Lecture notes

NOTES IS3167 - Management and Innovation of e-business

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Module
IS3167 (IS3167)

Institution
London School Of Economics (LSE)

Notes for the London School of Economics course 'Management and Innovation of E-Business (IS3167)'. These notes span chapters 2 to 8 and are derived from official course sources such as the course textbook, subject guide, and lecture materials, ensuring you have a thorough understanding of the ...

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Number of pages 66
Written in 2022/2023
Type Lecture notes
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Contains Chapter 1-8,11

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,CHAPTER 2: MARKET CONFIGURATIONS AND E-BUSINESS ........................................................................... 4
PERFECT COMPETITION ....................................................................................................................................... 4
E-BUSINESS IN PERFECT COMPETITON ............................................................................................................ 5
MONOPOLISTIC COMPETITION ............................................................................................................................ 5
E-BUSINESS IN MONOPOLISTIC COMPETITION ................................................................................................ 6
OLIGOPOLY........................................................................................................................................................... 6
E-BUSINESS IN OLIGOPOLY............................................................................................................................... 7
MONOPOLY .......................................................................................................................................................... 7
E-business in monopoly ................................................................................................................................... 8
OVERVIEW OF CHAPTER....................................................................................................................................... 8
ESSENTIAL READING CHAFFEY CHAPTER 5 ................................................................................................... 9
Assessing competitive threats.......................................................................................................................... 9
How can digital business create business value? ........................................................................................... 11
ESSENTIAL READING: REALISTIC BUSINESS STRATEGIES FROM UNREALISTIC MICRO THEORIES ................... 12
DISCUSSION QUESTIONS ........................................................................................................................................... 12
SUMMARY............................................................................................................................................................. 13
CHAPTER 3: E-BUSINESS TECHNOLOGY AND INFRASTRUCTURE.................................................................. 14
NETWORK & INTERNET............................................................................................................................................ 14
NETWORKING STANDARDS ................................................................................................................................ 15
THE WEB ............................................................................................................................................................... 15
WEB 2.0 – NEW VERSION OF THE WEB ....................................................................................................................... 15
PEER-TO-PEER NETWORKS ....................................................................................................................................... 16
CLOUD COMPUTING ................................................................................................................................................ 16
CHARACTERISTICS .......................................................................................................................................... 17
3 SERVICE MODELS......................................................................................................................................... 17
DEPLOYMENT MODELS .................................................................................................................................. 17
promises of cp ................................................................................................................................................ 17
Benefits of CP: ................................................................................................................................................ 17
risks OF cloud computing ............................................................................................................................... 17
ESSENTIAL READNG: THE NIST DEFINITION OF CLOUD COMPUTING ........................................................... 18
LINKS TO OTHER ESSENTIAL READINGS: ..................................................................................................... 19
MOBILE COMPUTING .............................................................................................................................................. 20
DIGITAL INFRASTRUCTURES ....................................................................................................................................... 21
SAMPLE EXAMINATION QUESTIONS ........................................................................................................................... 21

CHAPTER 4: ECONOMIC THEORIES OF E-BUSINESS: NETWORK ECONOMICS AND TRANSACTION COSTS ...... 24
NETWORK ECONOMICS ............................................................................................................................................ 24
CRITICAL MASS ................................................................................................................................................... 24
INCREASING RETURNS.................................................................................................................................... 25
Positive feedback ....................................................................................................................................... 25
LOCK-IN & SWITCHING COSTS ................................................................................................................................... 25
TRANSACTION COSTS ......................................................................................................................................... 27
TYPES OF TC.................................................................................................................................................... 27
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, ICT AND DISINTERMEDIATION ........................................................................................................................... 28
INFOMEDIARIES................................................................................................................................................. 29
SAMPLE EXAMINATION QUESTIONS ................................................................................................................ 31
CHAPTER 5: ............................................................................................................................................... 33
BUSINESS-TO-CONSUMER (B2C) SYSTEMS AND STRATEGIES ...................................................................... 33
BUSINESS MODELS AND REVENUE MODELS ..................................................................................................... 33
BUSINESS MODELS ........................................................................................................................................ 33
Revenue models ............................................................................................................................................ 34
EVOLUTION OF B2C WEBSITES .......................................................................................................................... 35
RECOMMENDATIONS AND REVIEWS ............................................................................................................ 35
MOBILE SHOPPING ........................................................................................................................................ 35
PRICE COMPARISON SITES ............................................................................................................................. 36
FLASH SALES .................................................................................................................................................. 36
COLLECTIVE BUYING ...................................................................................................................................... 36
EVOLUTION OF THE GIANTS .......................................................................................................................... 36
VALUE PROPOSITION......................................................................................................................................... 37
CONTENT ....................................................................................................................................................... 37
CUSTOMISATION ........................................................................................................................................... 37
COMMUNITY ................................................................................................................................................. 37
Convenience .................................................................................................................................................. 37
CHOICE ........................................................................................................................................................... 38
COST REDUCTION .......................................................................................................................................... 38
DIGITAL PRODUCTS ........................................................................................................................................... 38
MUSIC ............................................................................................................................................................ 38
BOOKS ............................................................................................................................................................ 39
NEWSPAPER................................................................................................................................................... 39
FILM AND TELEVISION ................................................................................................................................... 39
UNDERSTANDING SHOPPERS AND SHOPPING HABITS...................................................................................... 40
BARRIERS TO PURCHASING ONLINE .............................................................................................................. 40
‘THE EMPORIUM STRIKES BACK’ ................................................................................................................... 40
Consumer buying behaviour ......................................................................................................................... 40
OMNI-CHANNEL RETAILING .............................................................................................................................. 41
CHANNEL CONFLICT AND CANNIBALISATION ............................................................................................... 41
THE SHARING ECONOMY ......................................................................................................................................... 41
B2C PROBLEMS –NIJE PF ......................................................................................................................................... 42
KEY SUCCESS FACTORS OF B2C ................................................................................................................................. 42
SAMPLE EXAMINATION QUESTIONS ................................................................................................................. 43
CHAPTER 6: ............................................................................................................................................... 44
MARKETING FOR E-BUSINESS .................................................................................................................... 44
BASIC CONCEPTS AND MODELS OF MARKETING ............................................................................................... 44
Customer segmentation ................................................................................................................................ 44
marketing mix- 4ps ........................................................................................................................................ 44
THE CUSTOMER LIFE-CYCLE ........................................................................................................................... 45
CUSTOMER RELATIONSHIP MANAGEMENT ............................................................................................... 46
Advertising and branding .............................................................................................................................. 46
THE E-BUSINESS CONTRIBUTION TO MARKETING .......................................................................................................... 47
OFFLINE VS ONLINE MARKETING – NEW MEDIA MARKETING ...................................................................... 47
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, PERSONALISATION AND MASS CUSTOMISATION .......................................................................................... 48
SEARCH ENGINE OPTIMISATION .................................................................................................................... 49
AFFILIATE MARKETING ................................................................................................................................... 49
Online advertising .......................................................................................................................................... 49
VIRAL MARKETING ......................................................................................................................................... 49
MULTI-CHANNEL INTEGRATION ........................................................................................................................ 50
DYNAMIC PRICING .................................................................................................................................................. 51
BEHAVIOURAL PROFILING AND PRIVACY CONCERNS ........................................................................................ 51
SAMPLE EXAMINATION QUESTIONS ................................................................................................................ 52
CHAPTER 7: BUSINESS TO BUSINESS AND SUPPLY CHAIN MANAGEMENT ................................................... 53
B2B ................................................................................................................................................................. 53
SUPPLY CHAIN MANAGEMENT AND E-PROCUREMENT................................................................................. 54
B2B STRUCTURES ........................................................................................................................................... 54
CHAPTER 8: PRICING AND E-BUSINESS ...................................................................................................... 55
FIXED PRICING ........................................................................................................................................................ 55
penetration pricing......................................................................................................................................... 56
price skimming ............................................................................................................................................... 56
LOSS LEADER .................................................................................................................................................. 56
PRICE LEADERSHIP.......................................................................................................................................... 57
PREMIUM OR PRESTIGE PRICE ....................................................................................................................... 57
Price lining ...................................................................................................................................................... 57
ODD-EVEN PRICING ........................................................................................................................................ 57
DYNAMIC PRICING ............................................................................................................................................. 58
Segmented pricing - What prices are changing and for which customers? .................................................. 58
NEGOTIATION: AUCTIONS .............................................................................................................................. 60
SUCCESS OF DYNAMIC PRICING .................................................................................................................................. 60
ICT AND DYNAMIC PRICING ............................................................................................................................... 61
Inventory-based model .................................................................................................................................. 61
DATA-DRIVEN MODELS .................................................................................................................................. 62
MACHINE LEARNING MODELS ....................................................................................................................... 62
STIMULATION MODELS .................................................................................................................................. 62
SAMPLE EXAMINATION QUESTIONS ................................................................................................................ 63
CHAPYER 11 .............................................................................................................................................. 64
E-BUSINESS STRATEGY SUMMARY ............................................................................................................. 64

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, ICTs - information and computer technologies
 E-business is viewed as a valuable resource if it aids a business in better achieving the strategic
objectives that direct it’s positioning in the different markets.
 E-business investments can improve a company's performance and efficiency.
 How, why, and in what situations e-business solutions are useful tools for assisting businesses in
enhancing their profitability.
 The effects of e-business depend on the structure of the market.

 Conditions that guarantee the existence of perfect competition:

Products homogeneous (all firms sell identical products)
Sellers many sellers which are price takers
Buyers Many buyers, price takers
completely elastic to price (demand follows even a small price increase until it
Demand
reaches 0)

Entry and exit free- no entry barriers
both consumers and producers have perfect information (perfect
Information
knowledge)
Movement of factors
free
of production
externalities No externalities arising out of production and/or consumption.

 A firm determines its output (production) by locating the
intersection of the curves for marginal revenue (MR),
marginal cost (MC), and average total cost (ATC).

 The marginal revenue is horizontal (marginal revenue =
price = average revenue) because price is fixed and
demand is completely elastic.

 As long as profits can be made new firms will enter the
market. Entry of new firms will drive prices down until all
firm’s long-term economic profits are zero, maintaining
the condition of perfect competition (where the average
firm will make no economic profits)

 Since prices are given and demand is completely elastic to price, if firms raise their prices above the
market price, there will be no demand; if they raise production, there is no price drop (otherwise firms
would lose money).
 Perfect competition is a theoretical model.
It assumes identical products, a large number of buyers, easy entry and exit, and perfect
information. Markets rarely follow this model.

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,  In perfect competition market all firms have access to the same resources and information  if
investing in e-business allows one business to outperform its competitors, every other business will
undoubtedly follow  Investments in e-business become a requirement to survive in a fiercely
competitive market if they improve firm performance.
 E-business strategies are shaped by the industry and do not add any unique value because
competitors can easily copy and mimic them for no cost, but they become necessary to be able to
keep up with the market.

 Resembles perfect competition, fundamental difference: products are different.
 Conditions that guarantee the existence of monopolistic competition:

 heterogeneous - products are similar but not identical. This Product differentiation
Products gives firms some degree of price setting power - limited by the existence of possible
substitutes

Sellers Many sellers
Buyers Many buyers
 elastic to price (increase in price will generate a reduction in demand for the
Demand
good)

Entry and exit  easy entry and exit - ‘almost’ no barriers to entry/exit
 imperfect knowledge – Differentiation among firms may be achieved through
Information advertising, branding, seller reputation, product quality location convenience, or
other elements.

Movement of factors
free
of production

SHORT RUN:
 Firms will fix production at the output level where marginal revenue
= marginal cost.
 The demand curve will determine the price.
 The difference between the price and the average total costs
determines the economic profits.

LONG RUN:
 As long as positive economics profits are made new firms will enter
the market.
 The greater the number of firms that enter the market, the greater the
availability of substitutes for the existing products  demand
elasticity increases and market share for all firms competing in the
market decreases (D2)
 Marginal revenue also decreases
 Equilibrium: when new firms have no incentive to enter
 Since every firm produces at MR=LMC here are no economic profits.
 Price determined by equilibrium will equal long-term average total
costs (P=LATC).
 A higher price would draw in more entrants. They will enter until equilibrium price is reached.

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