Chapter 6 Attracting Buyers with Search, Semantic, and Recommendation Technology Prepared by Dr. Derek Sedlack, South University Learning Objectives Using Search Technology for Business Success Organic Search and Search Engine Optimization Pay-PerClick and Paid Search Strategies Recommendation Engines A Search for Meaning— Semantic Technology Copyright © 2015 John Wiley & Sons, Inc. All rights reserved. Chapter 6 Using Search Technology for Business Success • How Search Engines Work – Search Engine: an application for locating webpages or other content on a computer network using spiders. – Spiders: web bots (or bots); small computer programs designed to perform automated, repetitive tasks over the Internet. – Bots scan webpages and return information to be stored in a page repository. Copyright © 2015 John Wiley & Sons, Inc. All rights reserved. Chapter 6 Using Search Technology for Business Success Copyright © 2015 John Wiley & Sons, Inc. All rights reserved. Chapter 6 Using Search Technology for Business Success • Web Directories – Typically organized by categories. – Webpage content is usually reviewed by directory editors prior to listing. – Page Repository: data structure that stores and manages information from a large number of webpages, providing a fast and efficient means for accessing and analyzing the information at a later time. Copyright © 2015 John Wiley & Sons, Inc. All rights reserved. Chapter 6 Using Search Technology for Business Success Figure 6.5 Components of crawler search engines (Grehan, 2002). Copyright © 2015 John Wiley & Sons, Inc. All rights reserved. Chapter 6 Using Search Technology for Business Success Figure 6.6 Search engines use invested indexes to efficiently locate Web content based on search query terms. Copyright © 2015 John Wiley & Sons, Inc. All rights reserved. Chapter 6 Using Search Technology for Business Success • Why Search is Important for Business – Enterprise search tools allow organizations to share information internally. – An organizations’ ability to share knowledge among employees is vital to its ability to compete. – Information is not always in the same format. Copyright © 2015 John Wiley & Sons, Inc. All rights reserved. Chapter 6 Using Search Technology for Business Success • Why Search is Important for Business – Structured data: information with a high degree of organization, such that inclusion in a relational database is seamless and readily searchable by simple, straightforward search engine algorithms or other search operations. – Unstructured data: “messy data” not organized in a systematic or predefined way. Copyright © 2015 John Wiley & Sons, Inc. All rights reserved. Chapter 6 Using Search Technology for Business Success • Security Issues – Limited access to certain data via job function or clearance. – Request log audits should be conducted regularly for patterns or inconsistencies. • Enterprise Vendors – Used to treat data in large companies like Internet data but include information management tools. Copyright © 2015 John Wiley & Sons, Inc. All rights reserved. Chapter 6 Using Search Technology for Business Success • Recommendation Engines – Attempt to anticipate information users might be interested in to recommend new products, articles, videos, etc. • Search Engine Marketing – A collection of online marketing strategies and tactics that promote brands by increasing their visibility in search engine results pages (SERPs) through optimization and advertising. Copyright © 2015 John Wiley & Sons, Inc. All rights reserved. Chapter 6 Using Search Technology for Business Success • Search Engine Marketing – Basic search types: • Informational search • Navigational search • Transactional search – Strategies and tactics produce two outcomes: • Organic search listings • Paid search listings – Pay-per-click (produce click-through rates) • Social media optimization Copyright © 2015 John Wiley & Sons, Inc. All rights reserved. Chapter 6 Using Search Technology for Business Success • Mobile Search – Technically configured mobile sites – Content designed for mobile devices • Business search – Focused search – Filetype – Advanced search – Search tools button – Search history Copyright © 2015 John Wiley & Sons, Inc. All rights reserved. Chapter 6 Using Search Technology for Business Success • Real-time Search – Google Trends – Google Alerts – Twitter Search • Social Bookmarking Search – Page links tagged with keywords • Specialty Search: Vertical Search – Programmed to focus on webpages related to a particular topic and to drill down by crawling pages that other search engines are likely to ignore. Copyright © 2015 John Wiley & Sons, Inc. All rights reserved. Chapter 6 Using Search Technology for Business Success 1. What is the primary difference between a web directory and a crawler based search engine? 2. What is the purpose of an index in a search engine? 3. Describe the page-ranking method most commonly associated with Google’s success. 4. What is the difference between search engine optimization and PPC advertising? 5. Describe three different real-time search tools. Copyright © 2015 John Wiley & Sons, Inc. All rights reserved. Learning Objectives Using Search Technology for Business Success Organic Search and Search Engine Optimization Pay-PerClick and Paid Search Strategies Recommendation Engines A Search for Meaning— Semantic Technology Copyright © 2015 John Wiley & Sons, Inc. All rights reserved. Chapter 6 Organic Search and Search Engine Optimization • Search Engine Optimization – Keyword conversion rates: the likelihood that using a particular keyword to optimize a page will result in conversions*. – Ranking factors • Reputation or popularity – PageRank: Google’s algorithm based on the assumption that people are more likely to link a high-quality website than poor-quality site. – Backlinks: external links that point back to a site. • Relevancy • User Satisfaction Conversions: when a website visitor converts to a buyer Copyright © 2015 John Wiley & Sons, Inc. All rights reserved. Chapter 6 Organic Search and Search Engine Optimization • Inbound marketing – An approach to marketing that emphasizes SEO, content Marketing, and social media strategies to attract customers. • Outbound marketing – Traditional approach using mass media advertising. Copyright © 2015 John Wiley & Sons, Inc. All rights reserved. Chapter 6 Organic Search and Search Engine Optimization • Black Hat SEO – Gaming the system or tricking search engines into ranking a site higher than its content deserves. 1. Link spamming: generating backlinks toward SEO, not adding user value. 2. Keyword tricks: embedded high-value keywords to drive up traffic statistics. 3. Ghost text: text hidden in the background that will affect page ranking 4. Shadow (ghost or cloaked) pages: created pages optimized to attract lots of people through redirect. Copyright © 2015 John Wiley & Sons, Inc. All rights reserved. Chapter 6 Organic Search and Search Engine Optimization 1. 2. 3. 4. 5. Search engines use many different “clues” about the quality of a website’s content to determine how a page should be ranked in search results. These clues fall into three primary categories: Reputation or Popularity, Relevancy, and User Satisfaction. Explain the rationale for using each of these three categories as an indicator of a website’s content quality. Backlinks were a key factor in Google’s original PageRank algorithm. Explain what a backlink is and why Google has reduced its emphasis on backlinks and instead uses many other additional factors in its ranking algorithm? Explain why so-called black hat SEO tactics are ultimately short-sighted and can lead to significant consequences for businesses that use them. How do organizations evaluate the effectiveness of their search engine optimization (SEO) strategies and tactics? Explain why providing high quality, regularly updated content is the most important aspect of any SEO strategy. Copyright © 2015 John Wiley & Sons, Inc. All rights reserved. Learning Objectives Using Search Technology for Business Success Organic Search and Search Engine Optimization Pay-PerClick and Paid Search Strategies Recommendation Engines A Search for Meaning— Semantic Technology Copyright © 2015 John Wiley & Sons, Inc. All rights reserved. Chapter 6 Pay-Per-Click and Paid Search Strategies • Pay-Per-Click – PPC advertising campaigns: 1. Set an overall budget 2. Create ads 3. Select associated keywords 4. Set up billing account information Copyright © 2015 John Wiley & Sons, Inc. All rights reserved. Chapter 6 Pay-Per-Click and Paid Search Strategies • Paid Search Advertising Metrics – Click through rates (CTR): used to evaluate keyword selection and ad copy campaign decisions. – Keyword conversion: should lead to sales, not just visits. – Cost of customer acquisition (CoCA): amount of money spent to attract a paying customer. – Return on advertising spend (ROAS): overall financial effectiveness. Copyright © 2015 John Wiley & Sons, Inc. All rights reserved. Chapter 6 Pay-Per-Click and Paid Search Strategies • Quality Score – Determined by factors related to the user’s experience. • Expected keyword click-through-rate (CTR) • The past CTR of your URL (web address) • Past effectiveness • Landing page quality • Relevance of keywords to ads • Relevance of keywords to customer search • Ad performance on difference devices Copyright © 2015 John Wiley & Sons, Inc. All rights reserved. Chapter 6 Pay-Per-Click and Paid Search Strategies 1. What would most people say is the fundamental difference between organic listings and PPC listings on a search engine? 2. What are the four primary steps to creating a PPC advertising campaign on search engines? 3. In addition to the “bid price” for a particular keyword, what other factor(s) influence the likelihood that an advertisement will appear on a search results page? Why don’t search engines just rely on the advertisers bid when deciding what ads will appear on the search results page? 4. How do webpage factors influence the effectiveness of PPC advertisements? 5. Describe four metrics that can be used to evaluate the effectiveness of a PPC advertising campaign. Copyright © 2015 John Wiley & Sons, Inc. All rights reserved. Learning Objectives Using Search Technology for Business Success Organic Search and Search Engine Optimization Pay-PerClick and Paid Search Strategies Recommendation Engines A Search for Meaning— Semantic Technology Copyright © 2015 John Wiley & Sons, Inc. All rights reserved. Chapter 6 A Search for Meaning—Semantic Technology • Semantic Web – Meaningful computing using metadata: application of natural language processing (NLP) to support information retrieval, analytics, and data-integration that compass both numerical and “unstructured” information. • Semantic Search – Process of typing something into a search engine and getting more results than just those that feature the exact keyword typed into the search box. • Metadata – Data that describes and provides information about other data. Copyright © 2015 John Wiley & Sons, Inc. All rights reserved. Chapter 6 A Search for Meaning—Semantic Technology Copyright © 2015 John Wiley & Sons, Inc. All rights reserved. Chapter 6 A Search for Meaning—Semantic Technology • Web 3.0 – Developed by W3C. – Resource description framework (RDF) • Used to represent information about resources – Web ontology language (OWL) • Language used to categorize and accurately identify the nature of Internet things – SPARCQL protocol • Used to write programs that can retrieve and manipulate data scored in RDF – RDF query language (SPARCQL) Copyright © 2015 John Wiley & Sons, Inc. All rights reserved. Chapter 6 A Search for Meaning—Semantic Technology • Semantic Search Features and Benefits – Related searches/queries – Reference results – Semantically annotated results – Full-text similarity search – Search on semantic/syntactic annotations Copyright © 2015 John Wiley & Sons, Inc. All rights reserved. Chapter 6 A Search for Meaning—Semantic Technology • Semantic Search Features and Benefits – Concept search – Ontology-based search – Semantic Web search – Faceted search – Clustered search – Natural language search Copyright © 2015 John Wiley & Sons, Inc. All rights reserved. Chapter 6 A Search for Meaning—Semantic Technology 1. List five different practical ways that semantic technology is enhancing the search experience of users. 2. How do metadata tags facilitate more accurate search results? 3. Briefly describe the three evolutionary stages of the Internet? 4. Define the words “context,” “personalization,” and “vertical search” and explain how they make for more powerful and accurate search results. 5. What are the three languages developed by the W3C and associated with the semantic Web? Copyright © 2015 John Wiley & Sons, Inc. All rights reserved. Learning Objectives Using Search Technology for Business Success Organic Search and Search Engine Optimization Pay-PerClick and Paid Search Strategies Recommendation Engines A Search for Meaning— Semantic Technology Copyright © 2015 John Wiley & Sons, Inc. All rights reserved. Chapter 6 Recommendation Engines • Recommendation Filters – Content-based filtering: products based on product features in past interactions. – Collaborative filtering: based on user’s similarity to other people. Copyright © 2015 John Wiley & Sons, Inc. All rights reserved. Chapter 6 Recommendation Engines • Limitations of Recommendation Engines – Cold start or new user: challenging since no starting point or preexisting information exists. – Sparsity: unable to create critical mass due to few ratings or similar groups are unidentifiable. – Limited feature content: manual information entry is prohibitive where there are many products. – Overspecialization: narrowly configured results may only recommend the same item, but in different sizes or colors. Copyright © 2015 John Wiley & Sons, Inc. All rights reserved. Chapter 5 Recommendation Engines • Hybrid Recommendation Engines – Weighted hybrid: results from different recommenders are assigned weight and combined numerically to determined final recommendations. – Mixed hybrid: results from different recommenders presented along-side of each other. – Cascade hybrid: results from different recommenders assigned a rank or priority. – Mixed hybrid: results from different recommenders combines results from two recommender systems from the same technique category. Copyright © 2015 John Wiley & Sons, Inc. All rights reserved. Chapter 6 Recommendation Engines 1. How is a recommendation engine different from a search engine? 2. Besides e-commerce websites that sell products, what are some other ways that recommendation engines are being used on the Web today? 3. What are some examples of user information required by recommendation engines that use collaborative filtering? 4. Before implementing a content-based recommendation engine, what kind of information would website operators need to collect about their products? 5. What are the four distinct methodologies used by recommender systems to create recommendations? 6. What is a recommendation engine called that combines different methodologies to create recommendations? What are three ways these systems combine methodologies? Copyright © 2015 John Wiley & Sons, Inc. All rights reserved. Chapter 7 Social Networking, Engagement, and Social Metrics Prepared by Dr. Derek Sedlack, South University Learning Objectives Social Networking Services and Communities Web 2.0— The Social Web Engaging Consumers with Blogs and Microblogs Knowledge Sharing in the Social Workplace Mashups, Social Metrics, and Monitoring Tools Copyright © 2015 John Wiley & Sons, Inc. All rights reserved. Chapter 7 Web 2.0—The Social Web • The Constantly Changing Web – Web 2.0 (the social web): a term used to describe a phase of World Wide Web evolution characterized by dynamic webpages, social media, mashup applications, broadband connectivity and usergenerated content. – Social media: a collection of Web applications, based on Web 2.0 technology and culture that allows people to connect and collaborate with others by creating and sharing digital content. Copyright © 2015 John Wiley & Sons, Inc. All rights reserved. Chapter 7 Web 2.0—The Social Web • The Constantly Changing Web – World Wide Web (the Internet): a network of documents on the Internet, called webpages, constructed with HTML markup language that supports links to other documents and media (e.g. graphics, video, audio, etc.). – Broadband: refers to wide bandwidth technologies that create fast, high volume connections to the Internet and World Wide Web. Copyright © 2015 John Wiley & Sons, Inc. All rights reserved. Chapter 7 Web 2.0—The Social Web Copyright © 2015 John Wiley & Sons, Inc. All rights reserved. Chapter 7 Web 2.0—The Social Web • Setting the Stage for Web 2.0 1. Broad bandwidth (broadband) 2. Sustainable business models 3. New Web programming technologies 4. Application programming interface (API) 5. Plug-Ins Copyright © 2015 John Wiley & Sons, Inc. All rights reserved. Chapter 7 Web 2.0—The Social Web • Setting the Stage for Web 2.0 AJAX technologies, or asynchronous JavaScript and XML, is a term referring to a group of technologies and programming languages that make it possible for webpages to respond to users’ actions without requiring the entire page to reload. 1. JavaScript 2. Extendable Markup Language (XML) 3. Document Object Model (DOM) 4. HyperText Markup Language (HTML) 5. XMLHttpRequest 6. Cascading Style Sheets (CSS) Copyright © 2015 John Wiley & Sons, Inc. All rights reserved. Chapter 7 Web 2.0—The Social Web Copyright © 2015 John Wiley & Sons, Inc. All rights reserved. Chapter 7 Web 2.0—The Social Web • Social Media Applications and Services – Social Networking Service (SNS): an online platform or website that allows subscribers to interact and form communities or networks based on real-life relationships, shared interests, activities and so on. Both YouTube and Facebook started as SNSs, but now span multiple application categories. Copyright © 2015 John Wiley & Sons, Inc. All rights reserved. Chapter 7 Web 2.0—The Social Web • More than Facebook, YouTube, & Twitter – Collaboration – Communication and Engagement with Customers (Marketing) – Image and Reputation Management (Public Relations) – Communication and Engagement with Employees and Partners (Management) – Talent Acquisition and Recruiting (Human Resources) – Research and Knowledge Management – Productivity and Information Utilities – Fund Raising Copyright © 2015 John Wiley & Sons, Inc. All rights reserved. Chapter 7 Web 2.0—The Social Web • Elements of Social Media: What Makes it Different? – User-generated content (UGC). – Content control. – Conversation. – Community (common values, culture). – Categorization by users (tagging). Copyright © 2015 John Wiley & Sons, Inc. All rights reserved. Chapter 7 Web 2.0—The Social Web • Elements of Social Media: What Makes it Different? – Real people (profiles, usernames, and the human voice vs. the corporate “we”). – Connections (followers, friends, members, etc.). – Constant updating (real-time, dynamic). – Content separated from form. – Equipment independence. Copyright © 2015 John Wiley & Sons, Inc. All rights reserved. Chapter 7 Web 2.0—The Social Web • Cluetrain Manifesto – Understanding not only how people behave, but also the way they think about things. – Transforms Markets to conversations where successful companies will learn to engage customers instead of traditional unidirectional or broadcast communications. Copyright © 2015 John Wiley & Sons, Inc. All rights reserved. Chapter 7 Web 2.0—The Social Web • Leverage the Groundswell 1. Listening 2. Talking 3. Energizing 4. Supporting 5. Embracing Copyright © 2015 John Wiley & Sons, Inc. All rights reserved. Chapter 7 Web 2.0—The Social Web 1. How has Web 2.0 changed the behavior of Internet users? 2. What are the basic tools or applications that characterize Web 2.0? 3. Why is Web 2.0 referred to as the social Web? 4. What are some of the benefits or advantages that Web developers gain from using AJAX technologies? 5. What are some of the most important messages for business organizations in the Cluetrain Manifesto? 6. What is feature convergence? Give some examples of this trend with regard to social media apps. Copyright © 2015 John Wiley & Sons, Inc. All rights reserved. Learning Objectives Social Networking Services and Communities Web 2.0— The Social Web Engaging Consumers with Blogs and Microblogs Knowledge Sharing in the Social Workplace Mashups, Social Metrics, and Monitoring Tools Copyright © 2015 John Wiley & Sons, Inc. All rights reserved. Chapter 7 Social Networking Services and Communities • Old Web versus New Web – Online or virtual communities parallel physical communities, but were primarily user-to-user interactions. – Usenet and Newsgroups provided a static means of communicating messages. – Online communities have transformed to include: • Selling goods and services • Promoting products to prospective customers; for example, advertising • Prospecting for customers • Building relationships with customers and prospective customers • Identifying customer perceptions by “listening” to conversations Copyright © 2015 John Wiley & Sons, Inc. All rights reserved. Chapter 7 Social Networking Services and Communities Selling goods and services Newsgroups Old Web Usenet Customer Prospecting Advertising Semantic Web Building Customer Relationships Encourage Customers Soliciting ideas “listening” to Customers Interactive Support Copyright © 2015 John Wiley & Sons, Inc. All rights reserved. Chapter 7 Social Networking Services and Communities • Social network analysis (SNA) – The mapping and measuring of relationships and flows between people, groups, organizations, computers, or other information or knowledge-processing entities. – Social graph: to the global social network reflecting how we are all connected to one another through relationships. – Giant global graph: illustrates the connections between people and/or documents and pages online. Copyright © 2015 John Wiley & Sons, Inc. All rights reserved. Chapter 7 Social Networking Services and Communities • Leveraging the Power of the Crowd – Crowdsourcing: a model of problem solving and idea generation that marshals the collective talents of a large group of people. – Crowdfunding: turning to a crowdsourcing model to raise money for business start-ups or projects such as Kickstarter, GoFundMe, and Indiegogo. • Donations • Rewards • Credit • Equity • Royalties Copyright © 2015 John Wiley & Sons, Inc. All rights reserved. Chapter 7 Social Networking Services and Communities • Facebook Dominates Social Networking – Users can develop their own apps. – Created Newsfeed: constant stream of status updates. – Timeline: shows progression chronologically. – Wants to curate all user content, causing a rise in privacy concerns. Copyright © 2015 John Wiley & Sons, Inc. All rights reserved. Chapter 7 Social Networking Services and Communities Personal News Facebook Open Graph History Business Copyright © 2015 John Wiley & Sons, Inc. All rights reserved. Chapter 7 Social Networking Services and Communities Facebook Google+ (G+) Copyright © 2015 John Wiley & Sons, Inc. All rights reserved. Chapter 7 Social Networking Services and Communities • Virtual Reality – Second Life is a social network that uses avatars to represent their residents (users). Users can develop their own apps. – Avatars are an icon, figure, or visual representation of a person in a digital environment. Copyright © 2015 John Wiley & Sons, Inc. All rights reserved. Chapter 7 Social Networking Services and Communities • Private Social Networking Services – Social communities with restricted membership used by many colleges and universities. – Easier to monitor activities and track conversations. – Requires considerably more time, attention, and resources than using general SNS. Copyright © 2015 John Wiley & Sons, Inc. All rights reserved. Chapter 7 Social Networking Services and Communities 1. What are the major differences between social networking services and older online communities? 2. What is the basic difference between the social graph and Berners-Lee’s concept of the Giant Global Graph? 3. Explain Facebook’s Open Graph initiative and how it plans to expand its influence across the World Wide Web. 4. What are some potential ways that business organizations can take advantage of Second Life’s unique virtual world interface? 5. Why would a business want to create a private SNS? What are some of the challenges associated with doing this? Copyright © 2015 John Wiley & Sons, Inc. All rights reserved. Learning Objectives Social Networking Services and Communities Web 2.0— The Social Web Engaging Consumers with Blogs and Microblogs Knowledge Sharing in the Social Workplace Mashups, Social Metrics, and Monitoring Tools Copyright © 2015 John Wiley & Sons, Inc. All rights reserved. Chapter 7 Engaging Consumers with Blogs and Microblogs • Blogs – Websites were people regularly post a variety of content in various digital formats. – Blogs can establish reputations and promote business interests and/or share viewpoints. – Blogospheres are connected blogs. – Microblogs are frequent, but brief posts such as Twitter. Copyright © 2015 John Wiley & Sons, Inc. All rights reserved. Chapter 7 Engaging Consumers with Blogs and Microblogs • Blogs – Blogging Platforms are software used to create and edit content with features that make blogging relatively easy. – Wordpress (51%) and Blogger (21%) are the most popular blogging platforms. Copyright © 2015 John Wiley & Sons, Inc. All rights reserved. Chapter 7 Engaging Consumers with Blogs and Microblogs • Twitter – A valuable tool for activists engaged in organizing protests, debating political viewpoints, and broadcasting real-time information through Tweets. – Uses content tags called Hashtags (#) to allow users to follow conversations and/or trends. Copyright © 2015 John Wiley & Sons, Inc. All rights reserved. Chapter 7 Engaging Consumers with Blogs and Microblogs • Growing Use of Twitter – Twitterspheres are third-party apps to enhance functionality and experience. – TweetDeck, Twitpie, Twitterfeed, and Twitterholic are essential Twitter tools. Copyright © 2015 John Wiley & Sons, Inc. All rights reserved. Chapter 7 Engaging Consumers with Blogs and Microblogs • Growing Use of Twitter – Celebrities, companies, products, and services. – Coupons and specials. – News and political platforms. – Friendly status updates. Copyright © 2015 John Wiley & Sons, Inc. All rights reserved. Chapter 7 Engaging Consumers with Blogs and Microblogs • Tumblr – Another update services providing microblogging with emphasis on photographs and video. – Allows just as much text as a regular blog, but Tumblr is mostly used for fashion, entertainment, and the arts. Copyright © 2015 John Wiley & Sons, Inc. All rights reserved. Chapter 7 Engaging Consumers with Blogs and Microblogs 1. What is the difference between a blog and a microblog? 2. What is a blogging platform? 3. Why do marketers use blogs and microblogs? 4. What makes Twitter a more attractive communication channel than traditional media for many individuals and organizations? 5. How is Tumblr different from other types of blogging platforms? Copyright © 2015 John Wiley & Sons, Inc. All rights reserved. Learning Objectives Social Networking Services and Communities Web 2.0— The Social Web Engaging Consumers with Blogs and Microblogs Knowledge Sharing in the Social Workplace Mashups, Social Metrics, and Monitoring Tools Copyright © 2015 John Wiley & Sons, Inc. All rights reserved. Chapter 7 Mashups, Social Metrics, and Monitoring Tools • Mashup – Web applications that combine information from two or more sources. – Present information in a way that creates some new benefit or service. – http://www.programmableweb.com/mashups/direc tory Copyright © 2015 John Wiley & Sons, Inc. All rights reserved. Chapter 7 Mashups, Social Metrics, and Monitoring Tools • Mashup – Popular APIs are from social media sites (usergenerated social information). – Provide the power to separate content from form – Web developers have greater control over information display and use. Copyright © 2015 John Wiley & Sons, Inc. All rights reserved. Chapter 7 Mashups, Social Metrics, and Monitoring Tools • RSS (really simple syndication) – Allows real-time consumption and personalized organization and display of news information. – Mostly free service (Feedly.com, Digg.com) Copyright © 2015 John Wiley & Sons, Inc. All rights reserved. Chapter 7 Mashups, Social Metrics, and Monitoring Tools • RSS (really simple syndication) – Allows real-time consumption and personalized organization and display of news information. – Mostly free service (Feedly.com, Digg.com) Copyright © 2015 John Wiley & Sons, Inc. All rights reserved. Chapter 7 Mashups, Social Metrics, and Monitoring Tools • Monitoring Service – Conversation tracking on social media sites • Paid services: Radian 6, Alterian SM2, Hubspot. • Free services: Twitter Search, Social Mention – Provides organizations a better understanding of brand, product, and even executive perception from consumers. – Brand advocates positively portray a brand or company online. Copyright © 2015 John Wiley & Sons, Inc. All rights reserved. Chapter 7 Mashups, Social Metrics, and Monitoring Tools 1. 2. 3. 4. Why are mashups considered part of social media? Describe a typical consumer mashup. What is an RSS reader? Describe the ways in which businesses can benefit from using social media monitoring tools? Copyright © 2015 John Wiley & Sons, Inc. All rights reserved. Learning Objectives Social Networking Services and Communities Web 2.0— The Social Web Engaging Consumers with Blogs and Microblogs Knowledge Sharing in the Social Workplace Mashups, Social Metrics, and Monitoring Tools Copyright © 2015 John Wiley & Sons, Inc. All rights reserved. Chapter 7 Knowledge Sharing in the Social Workplace • Synchronous Communication – Dialogue or conversation taking place in real-time (Skype, ooVoo). – VenueGen allows meetings in virtual worlds with avatars. Copyright © 2015 John Wiley & Sons, Inc. All rights reserved. Chapter 7 Knowledge Sharing in the Social Workplace • Research and Knowledge Sharing Tools – Search Engines: identify and share information relevant to a project topic (Yahoo, Bing, Google). – Discussion Groups: provide a forum for asking questions to groups of people (AMA, LinkedIn). – Blogs, tweets, and page status can provide valuable information. Copyright © 2015 John Wiley & Sons, Inc. All rights reserved. Chapter 7 Knowledge Sharing in the Social Workplace • Social Bookmarks – Diigo and Delicious – Diigo provides approval buttons and highlight features for member collaboration. – Delicious uses folksonomy to provide content search results based on human tags or interests. Copyright © 2015 John Wiley & Sons, Inc. All rights reserved. Chapter 7 Knowledge Sharing in the Social Workplace • Content Creation and Sharing – Cloud storage services: uses the Internet for storage and retrieval of information. – Dropbox allows the storage and sharing of files and folders with others. – Box.net places greater emphasis on social tools and features for collaboration. – Wikis provide encyclopedia-like webpages, driven by collaborative open-edit content. Copyright © 2015 John Wiley & Sons, Inc. All rights reserved. Chapter 7 Knowledge Sharing in the Social Workplace 1. How can working teams use social media as an alternative to face-to-face meetings? 2. Why are social bookmarking services superior to the traditional method of saving “favorites” or “bookmarks” in a browser? 3. What are some ways you can use social media to solicit knowledge, information, and advice from experts on the Web? 4. What advantages do sites like Dropbox and box.net have over e-mail as a way of sharing and collaborating on creating documents? Copyright © 2015 John Wiley & Sons, Inc. All rights reserved. Chapter 8 Retail, E-commerce, and Mobile Commerce Technology Prepared by Dr. Derek Sedlack, South University Learning Objectives Business to Consumer (B2C) Ecommerce Retailing Technology Business to Business (B2B) Ecommerce and Eprocurement Mobile Transactions and Financial Services Mobile Commerce Copyright © 2015 John Wiley & Sons, Inc. All rights reserved. Chapter 8 Retailing Technology • Consumer Demands and Behavior – A dizzying array of new technologies are exciting and unproven. – Adoption is vital, but budgets are limited. – Consumers are demanding, price-conscious, and easily swayed by competitors. – Overly aggressive leads to financial ruin, but risk aversion loses out to competition. Copyright © 2015 John Wiley & Sons, Inc. All rights reserved. Chapter 8 Retailing Technology • Consumer Demands and Behavior – Empowered Price Sensitivity: consumer empowerment to find the lowest price available for a product through the Web and mobile technology. Copyright © 2015 John Wiley & Sons, Inc. All rights reserved. Chapter 8 Retailing Technology • Consumer Demands and Behavior – Nonlinear Search and Influence Patterns: consumers pursuit path through a range of new communications channels including social media, mobile ads, e-mail, search marketing, and other digital communications. Copyright © 2015 John Wiley & Sons, Inc. All rights reserved. Chapter 8 Retailing Technology • Consumer Demands and Behavior – Channel Hopping: increased communication channels through which consumers can now purchase products (traditional retailers, online, and via mobile devices and apps) called social commerce. Copyright © 2015 John Wiley & Sons, Inc. All rights reserved. Chapter 8 Retailing Technology • Consumer Demands and Behavior – Digital Immigrants: older consumers that fundamentally view retail channels as separate and distinct. – Digital Natives: first digital generation surrounded by digital devices and Internet connectivity. – Digital Dependents: emerging generation growing up in a world of broadband connections, constant connectivity that place greater demands on retailers to use technology. Copyright © 2015 John Wiley & Sons, Inc. All rights reserved. Chapter 8 Retailing Technology • Need for Convenience – Economic and social factors lead to more stressful lives. – Consumers look for products and shopping channels that reduce the impact on time and financial resources. – An increasing demand to satisfy immediate gratification and desirable goods and services. Copyright © 2015 John Wiley & Sons, Inc. All rights reserved. Chapter 8 Retailing Technology Figure 8.4 Retail strategy is evolving toward an omin-channel approach (adapted from National Retail Federation, 2011). Copyright © 2015 John Wiley & Sons, Inc. All rights reserved. Chapter 8 Retailing Technology 1. Describe the factors that influence consumer shopping behavior today. 2. What does the concept of digital native, digital immigrant, and digital dependent help us to understand about people’s use of technology during shopping activities? 3. Why are retailers likely to view technology as both a blessing and a curse? 4. Describe how an omni-channel retailer is likely to be different from a traditional, single-channel retailer? Copyright © 2015 John Wiley & Sons, Inc. All rights reserved. Learning Objectives Business to Consumer (B2C) Ecommerce Retailing Technology Business to Business (B2B) Ecommerce and Eprocurement Mobile Transactions and Financial Services Mobile Commerce Copyright © 2015 John Wiley & Sons, Inc. All rights reserved. Chapter 8 Business to Consumer (B2C) Ecommerce • Purchasing Online – The most well-known B2C site is Amazon.com, whose IT developments received U.S. patents that keep it ahead of competition. – Broader selection, lower prices, and easy searching and ordering are featured through e-commerce. – Electronic Wallet (e-wallet ): a software application that can store encrypted information about a user’s credit cards, bank accounts, and other information necessary to complete electronic transactions, eliminating the need to re-enter the information during the transaction. Copyright © 2015 John Wiley & Sons, Inc. All rights reserved. Chapter 8 Business to Consumer (B2C) Ecommerce • Purchasing Online – Electronic fund transfer (EFT): transfer of funds from one bank account to another over a computerized network. – Transaction cost reduction is significant: banks pay $.02 for online versus $1.07 at a physical branch. – Investment options and loan rates online easily undercut those of many brick-and-mortar (conventional) banks. Copyright © 2015 John Wiley & Sons, Inc. All rights reserved. Chapter 8 Business to Consumer (B2C) Ecommerce • Amazon – Invested hundreds of millions of dollars in warehouses designed for shipping small packages to hundreds of thousands of customers. – Designed One-Click shopping, highlighted by the ewallet, allowing order status viewing and order fulfillment modifications. – Numerous patentable e-commerce designs provide continued competitive advantage. Copyright © 2015 John Wiley & Sons, Inc. All rights reserved. Chapter 8 Business to Consumer (B2C) Ecommerce • Employment – Job openings, résumés, and applications can be transmitted or completed 24/7, 365. – Job seekers use the web directly (Dice or Monster), or through social media network contacts (LinkedIn). – Online reputation of both job seeker and employer can be researched and/or built. Copyright © 2015 John Wiley & Sons, Inc. All rights reserved. Chapter 8 Business to Consumer (B2C) Ecommerce • Channel Conflict – When regular wholesalers (on-ground) and retailers (on-line) circumvent direct online distributors. – May limit B2C efforts not to sell directly. – May force collaboration with existing distributors. Copyright © 2015 John Wiley & Sons, Inc. All rights reserved. Chapter 8 Business to Consumer (B2C) Ecommerce • Conflict Resolution – Companies may separate online from traditional divisions, but this may increase expenses and reduce synergies. Copyright © 2015 John Wiley & Sons, Inc. All rights reserved. Chapter 8 Business to Consumer (B2C) Ecommerce • Order Fulfillment and Logistics – Online sales force the need to design systems to accept and process huge volumes of small orders, physical delivery including labeling. – Reverse Logistics is the return process. Copyright © 2015 John Wiley & Sons, Inc. All rights reserved. Chapter 8 Business to Consumer (B2C) Ecommerce • Viability and Risk of Online Retailers – The dot.com era bankrupted many pure online retailers due to cash flow, customer acquisition, order fulfillment, and demand forecasting problems. – Low entry barriers intensify competition! • How long to operate while losing money? • How to finance operating losses? Copyright © 2015 John Wiley & Sons, Inc. All rights reserved. Chapter 8 Business to Consumer (B2C) Ecommerce • Identifying Appropriate Revenue Models – Early dot.com model: • Generate enough revenue from advertising to keep the business afloat until customer base critical mass is reached. Too many advertising dollars went to a small number of well-known sites (AOL, MSN, or Yahoo) Copyright © 2015 John Wiley & Sons, Inc. All rights reserved. Chapter 8 Business to Consumer (B2C) Ecommerce • Online Business and Marketing Planning 1. Build the marketing plan around the customer, rather than on products. 2. Monitor progress toward the one-year vision for the business in order to identify when adjustments are needed, and then be agile enough to respond. 3. Identify all key assumptions in the marketing plan. When there is evidence that those assumptions are wrong, identify the new assumptions and adjust the plan. 4. Make data-driven, fact-based plans. Copyright © 2015 John Wiley & Sons, Inc. All rights reserved. Chapter 8 Business to Consumer (B2C) Ecommerce 1. Describe how digital content and services can lead to significantly lower costs. 2. Why does channel conflict sometimes occur when companies sell their products through both traditional and online channels? 3. How has Amazon maintained its competitive edge? 4. How did ING Direct attract customers to become the world’s largest online bank? 5. List the major issues faced by mobile bankers. 6. List three online marketing planning recommendations. Copyright © 2015 John Wiley & Sons, Inc. All rights reserved. Learning Objectives Business to Consumer (B2C) Ecommerce Retailing Technology Business to Business (B2B) Ecommerce and Eprocurement Mobile Transactions and Financial Services Mobile Commerce Copyright © 2015 John Wiley & Sons, Inc. All rights reserved. Chapter 8 Business to Business (B2B) E-commerce and E-procurement • Sell-Side Marketplaces – Where organizations sell their products or services to other organizations from their own private website or from a third-party site. – Similar to B2C model, but the ‘C‘ is an organization. • Dell Computer auctions through eBay • Overstock.com for obsolete of excess assets Copyright © 2015 John Wiley & Sons, Inc. All rights reserved. Chapter 8 Business to Business (B2B) E-commerce and E-procurement • E-Sourcing – Different procurement methods that make use of an electronic venue for identifying, evaluating, selecting, negotiating, and collaborating with suppliers. – Primary methods include: Online auctions, Request for Quotes (RFQ) processing, and private exchanges. – Secondary activities include: trading partner collaboration, contract negotiation, and supplier selection. Copyright © 2015 John Wiley & Sons, Inc. All rights reserved. Chapter 8 Business to Business (B2B) E-commerce and E-procurement • E-Procurement – Corporate procurement (corporate purchasing): transactional elements of buying products and services for operational and functional needs. – Direct procurement: buying materials to produce finished goods. – Indirect procurement: buying materials for daily operations. – E-procurement: reengineered procurement using ebusiness technologies and strategies. Copyright © 2015 John Wiley & Sons, Inc. All rights reserved. Chapter 8 Business to Business (B2B) E-commerce and E-procurement • E-Procurement Goals – Control Costs & Simplify Processes (streamlining) 1. Streamline within an organization’s value chain. 2. Align the organization’s procurement process with those of other trading partners, which belong to the organization’s virtual supply chain. 3. Analyze spending patterns in an effort to improve spending decisions and outcomes. Copyright © 2015 John Wiley & Sons, Inc. All rights reserved. Chapter 8 Business to Business (B2B) E-commerce and E-procurement • Public and Private Exchanges – Vertical exchanges serve one industry along the entire supply chain (automotive, chemical, manufacturing, etc.). – Horizontal exchanges serve many industries using the same products or services (office supplies, cleaning materials, bearings, etc.). – Functional exchanges provide temporary help on an as-needed basis (ADP, Eease.com). Copyright © 2015 John Wiley & Sons, Inc. All rights reserved. Chapter 8 Business to Business (B2B) E-commerce and E-procurement • Maverick Buying – Buying outside the established system due to overly complex procurement processes. – Can lead to higher vendor prices. – Can reduce corporate volume discounts that trigger new discount tiers. Copyright © 2015 John Wiley & Sons, Inc. All rights reserved. Chapter 8 Business to Business (B2B) E-commerce and E-procurement • Procurement Objective – Demand management is knowing or predicting what to buy, when, and how much. – Best procurement cost is zero, when people are not buying what they do not need. Copyright © 2015 John Wiley & Sons, Inc. All rights reserved. Chapter 8 Business to Business (B2B) E-commerce and E-procurement 1. Briefly differentiate between the sell-side marketplace and e-sourcing. 2. What are the two basic goals of e-procurement? How can those goals be met? 3. What is the role of exchanges in B2B? 4. Explain why maverick buying might take place and its impact on procurement costs. Copyright © 2015 John Wiley & Sons, Inc. All rights reserved. Learning Objectives Business to Consumer (B2C) Ecommerce Retailing Technology Business to Business (B2B) Ecommerce and Eprocurement Mobile Transactions and Financial Services Mobile Commerce Copyright © 2015 John Wiley & Sons, Inc. All rights reserved. Chapter 8 Mobile Commerce • Mobile Commerce, or M-Commerce: – The buying or selling of goods and services using a wireless, handheld device such as a cell phone or tablet (slate) computer. • Mobile E-Commerce – The use of a wireless handheld devices to order and/or pay for goods and services from online vendors. Copyright © 2015 John Wiley & Sons, Inc. All rights reserved. Chapter 8 Mobile Commerce • Mobile Retailing – The use of mobile technology to promote, enhance, and add to value to the in-store shopping experience. • Mobile Marketing – A variety of activities used by organizations to engage, communicate, and interact over Wi-Fi and telecommunications networks with consumers using wireless, handheld devices. Copyright © 2015 John Wiley & Sons, Inc. All rights reserved. Chapter 8 Mobile Commerce • Competitive Advantage in Mobile Commerce – In-Store Tracking: tracking a customer’s movement through a retail store through mobile technology to optimize shopping experiences. • Quick Response (QR) Codes – A variety of activities used by organizations to engage, communicate, and interact over Wi-Fi and telecommunications networks with consumers using wireless, handheld devices. Copyright © 2015 John Wiley & Sons, Inc. All rights reserved. Chapter 8 Mobile Commerce • Asia Bests U.S. in QR Use – U.S. smartphone users do not know what to do with QR codes. – QR scanning is inconvenient or users are directed to pages with nothing of interest. – Alternatives include Mobile Visual Search: search engine that users an image instead of text. Copyright © 2015 John Wiley & Sons, Inc. All rights reserved. Chapter 8 Mobile Commerce • Mobile Entertainment – Most notable are music, movies, videos, games, adult entertainment, sports, and gambling apps. – Apps can track sporting news, record workout times, record heart rates, analyze a person’s golf swing. – Mobile device improvements are predicted to increase video clips, movie, and television use on/through mobile devices toward $20 billion. Copyright © 2015 John Wiley & Sons, Inc. All rights reserved. Chapter 8 Mobile Commerce • Hotel Services and Travel – Airline QR boarding passes and SMS flight updates. – Travel planning with roadside assistance, Wi-Fi hotspots, and recommendations. – Hotel guest reservations, bill checking, and local services. Copyright © 2015 John Wiley & Sons, Inc. All rights reserved. Chapter 8 Mobile Commerce • Mobile Social Networking – Facebook and Twitter contribute to the 3rd most popular mobile app after games and weather. – Occurs in virtual communities, offering users to access their accounts from a smartphone or other mobile device. – Predicted as primary contributor in the growth of the mobile market. Copyright © 2015 John Wiley & Sons, Inc. All rights reserved. Chapter 8 Mobile Commerce • Location-Based Marketing – Advertising using mobile GPS systems to determine user locations. – Structured as mobile social media games to elicit consumer information and ratings for special attention or discounts from retailers. • Augmented Reality (AR) – Apps that utilize a special technology to create computer-generated graphic superimposed images based on where/how a user points their phone or camera. Copyright © 2015 John Wiley & Sons, Inc. All rights reserved. Chapter 8 Mobile Commerce 1. Describe some of the ways that people are using mobile devices to shop for products and services. 2. What are some ways in which traditional brick-and-mortar retailers can use mobile technology to enhance a customer’s in-store shopping experience? 3. List the types of mobile entertainment available to consumers. 4. List some ways that travelers and travel-related businesses are using mobile technology. 5. How are companies using QR codes to promote products and services to mobile consumers? Why are QR codes not as popular in the U.S. as they are in Asia and other parts of the world? 6. Explain why the mobile gaming market represents such a lucrative market opportunity. Copyright © 2015 John Wiley & Sons, Inc. All rights reserved. Learning Objectives Business to Consumer (B2C) Ecommerce Retailing Technology Business to Business (B2B) Ecommerce and Eprocurement Mobile Transactions and Financial Services Mobile Commerce Copyright © 2015 John Wiley & Sons, Inc. All rights reserved. Chapter 8 Mobile Transactions and Financial Services • Mobile Payment Systems – Mobile payment for online transaction. – Mobile payment for traditional transaction. • Charge to Phone Bill with SMS Confirmation – Uses secure PIN through SMS to validate payment (like Zong.com). • Near-Field Communications (NFC) – Pass or tap device to terminal to transfer payment (Citi Mastercard Paypass, Google Wallet). Copyright © 2015 John Wiley & Sons, Inc. All rights reserved. Chapter 8 Mobile Transactions and Financial Services • Phone-Displayed Barcode That Retailer Scans – Phone generated QR code scanned by retailer. • Credit Card 1 Webform – Mobile purchase the same as online purchase. • Transfer of Funds from Payment Account Using SMS – Phone sends SMS to transfer payment through third party (Obopay.com). Copyright © 2015 John Wiley & Sons, Inc. All rights reserved. Chapter 8 Mobile Transactions and Financial Services • Mobile Phone Card Reader – Phone attached device allows credit card swipe (Square.com, Paypal.com). • User Scan of 2D Tags Generated by Retailer – QR code or 2D tag to identify merchant or payee, allowing customer-merchant or person-person transfers. Copyright © 2015 John Wiley & Sons, Inc. All rights reserved. Chapter 8 Mobile Transactions and Financial Services • Short Codes for Online Banking – Download dedicated apps to conduct banking transactions. – Provide service through SMS using short codes from the Common Short Code Association (CSCA). – Used for American Idol and other award-related programs. Copyright © 2015 John Wiley & Sons, Inc. All rights reserved. Chapter 8 Mobile Transactions and Financial Services • Security Issues – Mobile banking benefits seem to outweigh potential security threats. – Increasing mobile banking likely means increased targeting of mobile financial activities. • ESM Cloning: allowing transactions to be monitored. • Phishing: fraudulent communications to elicit confidential information (Smishing is over SMS, Vishing is over voice). • Lost or stolen phone. Copyright © 2015 John Wiley & Sons, Inc. All rights reserved. Chapter 8 Mobile Transactions and Financial Services 1. What are the two basic types of mobile payment transactions? 2. Why have e-wallets not been widely adopted and what will makers of e-wallets need to do to make this payment method more attractive to consumers? 3. What are the most common types of mobile banking activities consumers perform? 4. What are the most common security risks associated with mobile banking? 5. Describe some of the mobile payment systems currently available to merchants and consumers. 6. What is a micropayment and why is it beneficial to consumers and businesses that mobile payment systems can process these types of transactions? Copyright © 2015 John Wiley & Sons, Inc. All rights reserved. Strategic Analysis Of Starbucks Corporation Strategic Analysis Of Starbucks Corporation By: Nithin Geereddy (ID: 80842082) Strategic Analysis Of Starbucks Corporation 1) Introduction: Starbucks Corporation, an American company founded in 1971 in Seattle, WA, is a premier roaster, marketer and retailer of specialty coffee around world. Starbucks has about 182,000 employees across 19,767 company operated & licensed stores in 62 countries. Their product mix includes roasted and handcrafted highquality/premium priced coffees, tea, a variety of fresh food items and other beverages. They also sell a variety of coffee and tea products and license their trademarks through other channels such as licensed stores, grocery and national foodservice accounts.1 Starbucks also markets its products mix with other brand names within its portfolio of companies, which include Teavana, Tazo, Seattle’s Best Coffee, Starbucks VIA, Starbucks Refreshers, Evolution Fresh, La Boulange and Verismo. Starbucks had total revenue of $14.89 billion as of September 29th, 2013.2 2) External Environment Of The Retail Market For Coffee & Snacks: 2.1) Industry Overview and Analysis: Starbucks primarily operates and competes in the retail coffee and snacks store industry. This industry experienced a major slowdown in 2009 due to the economic crisis and changing consumer tastes, with the industry revenue in the US declining 6.6% to $25.9 billion. Before this, the industry had a decade of growth consistent. Due to the economic slump, consumers spent less on luxuries like eating out, choosing to purchase 3 low-price items instead of high-priced coffee drinks due to shrinking budgets. The industry grew at a low annualized average growth rate of 0.9% from 2008 till 2013 with current industry revenues at $29 billion in the US. The industry is now forecasted to grow at an annualized rate of 3.9% over the next five years, with a potential to reach $35.1 billion revenues in the US. This growth would be mainly driven by an improving economy, increase in consumer confidence and expanding menu offerings within the industry. Starbucks dominates the industry with a market share of 36.7%, Dunkin Brands with 24.6% and other competitors like McDonalds, Costa Coffee, Tim Horton’s etc. taking the rest as shown in Appendix 1.4 2.2) Industry Life Cycle and Market Share Concentration: This industry is in a mature stage with a medium level concentration. Starbucks and Dunkin Brands make up more than 60% of the market share (Appendix 1), giving them considerable market power in determining industry trends. Industry Structure is given in Appendix 3. 2.3) Industry Demand Determinants and Profitability Drivers: The industry’s demand for premium coffee and snack products are mainly driven by a number of factors which include disposable income, per capita coffee consumption, attitudes towards health, world pricing of coffee and demographics. This industry is highly sensitive to the macroeconomic factors that affect the growth in household disposable. During the recession, the decline in household disposable income due to increased unemployment and stagnant wages, caused a downward pressure on the revenue and profitability margins in the industry. Another crucial factor for analyzing the demand in the industry is the per capita coffee consumption where the increase in coffee consumption increases the revenue of coffee & snack shops. The main driver of this consumption increase would be the increase disposable income, as the economy improves and consumers start to relax their budgets. This driver has a positive effect on market revenue. Per capita coffee consumption is expected to increase in 2014. As coffee beans are the primary input in the value chain of the industry participants, the prevailing volatile prices of coffee beans determines market costs and profitability margins. The world price of coffee has risen sharply in recent years due to growing demand in other countries and the resulting supply shortages. During the five years to 2018, coffee bean prices are projected to decrease, which will likely translate into lower market costs and higher profitability.5 Attitudes towards health also play an important role in determining the demand in the industry. Strategic Analysis Of Starbucks Corporation There is an expected shift towards healthy eating and diet among the consumers in 2014, and this could be a potential threat to the industry as they become more aware of issues related to weight and obesity. There has been a proactive shift among the industry participants to tailor their menus towards more organic and healthy products mix. 2.4) Porters Five Forces Analysis of the Retail Coffee and Snacks Industry: Threat of New Entrants: Moderate  There is a moderate threat of new entrants into the industry as the barriers to entry are not high enough to discourage new competitors to enter the market. (Appendix 2 shows Barriers to Entry Checklist).  The industry’s saturation is moderately high with a monopolistic competition structure.  For new entrants, the initial investment is not significant as they can lease stores, equipment etc. at a moderate level of investment.  At a localized level, small coffee shops can compete with the likes of Starbucks and Dunkin Brands because there are no switching costs for the consumers. Even thought it’s a competitive industry, the possibility of new entrants to be successful in the industry is moderate.  But this relatively easy entry into the market is usually countered by large incumbent brands identities like Starbucks who have achieved economies of scale by lowering cost, improved efficiency with a huge market share. There is a moderately high barrier for the new entrants as they differentiate themselves from Starbuck’s product quality, its prime real estate locations, and its store ecosystem ‘experience’.6  The incumbent firms like Starbucks have a larger scale and scope, yielding them a learning curve advantage and favorable access to raw material with the relationship they build with their suppliers.  The expected retaliation from well-established companies for brand equity, resources, prime real estate locations and price competition are moderately high, which creates a moderate barrier to entry. Threat of Substitutes: High  There are many reasonable substitute beverages to coffee, which are mainly tea, fruit juices, water, soda’s, energy drinks etc. Bars and Pubs with non/alcoholic beverages could also substitute for the social experience of Starbucks  Consumers could also make their own home produced coffee with household premium coffee makers at a fraction of the cost for buying from premium coffee retailers like Starbucks.  There are no switching costs for the consumers for switching to substitutes, which makes the threat high.  But its important to note that industry leaders like Starbucks are currently trying to counter this threat by selling coffee makers, premium coffee packs in grocery stores but this threat still puts pressure their the margins. Bargaining Power of Buyers: Moderate to Low Pressure  There are many different buyers in this industry and no single buyer can demand price concession.  It offers vertically differentiated products with a diverse consumer base, which make relatively low volume purchases, which erodes the buyer’s power.  Even though there are no switching costs with high availability of substitute products, industry leaders like Starbucks prices its product mix in relation to rivals stores with prevailing market price elasticity and competitive premium pricing.  Consumers have a moderate sensitivity in premium coffee retailing as they pay a premium for higher quality products but are watchful of excessive premium in relation product quality. Bargaining Power of Suppliers: Low to Moderate Pressure  The main inputs into the value chain of Starbucks is coffee beans and premium Arabica coffee grown in select regions which are standard inputs, which makes the cost of switching between substitute suppliers, moderately low. Strategic Analysis Of Starbucks Corporation  Starbucks, with its size and scale, has the power to take advantage of its suppliers but it maintains a Fair trade certified coffee under its coffee and farmer equity (C.A.F.E) program, which gives its suppliers a fair 7 partnership status, which yields them some moderately, low power.  The suppliers in the industry also pose a low threat of competing against Starbucks by forward vertical integration, which lowers their power.  Starbucks also forms a highly important part of the suppliers business, due its size and scope, which make the power of the suppliers lower. Given these factors, suppliers pose a moderately low bargaining power. Intensity of Competitive Rivalry: High to Moderate  The industry has a monopolistic competition, with Starbucks having the largest markets share and its closest competitors also having a significant market share, creating significant pressure on Starbucks.  Consumers do have any cost of switching to other competitors, which crates high intensity in rivalry.  But its important to note that Starbucks maintain some competitive advantage as it differentiates its products with premium products and services, which cause a moderate level of intensity in competition.  The industry is mature and growth rate has been moderately low which cause the intensity of competition among the companies to be moderately high due to all of them seeking to increase market shaper from established firms like Starbucks.  This industry does not have over capacity currently and all these factors contribute to the intensity among rivals to be moderately high. Looking at the Porters five forces analysis, we can get an aggregate industry analysis that the strength of forces and the profitability in the retail coffee and snacks industry are Moderate. 3) Internal Analysis of Starbucks Corporation: 3.1) Starbucks Core Competence: The core competence of Starbucks has been its ability to effectively leverage their cornerstone product differentiation strategies by offering a premium product mix of high quality beverages and snacks. Starbuck’s brand equity is built on selling the finest quality coffee and related products, and by providing each customer a unique “Starbucks Experience”, which is derived from supreme customer service, clean and well-maintained stores that reflect the culture of the communities in which they operate, thereby building a high degree of customer loyalty with a cult following. Its other core competence is its human resource management's valuesbased approach for building very strong internal and external relationships with suppliers, which drives the successful deployment of its business strategy of organic expansion into international markets, horizontal integration through smart acquisitions and alliances that maintains their long-term strategic objective being the most recognized and respected brands in the world. 3.2) Starbucks SWOT Analysis: Strengths:  Strong Market Position and Global Brand Recognition: Starbucks has a significant geographical presence across the globe and maintain a 36.7% market share in the United States (Appendix 1) and has operations in over 60 countries. Starbucks is also the most recognized brand in the coffeehouse segment and is ranked 91st in the best global brands of 2013.8 Starbucks effectively leverages its rich brand equity by merchandizing products, licensing its brand logo out. Such strong market position and brand recognition allows the company to gain significant competitive advantage in further expanding into international markets and also help register higher growth in both domestic and international markets. Over the years, they have achieved significant economies of scale with superior distribution channels and supplier relationships.  Products of the Highest Quality: They give the highest importance to the quality of their products and avoid standardization of their quality even for higher production output.9 Strategic Analysis Of Starbucks Corporation  Location and Aesthetic appeal of its Stores: Starbucks has stores in some of the most prime and strategic location across the globe. They target premium, high-traffic, high-visibility locations near a variety of settings, including downtown and suburban retail centers, office buildings, university campuses, and in select rural and off-highway locations across the world.10 This has earned them a significant competence and advantage to be able to penetrate prime markets and tap into customers convince factor. Their stores are visually appealing and have a ‘cool’ factor attached to it with being designed to reflect the unique character of the neighborhood they serve in and environmentally friendly. They provide free wifi, great music, great service, warm atmosphere and provide an environment of community meeting spot, which forms a wider part of the ‘Starbucks Experience’. The main aim for the firm is to make their stores a ‘third place’ besides home and work.11  Human Resource Management: Starbucks is know for its highly knowledge base employees. They are the main assets of the company and they are provided with great benefits like stock option, retirement accounts and a healthy culture. This effective human capital management translates into great customer services. It was rated 91st in the 100 best places to work for by Fortune Magazine.12  Goodwill among consumers due to Social Responsibly Initiatives: Their stores are community friendly, focused on recycling and reducing waste. They build goodwill among communities where they operate.13  Diverse Product Mix: Starbuck portfolio of products given in Appendix 8, that caters to all age groups demographic factors.14  Use of Technology and Mobile Outlets: Starbucks efficiently leverages technology with its mobile application “Starbucks App’ in both apple and android software’s. They make significant investments in technology to 15 support their growth every year.  Customer base loyalty: Starbucks has cult following status among consumers and they have also implemented loyalty-based programs to drive loyalty with the Starbucks Rewards programs and Starbucks Card. The Starbucks Card is a value card program that provides convenience, support gifting, and increase the frequency 16 of store visits by cardholders and integrated with their mobile application. Weaknesses:  Expensive Products: While Starbucks does differentiate their products with being highly quality couple with the whole ‘Starbucks Experience’, in times of economic sluggishness, consumers to have so switching costs to competitor’s products with lower prices and forgo paying a premium. These premium prices could also pose some weakness for it to succeed in developing countries.  Self-Cannibalization through overcrowding: By aggressive expansion and high saturation due to overcrowding in the market leads to self cannibalization and diminishes long term growth targets of Starbucks. This is happening especially in the United States where Starbucks operates 8078 stores.17  Overdependence in the United States market: In line with self-cannibalization of the US market with 8078 stores, Starbucks generates a huge percentage of their total revenue from the US and this makes it very sensitive to prospects of the US economy and growth.  Negative large corporation image: Like any large corporation, Starbucks does come under increased scrutiny and have to invest in corporate social responsibility activates and maintain tight control over labor practices.  American/European coffee culture clash with that of other countries: Starbucks coffee culture may not widely accepted in some countries as part of their international expansion strategy. Opportunities:  Expansion into Emerging Markets: The increase saturation and self-cannibalization of the US market makes its international strategy even more important. Starbucks has made good inroad into many countries, with India recently joining the list with a joint venture entry.18 Starbucks has a great growth potential in further expanding into the emerging and developing markets. They can leverage their size, experience, financial prowess and 19 efficiencies to make new market share.  Expanding Product mix and offerings: Starbucks recently started to expand their product mix by venturing into the Tea and fresh juice product offerings with a smart acquisition strategy.20 This provides significant opportunities for Starbucks. Strategic Analysis Of Starbucks Corporation  Expansion of retail operations: Starbucks currently sell its packed coffee products, iced beverages and merchandizes through large box retailers. This market’s potential is yet to be fully realized and this provides Starbucks great opportunities for the future to future monetizes their brand.  Technological advances: Starbucks has leveraged the use of mobile applications and has an investment partnership with Square, a mobile payments app that is integrated with its Starbucks app. This creates an ease of use process for customers, aligns customer loyalty through reward programs. Starbucks has already set the bar in the industry with this advancement and about 10% of its transactions in the US have been made using mobile applications.21 This is a growing field and would drive more business to their stores as technology advances.  New distribution channels: Starbucks introduced a beta version of a delivery system called Mobile Pour. This presents a great opportunity for the future by expanding their end product distribution systems and could drive more revenue if the implementation is successful.22  Brand extension: Starbucks carries a powerful brand image and it can leverage it to extend into horizontal lines of its business and also venture into product diversification with keeping brand dilution risk in check. Threats:  Increased Competition: This is by far the biggest threat that Starbucks faces with the market being at a mature stage, there is increased pressure on Starbucks from its competitors like Dunkin Brands, McDonalds, Costa Coffee, Pete’s Coffee, mom and pop specialty coffee stores. Dunkin Brands had at its main threat in the US market by trailing Starbucks with a 24.6% share. (Appendix 1)  Price Volatility in the Global Coffee Market: There has be significant fluctuations in the market prices of high quality coffee beans, which Starbucks can’t control.  Developed Countries Market Saturation: Starbucks derives a significant amount of its revenue from the development markets and there is increased market saturation currently.  Developed Countries Economy: In an increasingly economically integrated world, an economic crisis like the one in 2008 could have a trickle down effect from the developed markets to the developing markets. This threat would hurt revenues for Starbucks as consumers shift away from premium product mix to stay in limited budgets during economic hardships.  Changing Consumer tastes and lifestyle choices: The shift of consumers toward more healthy products and the risk of coffee culture being just a fad represent a threat for Starbucks going into the future. 3.3) Starbucks Generic Value Chain: Analysis in Appendix 6 3.4) Starbucks VRIO Analysis: Shown in Appendix 4. The VRIO framework is used to analyze in detail the competitive position of Starbucks Corporation and its strategic positioning. 3.3) Starbucks Key Strategies: One of the key strategy that Starbucks followed since its inception is that of product differentiation offering differentiators such as premium product mix, locations, coffee beverages reputation and supreme customer service that translated to building a premium valued brand which is costly to imitate for competitors. Starbucks has also followed a shrewd strategy of strategic alliance and making smart acquisitions. Starbucks didn’t follow franchising model and operated company oriented stores and joint ventures in international markets. Starbucks has made some key acquisitions such as Teavana (Tea products), Bay Breads (premium bread products), Evolution Fresh (fresh juice products) etc. to use the product diversification strategy. Appendix 7 gives a whole list of joint ventures, strategic alliances and acquisitions of Starbucks. Starbucks acquisition strategy, as shown in their acquisition history in Appendix, has been horizontal, product and market extensions acquisitions. Another crucial strategy for Starbuck’s growth has been its international strategies of expanding into key developed and emerging markets to geographically diversify, and it has been highly successful with operation spanning 60 countries. All these strategies have derive considerable competitive advantage for Starbucks over its competitors. Strategic Analysis Of Starbucks Corporation 3.6) Starbucks Financial Performance Analysis: Looking at a six year period ratio & growth analysis of Starbucks’s financials from 2008 to 2013, we can see that the revenue growth of the company has experience a drop of -5.9% during the 2008/09 recession but from then on, Starbucks posted a healthy revenue growth of from FY2010 to FY2013 with posting a great growth of 13.7% in FY2012 and currently posted revenues $14.9 billion for FY2013. The operating income margins have increase substantially from 4.9% in FY2008 to a high of 15% in FY2012. Starbucks posted an operating loss in FY2013 and this resulted in a operating margin of -2.2% for that year and the main reason for that is due to a litigation charge of $2.8 billion to Kraft Foods for terminating an agreement with them. This charges is treated as extraordinary event and therefore should be discounted from the overall healthy operational performance of Starbucks. Starbucks ROE and ROA have been impressive with 29.2% and 17.8% respectively for FY2012. Looking at Starbucks efficiency ratios, Starbucks has gained significant operational efficiency with impressive asset and inventory turnover ratios with a low of 1.51 and 5.4 respectively for FY2013. But its interesting to note that the company’s cash conversion cycle has increase to high 54.7 in FY2013, which is where Starbucks should concentrate on to reduce to attain higher efficiency. Starbucks boasts good financial health with low debt/leverage with a debt/equity ratio of 0.29 for FY2013 and maintains decent current and quick ratios. A detailed financial ratio and growth calculations are given in Appendix 5. 4) Recommendations:  Starbucks biggest growth is in its International segment. The emerging markets of Brazil, India, China, South Africa and Mexico with a growing middle-class population continue to offer significant opportunities to add new stores and serve more customers. Starbucks has already made significant inroads into the Chinese market but there still is a lot of untapped potential growth in these markets. Starbucks should grow in these emerging markets by winning locally Starbucks must remain relevant to the customer in order to grow in these markets, and its management teams should have the freedom to operate within their overall framework to tailor store format, introduce local product mix and price points to the needs, lifestyles and tastes of each individual market/community.  Under Starbucks international strategy, it should transfer its core competencies and capabilities country to country and then gradually build profit drivers in several countries as it continues its global expansion in an organic way.  Starbucks has great growth opportunities in Tea and Fresh Juice products mix. They should build up these products along the same line of their core coffee products.  Also as consumer tastes and lifestyle shift towards more snacks and beverages options, Starbucks should tailor its menu’s and expand to give more healthy product offerings in its mix.  Coffee beans are a significant input into Starbucks value chain and there have been wide fluctuations in the market prices of high quality coffee beans. Starbucks could mitigate this price volatility risky by implementing an effective hedging strategy like future contracts to lock in their estimated quantity inputs at a low swing price so that the future costs can be managed to a greater extent.  Starbucks growth strategy in the saturated U.S. market should focus on getting additional penetration into untapped rural markets.  Another growth sector is its packaged coffee packets and iced beverage products. Starbucks should build better relationships with big box retailers to get premium shelf space and increase the efficiency of this distribution channel.  From their 10-K’s, we can see that Starbucks invest very little in advertising and marketing initiatives. It would be recommended that Starbucks make significant investments in advertising and marketing initiatives in the face of increased competition in the market.  Further build and retain customer loyalty, by building on beta concept of on-the-go home delivery.  Their mobile apps business drove 10% of the sales in the US, so it would be recommended for further building to stream lining ease of use and payment process which would help drive more customers, decrease wait time in stores and increase efficiency. Integrating Starbucks loyalty program with the mobile application would also be recommended. Strategic Analysis Of Starbucks Corporation References: 1 Starbucks 2013 10-K Form for FY ended on September 29th, 2013 2 Starbucks 2013 10-K Form for FY ended on September 29th, 2013 3 IBIS World: The Coffee & Snack Shop Industry in the US Report, October 2013 4 IBIS World: The Coffee & Snack Shop Industry in the US Report, October 2013 5 IBIS World: The Coffee & Snack Shop Industry in the US Report, October 2013 6 http://www.starbucks.com/about-us/company-information/mission-statement 7 http://www.starbucks.com/responsibility/sourcing/coffee 8 http://interbrand.com/en/best-global-brands/2013/Starbucks 9 Starbucks 2013 10-K Form for FY ended on September 29th, 2013 10 Starbucks 2013 10-K Form for FY ended on September 29th, 2013 11 http://www.starbucks.com/coffeehouse/store-design 12 http://money.cnn.com/magazines/fortune/best-companies/2013/snapshots/94.html 13 http://www.starbucks.com/responsibility/community 14 GlobalData: Starbucks Corporation Research Report, March 2013 15 http://blogs.wsj.com/corporate-intelligence/2013/07/26/starbucks-talks-about-its-future-morefood-more-digital/ 16 Starbucks 2013 10-K Form for FY ended on September 29th, 2013 17 Starbucks 2013 10-K Form for FY ended on September 29th, 2013 18 http://online.wsj.com/article/PR-CO-20131122-905464.html 19 http://www.forbes.com/sites/walterloeb/2013/01/31/starbucks-global-coffee-giant-has-newgrowth-plans/ 20 http://seekingalpha.com/article/637841-starbucks-smart-acquisition-strategy 21 http://techcrunch.com/2013/07/26/mobile-payment-at-u-s-starbucks-locations-crosses-10-asmore-stores-get-wireless-charging/ 22 http://www.starbucks.com/blog/introducing-starbucks-mobile-pour 23 Starbucks 2013 10-K Form for FY ended on September 29th, 2013 Supplementary Sources: http://www.mckinsey.com/insights/growth/starbucks_quest_for_healthy_growth_an_interview_ with_howard_schultz http://www.forbes.com/sites/walterloeb/2013/01/31/starbucks-global-coffee-giant-has-newgrowth-plans/ http://seattletimes.com/html/businesstechnology/2020031178_starbucksteavanaxml.html Strategic Analysis Of Starbucks Corporation Appendix 1: US Coffee and Snacks retail market share Source: IBIS World Report Appendix 2: Barriers to Entry Checklist Source: IBIS World Report Appendix 3: Industry Structure Source: IBIS World Report Appendix 4 continued next page… Strategic Analysis Of Starbucks Corporation Appendix 4: Detailed VRIO Analysis of Starbucks Corporation Resources and Capabilities of Starbucks Corporation Prime and Strategic Locations:  In high-traffic, high-visibility locations near a variety of settings, including downtown and suburban retail centers, office buildings, university campuses, and in select rural and off-highway locations across the world.  Tap into customers convince factor Global Brand Recognition & Equity  The most recognized brand in the coffeehouse segment and is ranked 91st in the best global brands of 2013  Effectively leverages its rich brand equity by merchandizing products, licensing its brand. Aesthetic Appeal and Concepts of its Stores  Their stores are visually appealing and have a ‘cool’ factor attached to them.  Provide free wifi, great music, great service, warm atmosphere and provide an environment of community meeting spot, which forms a wider part of the ‘Starbucks Experience’.  Concept of the stores as being a ‘third place’ besides home and work.  Designed to reflect the unique character of the neighborhood they serve in and environmentally friendly. Large Size and Strong Global Presence  Operation in 60 countries and largest coffee/snack retailer  Economies of scale through superior distribution channels and supplier relationships  Lower input costs Human Resource Management and Company Culture  Employees provided great benefits like stock option, retirement accounts and well taken care of  Knowledge based employees creating a healthy corporate culture  Ranked 91st in the 100 best places to work for by Fortune Magazine  Great human capital management couple with great corporate culture translates into supreme customer service Leveraging Technology and Mobile Outlets  Starbucks Apps on iOS and Android  Investment in Technology Customer Loyalty and Cult Status  They have a cult following status among consumers  Loyalty-based programs like Starbucks Rewards and Starbucks Card drive loyalty.  Starbucks Card is a value card program that provides convenience, support gifting, and increases the frequency of store visits by cardholders Good Corporate Social Responsibility Image  Their stores are community friendly, focused on recycling and reducing waste.  They build goodwill among communities they operate in  Strong Social Responsibility Initiatives undertaken Value? Rare? Costly to Imitate? Exploited? Yes Yes No Yes Yes Yes Yes Yes Competitive Advantage Yes Yes Yes Yes Competitive Advantage Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes No Yes Temporary Competitive Advantage Yes Yes Yes Competitive Advantage No Yes Temporary Competitive Advantage Yes Yes Yes Competitive Implication Temporary Competitive Advantage Temporary Competitive Advantage Competitive Advantage Strategic Analysis Of Starbucks Corporation Appendix 5: Starbucks Corporation’s Financials Starbucks Corporation's Financials for Fiscal Year ending September of each year (All USD figures in millions) Key Ratio's/Accounts FY 2008 FY 2009 FY 2010 FY 2011 FY 2012 FY 2013 Revenue 10,383 9,775 10,707 11,700 13,300 14,892 Gross Margin % 19.2 55.8 58.4 57.7 56.3 57.1 Operating Income (USD Millions) 504 562 1,419 1,729 1,997 -325 Operating Income Margin % 4.9 5.7 13.3 14.8 15 -2.2 Net Income (USD Millions) 316 391 946 1,246 1,384 8 Net Margin % 3 4 8.8 10.7 10.4 0.06 Return on Equity (ROE) % 13.2 14.1 28.14 30.9 29.2 0.17 Return on Assets (ROA) % 5.73 7 16 18.1 17.8 0.08 Earnings Per Share (EPS) 0.43 0.52 1.24 1.62 1.79 0.01 Asset Turnover 1.89 1.74 1.79 1.7 1.71 1.51 Inventory Turnover 12.1 6.4 7.4 6.6 5.3 5.4 Fixed Asset Turnover 3.5 3.5 4.3 4.9 5.3 5 Days Sales Outstanding 10.9 11.2 9.8 10.75 12 12.8 Days Inventory 30.11 57.3 49.4 55.6 69.3 67.3 Payable Period 15.6 25 22.5 30.3 29.4 25.4 Cash Conversion Cycle 25.4 43.5 36.7 36.1 52 54.7 Current Ratio 0.8 1.3 1.55 1.83 1.9 1.02 Quick Ratio 0.3 0.6 1 1.17 1.14 0.71 Debt/Equity 0.22 0.18 0.15 0.13 0.11 0.29 Financial Leverage 2.28 1.83 1.74 1.68 1.61 2.57 10.3 -5.9 9.5 9.3 13.7 12 Profitability Ratio's Efficiency Ratio's Liquidity & Financial Health Ratio's Year on Year Growth % Revenue Growth % Source: All Financials used here are derived from Starbucks10-K Form for Fiscal Years ended 2008, 2009, 2010, 2011, 2012, and 2013 Strategic Analysis Of Starbucks Corporation Appendix 6: Starbucks Generic Value Chain: Primary activities Inbound logistics – Sourcing coffee from diverse coffee beans producers with whom they have great relationships and built up efficient supply chain management system. Operations – They have operation in 60 countries with their stores being modeled on company operated stores and licensed stores. Outbound logistics – Most of its product mix are sold in-store and some through large box retailers. Payment around source through point of sale, prepaid Starbucks Cards and mobile payments. Marketing and Sales – Traditionally, investment in marketing activities have not be significant and relied mainly on the growing reputation of premium quality product mix and superior customer services to give the ‘Starbucks Experience’ to drive customers to their stores and products. Service - Starbucks has a reputation for providing supreme level of customer services to their consumers. Support activities Firm Infrastructure. They have well designed, aesthetically pleasing stores. They have efficient level of finance, accounting and legal departments to support the firm’s infrastructure. Human Resource Management – Great benefits, employee empowerment and amazing corporate culture makes Starbucks drive efficient management of human capital. Technology development – Investments in innovative technologies like the well like mobile app. Procurement – Starbucks procures its products from a diverse group of supplier and has fixed contracts with some of the suppliers.23 Strategic Analysis Of Starbucks Corporation Appendix 7: History of Strategic Acquisition, Joint Venture, Strategic Alliances and Product Extensions Continued next page… Strategic Analysis Of Starbucks Corporation Source: Global Data and MarketLine Financial Deals, Starbucks Corporation, 2013 Reports. Continued next page… Source: Global Data and MarketLine Financial Deals, Starbucks Corporation, 2013 Reports. Strategic Analysis Of Starbucks Corporation Source: Global Data and MarketLine Financial Deals, Starbucks Corporation, 2013 Reports. Strategic Analysis Of Starbucks Corporation Appendix 8: List of Starbucks Product Mix: Source: GlobalData and Starbucks Website Strategic Analysis Of Starbucks Corporation Source: GlobalData and Starbucks Website
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