDFs of logs ○ GPS-enabled map with traffic, HOS availability, and one touch access to find truck stops, weigh scales, dealer locations, and other points of interest. ○ Daily Driver Logs (E-Logs / eLogs): helps to eliminate miscalculation & improve accuracy ○ Supports U.S. FMCSA DOT & Canadian hours of service rules, property- and passenger-carrying rules, short-haul, oilfield, and state rules for Alaska, California & Texas ○ Creates vehicle inspection reports (DVIR / PTI). Source: https://play.google.com/store/apps/details?id=com.bigroad.ttb.android • Trucker Path ○ Compatible with Android and Apple devices ○ Provides detailed information about: • Weigh stations • Truck stops • Parking • Fuel stations • Truck washes • Hotels • Rest areas • Low clearance areas ○ Allows detailed trip planning ○ Allows truck posting when load is empty 11. In about 100 words, outline the advantages of using RFID technology instead of bar code scanning technology in managing the inventory and direct materials in a manufacturing company. Answer: Radio Frequency Identification Devices (RFIDs) are small chips that use radio transmissions to track inventory. RFIDs can be read much more quickly and with a higher degree of accuracy than bar codes. Bar codes must be visible to be scanned. RFID tags can be placed anywhere on or in most items and are readable even when covered with packing materials, dirt, or plastic bands. A bar-code scanner must be placed within a few inches of the bar code. Most RFID readers have a range of about six feet. 12. In about 100 words, explain how the Web can help build and maintain trust among participants in a specific supply chain. Answer: The major issue that most companies must deal with in forming supply chain alliances is developing trust. Continual communication and information sharing are key elements in building trust. Because the Internet and the Web provide excellent ways to communicate and share information, they offer new avenues for building trust. Most procurement professionals have built trust on years of doing business with the same vendors. In many industries, vendors send sales representatives to call on buyers regularly. Vendors also participate actively in trade shows and conferences. By giving buyers frequent opportunities to interact with vendor representatives, vendors help build trust. Vendors are finding that the Web gives them an opportunity to stay in contact with their customers more easily and less expensively. Although most buyers still see vendor sales representatives regularly, e-mail and the Web give them nearly instant access to their sales representative and other vendor personnel. By providing comprehensive information at a moment’s notice, vendors can build buyers’ trust in the vendor’s ability to deliver products and provide the personalized service that buyers need. 13. Companies in a particular supply chain can work together to eliminate costs from the supply chain. In many cases, these cost savings are not shared evenly among the companies in the supply chain. Using research resources on the Web or in your library, identify an industry in which savings are not shared equally. In about 100 words, explain why some supply chain participants in your chosen industry can obtain more benefit than others from cost reductions in the supply chain. Answer: Responses will vary. One industry worth considering is the soft drink industry. PepsiCo, for example, realized energy savings opportunities of approximately $60 million after it implemented a carbon management strategy and used a proprietary energy assessment tool. The company then set out to engage and educate suppliers about the opportunities that exist if they followed suit. 14. In a paragraph or two, explain what a customer portal (also called a private store) is and describe the key features you would expect to find in one. Answer: A customer portal is a corporate Web site designed to meet the needs of customers by offering additional services such as private stores, part number cross-referencing, product-use guidelines, and safety information. Cases C1.Shrinkage at Walmart 1. Answers will vary, but should reflect the relative strengths and weaknesses of the technologies and increased staffing levels in supply chain management. Answers should also include cost-benefit considerations of completely replacing supply chain management systems both within Walmart and at their suppliers. Advantages of using RFID tags • Simple to install • Can be read much more quickly and with a higher degree of accuracy than bar codes • Can be placed anywhere on or in most items and are readable even when covered with packing materials, dirt, or plastic bands • Cannot be replicated easily thus improving the security of the product • Improves management, tracking, and logistics of stock Disadvantage • Costs can be prohibitive • Interference from shelving 2. Answers will vary. Technologies used by trucking fleet could include the following: • GPS tracking systems for trucks • Apps, such as Trucker Tools, used on truckers’ smartphones • RFID used on boxes or pallets to easily identify inventory on trucks 3. Student responses will vary. It is worth noting that although the cost of a passive RFID tag is now between seven and fifteen cents, even that small cost can be prohibitive for companies that ship large volumes of low-priced goods. Some advantages to using RFIDs on each item may include: • Decrease/deter theft • Easily monitor expiration dates on perishable items • Reduce the incidence of stockouts C2.Standard Metal Shaping Systems 1. Responses will vary. 2. Responses will vary. The tablets could be used to transmit images and video to a supervisor to request assistance. 3. Responses will vary. Possible issues include: • Training staff to use the new equipment or software • Compatibility with systems already in place • Updating the system to properly handle changes in tax code or union contracts, • Ensuring the security of sensitive financial data 4. Responses will vary. Some students may suggest that the entire system be outsourced, including training. Examples of elements of the new system that may best be implemented by outside companies include: creating the time tracking software that will be installed on the technician's handheld computers, installing any new software on the computers of the supervisor, Payroll Department, and Accounting Department, and training relevant staff in the proper procedures for new systems. Solution Manual for Electronic Commerce Gary P. Schneider 9781305867819