SENECA COLLEGE, TORONTO
As Taught by Tim Richardson School of Marketing and e-Business, Faculty of Business
DETAILED OUTLINE©
last updated 2001 July 20
SECTION on Dot.com failures
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http://www.witiger.com/ecommerce/dotcomfailures.htm
 
March
7
Dot.Com failures
 
In Class, 2001, March 7
we will had a group discussion about Dot.Com failures
Dot.Com Survivor
The process was as follows, The class will be divided into 2 teams

e-Kucha Tribe and e-Ogakor Tribe
 
 

e-Kucha Tribe ("all of America hates Jerri") e-Ogakor Tribe
This Tribe will use the Web to find as many possible examples of Dot.Com failures, and create a list This Tribe will find as many reasons why Dot.coms fail, and use a list of the different types of failures to explain why each entry is on e-Kucha's list
After the time period spent finding the examples, and listing them, e-Kucha will select a representative to read out  the list, one company at a time, to e-Ogakor. In reading out the list, you will provide the company name. where they operated, how they operated and what happened (eg. closed site, laid off employees, etc,). When you hear each company mentioned on the list, you will then have a few minutes to respond explaining why they failed.

Part of your response can include taking a few minutes to rapidly look up the name of the company and find some information (if you did not hear of it before)

e-Kucha wins points by being able to identify companies which e-Ogakur cannot explain e-Ogakor wins points by mentioning reasons for each company's failure - if you cannot mention a reason (which makes sense) for a company, you lose a point to e-Kucha
The tribe with the most points at the end of the time wins.

The prize is 4 class participation marks for everybody on the side of the winning tribe
The losing tribe obtains 1 class participation mark for everybody on their team
In addition, each team will have a secret ballot for a team member who contributed most, and that person (one from each tribe) will win 5 class participation marks.

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SECTION on Pricing Issues

March
13
Pricing
Theory
Classical Marketing Theory re: Pricing
When deciding on pricing, traditionally you had three choices
  1. Profit Oriented Pricing - to achieve a target return
  2. Sales Oriented Pricing- to achieve growth in market share, or achieve economies of scale with high volume sales
  3. Status Quo Pricing - meet the competition
There is also different price levels you can adopt, depending on your stage in the product life cycle
Skimming Price
Penetration Price
 

The determination of prices in some cases can be a very complicated and involved process requires special expertise of particular people. There are persons who make a career speciality of pricing
see  http://www.pricing-advisor.com/ of the Professional Pricing Society

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22 Chapter 11
http://simi.stanford.edu/hanson/chapter11.html
Pricing
Yield Management (p. 345 text)
- matching prices to customers willingness to accept more or less conditions on the service
Click below to read an academic paper from the University of Texas about "Pricing of Services on the Internet"
 http://cism.bus.utexas.
edu/alok/pricing.html
The authors of this paper "feel that pricing is one of the most important issues facing the development of commercial Internet services. We argue that appropriate pricing mechanisms will efficiently distribute the load on The Internet and minimize the losses and delays in services. We view The Internet as an economic system which can be analyzed by looking at the appropriate equilibrium conditions, which in turn can be often imposed by choosing appropriate prices. "
 http://www.sims.berkeley.edu
/resources/infoecon/
Pricing.html
A web page featuring multiple links to academic articles and papers on internet pricing
 

 
Class  Pricing

Online Vs.
Offline



"Net Prices No Lure for Most E-Shoppers"
 http://www.ecommercetimes.com/news/articles2000/001026-1.shtml
By Lori Enos  E-Commerce Times October 26, 2000 
- a story based on
"The UCLA Internet Report: Surveying the Digital Future"

"A report released Wednesday (25 Oct 2000) by the University of California, Los  Angeles (UCLA) shows that 58.4 percent of online purchasers believe that online prices are as high as those offline."
 

. If people do not believe there is a price advantage to buying online, then this might be a significant negative for those people trying to be ambassadors of online retailing. We'd have to have more detail from the UCLA survey to determine if the answer indicating "online was more expensive" was an answer given by people that were factoring in shipping costs.

What this means to people reengineering their company and establishing an online retail channel is that expectations among the general public are that a strong price advantage does not exist online. 

If you want to make a lower online price one of your competitive selling points then this message has to be strongly communicated through your promotional activities.

If a lower online price is NOT one of your competitive selling points then you have to make other aspects of the web site competitive, eg. product selections, sizing, colours etc. - thereby drawing people to purchase online since they will be able to obtain exactly the variations they want - whereas when they go to a store, the store might not have all the SKUs in stock

WTGR

SKUs = size keeping units, the marketing term used to describe the variations in colour, size, shape etc. that are required for each product model. If a product comes in 3 sizes and 4 colours, then it has 12 SKUs

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The UCLA survey noted by Lori Enos in E-commerce Times also included discussion of many other demographic points of internet use, eg. age of users, education of users, what they were doing online, etc.
http://www.ucnewswire.org/
Lori Enos is a very good writer for E-commerce Times, but instead of relying on her interpretation of the UCLA report, you should find the original report on the UCLA site.

In their own words
 www.ucnewswire.org/articles/2000/Oct/UCLA%20Internet%20Report%20Refutes.htm
"UCLA's comprehensive report on the impact of the Internet released today paints a portrait of a society in which two-thirds of Americans have access to online technology and use it extensively without sacrificing their personal and social lives - but users and non-users alike continue to have strong concerns about their online privacy."

The full UCLA Internet Report can be downloaded at http//www.ccp.ucla.edu
 

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Class  Pricing

Online Vs.
Offline

. In the story above, we have an article about how people generally believe a certain relationship exists between online prices and offline prices. In this story below, we have a specific example of how sometimes online prices can be very opportunistic - especially when the company makes a mistake (as can certainly happen in any new technology situation).

WTGR

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Tyler Hamilton wrote a piece in the Toronto Star Nov 17th, 2000 which explained how Future Shop accidentally listed their MP3 players for sale on the Futureshop.ca site for $89.99 instead of the $770 price they were supposed to be sold at.

The story was on the Torstar web site at
 http://www.thestar.com/cgi-bin/gx.cgi/...............Business/Columnists

Hamilton explains that "executives at consumer electronics giant Future Shop Ltd. said that 340 of  the mistakenly priced products were ordered online before the error was spotted, representing a total of $230,000 off the original price tag... The bargain-buying spree is believed to have lasted for less than 24 hours, showing how quickly a simple error on the Internet can be exploited by quick-thinking cybershoppers."

Hamilton added that "Experts say this is the first major example of a Canadian Web retailer falling victim to an online pricing snafu. In the United States, popular online sites  such as Buy.com, Staples.com and Amazon.com have experienced similar problems....Last month, Buy.com agreed to pay the equivalent of $863,000 as part of a court settlement after a group of U.S. consumers sued the company for not honouring an online pricing mistake. A Hitachi computer monitor was being sold for $164.50 (U.S.), $400 off the original price."
http://www.futureshop.ca/
 

. WTGR checked the Future Shop web site two days after this event [17Nov2000] took place and there was not any reference to this situation among their press release listings. Its probably not something they want to bring to the attention of the public - however it could serve to drive people to the site looking for bargains and led to other sales as a result of this publicity.

WTGR

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Class 
13.
Pricing
Consumer
Products
Pricing Recorded Music in an Online World
an online article by Mia Garlick, a lawyer with the law firm Gilbert Tobin, an Australian law firm
 http://www.gtlaw.com.au/pubs/pricingrecordedmusic.html

"This article discusses the impact of digital technologies on the cost structures and revenue streams in the record music industry and, in particular, the implications for pricing strategies of recorded music in an online world when the majority of music is available online in MP3 format, for no cost and generally illegitimately...
The growth of the Internet has also seen the rise of a hacker mentality and an entitlement philosophy. The majority of Internet  users expect information and particularly music to be free. They also feel entitled to access such information or music, regardless  of any technological protection measures. This is partly reflected  in the share and swap practices made possible by Napster and   the popularity of MP3. This attitudinal change makes piracy a   greater challenge that it has been to date.

The recorded music industry is hit particularly hard by the  possibilities of digital technologies because one of its key  consumers groups, the under-18s, are highly technologically literate and able and they are demonstrating, in a humorous  manner, little respect for proprietary rights. A further complicating factor for the industry is that members of this age  group are generally not able to obtain credit cards (at least not  legitimately). This makes free music an even more attractive  option. 

As a result, price is the biggest competitive tool legitimate digital music has left to maintain its place in the consumers' ears."
 

. Garlick's article is written from the legal perspective, not a marketing perspective, nevertheless it is a good read and you are strongly encouraged to go through it since it makes reference to other issues relevant to e-commerce. Music is one of the key business areas of e-commerce so any topics related to this business sector are usually important in how they effect e-commerce as a whole.

WTGR

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www.gtlaw.com.au/
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Class 
13
Bundling Andrew Odlyzko,   AT&T Labs - Research      amo@research.att.com 
 http://curry.edschool.virginia.edu/aace/conf/webnet/html/ao.htm

"Bundling consists of offering several goods together in a single package, such as combining a word processor, a spreadsheet, and a presentation program in a software suite (such as Microsoft Office), or else printing many stories in a single newspaper. Bundling is common, and often seems natural."

Bundling is also involves physcology as well as mathematics. Odlyzko notes "Catalog merchants have learned that the attractiveness of an item is affected strongly not just by its price and description, but also by its placement among other offers. Consumer choices are complicated."

 

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Class 
13
Differentiated
Pricing

 
. In the offline world we have many examples of companies charging different prices for different customers, depending on the pricing objectives of the firm. Usually this discriminatory pricing is done based on things such as discounts for students, or discounts for customers that make repeat purchases - it is unusual to charge different prices to customers within the same target market segment.

WTGR

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Robert Wright, writing in an e-commerce article in the Toronto Star, Sept 14th, 2000, notes that Amazon.com has recently acquired interest for its practice or charging different prices to different customers in a way that hints they give lower prices to new customers, but once their software tells them someone browsing the site has bought before, the prices indicated are higher !

Wright says "It was revealed last week that Amazon.com employs a somewhat dubious pricing systems. It seems that prices for articles sold at the site vary according to who's doing the shopping... critics accuse the company of offering discounts to new users, then once they come back a few times, the prices start to go up"

Robert Wright, is the Editor of "Fast Forward" a section of the Toronto Star that deals with contemporary e-commerce and internet issues.
 

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Class
14
Tax
Issues
 
 
 
 
 
 

Tax
Issues
 
 
 
 
 
 
 

Tax
Issues

 

Why is taxation a big issue for governments?
One of the things we have seen in the 1990's is massive social problems in many countries of the world, First World and Thirld World - all based on governments having increasing burdens to pay for more and more social costs in order to deal with the challenges of unemployment, scarce resources, migration and immigration, crime etc. Provincial and state governments in particular have found it increasingly difficult to find enough money to pay for all the services the populace require.
 

Basically, provincial and state  government gets money from three sources

  • local taxes of the citizens inside their political boundaries
  • fees for services and use of facilities
  • money transfer from federal national government agencies
Because the national government agencies are suffering taxation strain, provincial and state government is always looking for better ways to tax existing businesses and new ways to tax new business. Individuals in many countries are being taxed at higher and higher rates and it is politically impossible to raise personal tax rates since the particular government that does this will get voted out next election - so instead of raising personal income tax rates, they look for money by cutting back on what they provide to provincial and state levels of government - thereby leaving the provincial and state  governments looking to new sources (such as businesses selling onlines) as a new sources of tax revenue.
 
. Many provincial and state governments are looking to the revenue generated from internet business as a way to alleviate the problems. The problem at present [late 2000] is provincial and state  governments find it difficult to determine the process and method of collecting tax from cyber oriented businesses and furthermore they find it challenging to ascertain the jurisdictional issues - that is to say do they even have the legal authority to collect such new taxes.

WTGR

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Dr. Nathan Newman, University of California, Berkeley 
has an extensive web site discussing
Government, Technology and the Political Economy of Community in the Age of the Internet
on this web site are chapters of his book
One particular chapter, # 6, is titled
How State & Local Government Finances are Becoming Road Kill On The Information Superhighway

The page containing this chapter is at
 http://socrates.berkeley.edu/~newman/chap6.html

If you print this chapter it will be about 22 pages, depending on how your browser breaks up the text. The most important section is at the beginning and some of the key points are as follows.

"...the new technology of the Internet and the global economic changes accompanying it promise to deal a final body blow to the financial security of local governments. Local governments could once count on local economic development to produce local jobs where local employees could spend money in local stores, thereby generating local tax revenue for further development. This virtuous cycle has been fatally undermined by the new technology of cyberspace. Even as many states and local areas hope for increased revenue due to high technology-based growth, it becomes harder and harder for local government to capture much of that growth in local tax revenue".

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Class Tax
Issues
 
 
 
 
 
 

Tax
Issues
 
 
 
 
 
 
 

Tax
Issues

 

http://www.udayton.edu/~lawtech/cle98grogan.htm
"Conducting business on the Internet raises complex legal and tax issues that many companies have never previously faced. When a small local company that has only sold products or services in a limited geographical area begins to offer its goods or services on the World Wide Web, it instantly is thrust into an environment in which prospective purchasers who access its web site may be located anywhere in world. A company doing business  internationally is subject to a myriad of laws and regulations that may impact its operations."

What are some of the issues

First,  in general sales tax (a) is imposed on sales of tangible personal property; (b) is not imposed on sales of intangible property.
If you buy a CD ROM and it is shipped to you, you are possibly subject to tax because it is a tangible product. In some places (particularly in some U.S. states) there is no tax on intangivel property.
 
 

. What does this mean?

Example: if you buy a software product online on CD and it is shipped to you, you pay tax. In many jurisdictions, if you download the software online, there is theoretically no tangible product, so you therefore do not have to pay tax.

How do you ascertain the jurisdiction within the tax is applied?

The Internet may also pose unique problems that are not encountered by conventional retail or mail order businesses. For example, a normal retailer or mail order customer knows with reasonable certainty where its customer is located at the time of purchase -- usually either the store where the customer picks up the merchandise, or the address to which the products are  delivered. When software, music, text, images and other materials are downloaded on the World  Wide Web, an Internet vendor has no way of knowing for certain where the customer is located. Thus, to the extent that any such download transactions are potentially subject to tax, an Internet vendor is faced with the practical impossibility of even knowing for certain the tax jurisdiction in which its customer is located.

WTGR

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Class
14
Tax
Issues
 
 
 
 
 
 

Tax
Issues
 
 
 
 
 
 
 

Tax
Issues

 

. Since most medium and large sized Canadian companies do business with U.S. customers and/or import parts, supplie and materials from U.S. suppliers the implications of U.S. tax regulations have long effected Canadian business - before the World Wide Web exploded the possibilities of commerce.

There are a number of resources on U.S. government and corporate web pages that notes some of the issues, challenges and new developments in tax situations re: online business. You are encouraged to read several of the links to the particular links noted below.

WTGR

 www.caltax.org/!treas-ec.html

"...technological advances may put particular pressure on the principles governing the taxation of transnational transactions. It is the very nature of these developments that they tend to blur national borders and the source and character of income. Consequently, significant issues often arise regarding how the income arising from transnational transactions utilizing these technologies should be treated under current rules. As a result, it is possible that countries will claim inconsistent taxing jurisdiction, with the attendant possibility that taxpayers will be subject to international double taxation. If these technologies are to achieve their maximum potential, this must be avoided."

the above quote comes from the Office of Tax Policy, Department of the Treasury [U.S.]
it is contained in an online document titled
"Selected Tax Policy Implications of Global Electronic Commerce"

Issue: Neutrality

The U.S. Dept. of the Treasury states that the development of tax policy should be guided by the principle of neutrality. "Neutrality rejects the imposition of new or additional taxes on electronic transactions and instead simply requires that the tax system treat similar income equally, regardless of whether it is earned through electronic means or through existing channels of commerce."
Issue: Jurisdiction
The U.S. Dept. of the Treasury states that because of some problems in applying the concept of jurisdictions "transactions in cyberspace will likely accelerate the current trend to de-emphasize traditional concepts of source-based taxation, increasing the importance of residence-based taxation... It is the very nature of these [e-commerce] developments that they tend to blur national borders and the source and character of income. Consequently, significant issues often arise regarding how the income arising from transnational transactions utilizing these technologies should be treated under current rules. As a result, it is possible that countries will claim inconsistent taxing jurisdiction, with the attendant possibility that taxpayers will be subject to international double taxation."
 
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Class 
14
Accounting
Considerations
This Federal Government department has a giant sized web site that provides copius information on different aspects related to e-commerce, including some special report indexed by industry
There is a report online titled
"E-Commerce in the Accounting Industry"
 http://strategis.ic.gc.ca/...........
. From the  web site we can observe a number of Accounting considerations regarding e-commerce. The points in the following list are efficiences and improvements that can be made to corporate accounting practices - which have been observed by corporate accountants responding to a government survey on how e-commerce has helped them in their carrying out of accounting activities for the company's they worked for. Some of the most helpful points have been listed below.

WTGR

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  • Tax returns: Productivity increases in preparing tax returns range from 25% to "over double" with e-filing
  • Audit efficiency: Accessing audit software saves time and increases reliability with analysis, charting and reporting.  This improves reliability by providing consistency of information for comparative or corroborative purposes.
  • Research: Accountants use web access to research sites such as the Revenue Canada web site, accounting bodies' web sites for current Handbook information or magazine  articles , analysis of federal/provincial budgets etc. In all cases the most current information is available instantly rather than waiting.
  • Software: One of the major trends appears to be moving toward a server based and Web based model for accounting software instead of installing software on a local hard drive. Advantages are software updates are instantaneous and users can access their accounting records from anywhere. Interface is the Web browser so there is a short learning curve. 
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Class 
14
Accounting
Considerations
http://www.cica.ca/cica/cicawebsite.nsf/public/homepage
The Canadian Institute of Chartered Accountants in cooperation with the  American Institute of Certified Public Accountants (www.aicpa.org) has developed "WebTrust" (www.cica.ca/WebTrust) This new assurance service is designed to address the insecurities of consumers who want to engage in electronic commerce. To earn the right to display the WebTrust seal on its web site, the business entity must comply with all the WebTrust principles and be verified by a licensed chartered accountant.
 
. This is an example of how industry associations are positioning themselves as role players in the e-community by creating a situation that would require small and medium sized enterprises to go through some accreditation process in order to have some legitimacy. (eg. being able to display the WebTrust seal)

The concept is not new - think of the small and medium sized hotels throughout North America which, in the 1960's, sought AAA and CAA approval in order to be ranked and therefore attract motoring tourists seeking lodging.

WTGR

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Class  Accounting
Considerations

 http://www.BennettGold.ca/topten5.html

The Canadian Chartered Accountanting firm of Bennett, Gold has an excellent website in which they provide a helpful list titled;

"10 THOUGHTS BEFORE CHOOSING YOUR ACCOUNTING SYSTEM"

The main points (summarized) are

  1. Determine the need
  2. Research what similar companies are doing and using
  3. Consider functionality
  4. Shrinkwrap vs. customized software
  5. upgradeability
  6. Resources required: hardware, people, money
  7. Users
  8. Back-up
  9. HR capability to operate it
  10. Output 
. A number of professional service firms (legal, accounting, recruiting) all have sections on their websites which can be of great use to people working their way through this course ECP 1100. In the case of matters re: accounting considerations, firms like Bennett, Gold are valuable resources for advice on the nature of e-commerce issues as well as providing, in some instances, some case samples of how particular problems have been addressed.

WTGR

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. Accounting 
Considerations

Payment
Systems
 

link to ppt menu
the Turban book
page 29
"electronic commerce requires special finance and accounting systems. Most notable are payment systems. Traditional payment systems are ineffective or inefficient for electronic trade."

The use of the new payment systems such as electronic cash is complicated because it involves legal agreements on international standards"
Turban et al, page 29

 
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