Marketing problems emanating from e-commerce reprinted from: APICS SM SIG special issue September 2000.

AuthorSmolowitz, Ira

Abstract

It is virtually impossible to read a newspaper or magazine without being exposed to the virtues of e-commerce. The purpose of this article is to highlight problems that may emanate from e-commerce and the Internet.

A problem well stated is a problem half solved.

Charles F. Kettering

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Problem 1--Costs are transparent

In an insightful article, Indrajit Sinha indicates the following:

Everyone knows that the Web makes price comparisons much easier. But that's just one aspect of a far deeper problem. The real threat is what economists call cost transparency, a situation made possible by the abundance of free, easily obtained information on the Internet. All that information has a way of making seller's costs more transparent to buyers--in other words, it lets them see through those costs and determine whether they are in line with the prices being charged. (p. 43) Sinha further states the following:

Cost transparency threatens both retailers and manufactures. For retailers, it means customers will have a much better sense of a product's wholesale costs. That's already changing the way car dealerships operate. Car buyers routinely enter the showroom armed with detailed breakdowns of wholesale auto prices that have been downloaded for free from any of a dozen Web sites. For manufactures, cost transparency means consumers will be better able to infer a product's manufacturing costs, making it much harder to impose large price premiums. The threat, moreover, will be felt not just on-line. As consumers gain a greater knowledge about cost structures, they will be able to use that information to deal with traditional merchants as well. (p.44) Problem 2--Products and services are turned into commodities

To Sinha, cost transparency also brings other problems:

Second, cost transparency turns products and services into commodities. The example of online brokerages illustrates this point. It has now become practically impossible to distinguish among online stock-trading companies, which include Ameritrade, E-Trade, National Discount Brokers, MyDiscountBroker, and Datek. They all provide nearly the same information and services--company new, analyst research, real-time quotes, and portfolio monitoring--while collecting bargain basement commissions. As a result, the trading public has become increasingly skeptical about the rationale for traditionally high commissions charged by such well-established firms as Merrill Lynch and A.G. Edwards...

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