Building Online Bookstore for Chines Market - Assignment Example

Building online bookstore for Chinese market In this rapidly-changing world of globalisation, thanks to the evolution of the Internet and E-commerce, there are no physical barriers between sellers and target buyers, be it in any corner of the world. At a scale of $6.8 trillion in 2004, the viability of the Internet having finally arrived gets established (Forrester). It all began when Jeff Bazos, a graduate of Princeton University, opened the world's first online bookstore, Amazon.com, its market cap today stands pegged at over $10 billion (wikipedia). Our business plan today revolves around the establishment of a similar online bookshop venture for the dynamic Chinese market. China could become the world's largest online marketplace in two years (Register.uk), with a current base of 30 million users (Asiasource). With growing spending power and a fast-paced lifestyle, the Chinese consumer is today, the favourite for all online marketers. Books, Game CD's and other computer gear seem high on the wishlist of the young Chinese buyer (Register.uk). In order to establish an online bookstore in China, we must focus on a customised business development plan that caters to the specialised buying and behavioural needs of this particular segment. Facts to know about the Chinese e-market China is much different from the United States or Europe in its approach to online marketing, and the following points must be kept in mind before embarking on any online business venture in this country. Amazon.com opened its maiden store in China with a localised affiliate called www.Joyo.com , and has succeeded in tapping its potential. Online Credit card transactions are the norm in the US and Europe for E-commerce (with a number of private players like PayPal, E-Gold and Discovery carrying out highly reliable transactions), but in China, except for affluent buyers, the penetration of such pay mechanisms is slow. Owing to sheer ignorance, many people still feel insecure about divulging their banking information to a remote web server. These precautionary moves are here to stay as long as the penetration of E-commerce continues. Two-thirds of present transactions happen by cash-on-delivery or post-office methods (Register.uk). Upfront payments are increasingly frowned upon thus, because of fraudulence fears. Transportation and logistics is an important area of concern for the far-flung regions of this huge country. Despite large-scale development, it is not uncommon for online agencies to miss out on delivery dates. Information infrastructure lies at the heart of spreading E-commerce. ISP quality and service value directly affect the convenience posed by the Internet for online buying. In China the ISP costs are still very high and the quality of service, poor. According to a survey, 49.3% of complaints are due to slow speed and 36.8% due to high costs (Jiacheng). Intellectual Property Rights (IPR) is a serious bone of contention between Western and Chinese governments, and till date, shows not enough signs of resolving. Piracy is not just an issue in China, it is practically a way of life. There are many small, niche players in the Chinese market who make their daily profits out of duplicating Books, CD's and other branded products. Many of them have ventured online to take advantage of the corresponding boom in Internet spending, and can easily eat into the profits of any large MNC investing in China. The Government acts as watchdog to monitor any online activity that it sees as danger to its Communist policy; the severity of restrictions internet users face in China, is incomparable. An online bookstore has to take care, for instance, that it doesn't sell material on banned sects such as Falun Gong (which has been expelled by the Chinese government), or it may risk jeopardising its own market. It is too easy for Western sellers to ignore language conflicts that may arise out of investing in China. China is not like India, where English language is easily accepted for business dealings with Westerners. Almost all web content has to be supported in the Chinese language; and it is necessary for a company to have a fully-trained Chinese staff to handle customer complaints. Amazon.com's partnership venture, Joyo.com, operates entirely in Mandarin Chinese. The initials: Analysing business models For the Chinese consumer market, we can have a combination of some of the more successful business models related to the online bookstore agency. Amazon.com thrives on a mix of strategies to increase their consumer base. First of all it must be kept in mind that online bookstores remain in the business because they are able to cash in on in their strengths in several allied areas apart from books; music CD's, DVD's, video tapes, softwares, toys, apparel, stationery, sporting goods, jewellery, watches, personal and health care items, and much variety of products form source of revenue for the agency. The basic business model of Amazon.com is called Bricks and clicks model. In this, the company integrates its online and physical presence, wherein the buyer will look at the computer screen, place the order online, and complete payment through VeriSign secure transactions (In China's case, we can have a simultaneous Cash-on-delivery system on lines of India's highly-successful www.Rediff.com which is the top e-marketing agency for the country). This model contributes to an overwhelming revenue share for Amazon's US operations. Simultaneously, Amazon thrives on Multi-level-Marketing initiatives. This measure can be extremely popular for a growing market like China which has a large pool of wannabe entrepreneurs seeking to make a few extra bucks in their spare times. At around today, at least 40% of all Amazon sales result from such pioneering initiatives, and has thus proved extremely successful for its business (Wikipedia). The sales are achieved by "Affiliates" or "Associates" who are, essentially business partners of the source firm. An affiliate is an independent seller, who refers people to the Amazon.com website. Any successful sale made thus, results in monetary benefits to the affiliate who is rewarded points for the concerned affiliate programme. This chain-of-influence can continue indefinitely as affiliates, in turn nominate their own sub-affiliates. Books are a popular item, so affiliate programmes would pretty much lead to sales, whether in the US or in China. A rival company of Amazon.com, Half.com which is a subsidiary of Auction Giant Ebay, does an online auction model for selling its books. Under this scheme, books both used and new (Amazon.com only deals with new books, and thus operates at high volumes, high margins market) can be sold online at predetermined minimum offers of purchase, called bids. If a customer is extremely lucky, he may end up paying less than a dollar for the latest hardbound but used cover of "The Da Vinci Code", offering a lot of flexibility in the marketplace. The emergence of auctions' concept has stashed competition among online bookstore owners who not only have to provide user-friendly environment to complete secure transactions, but also tie-up with publishers to keep their rates extremely competitive. Buyers are becoming extremely intelligent nowadays, with research websites like www.allbookstores.com providing interfaces to comparing the prices of the same book by different outlets (including shipping and packaging charges). China is a price-sensitive region and considering the popularity of pirated goods here, used and paperback books can contribute a major portion of all online sales, in direct competition to pirates thriving in on the business. Other marketing mixes a company can go for is initiating a subscription model where consumers can subscribe to a list of unique titles, and save money in the whole deal. This process requires extensive consumer research and awareness of issues, but can reap immense benefits to a bookstore's business plans. E-marketing and building customer traffic Depending on the scale and magnitude of operations, the online bookstore company in our case would require a variety of marketing tools to make its presence felt in China. If it is an already-established agency, then the brand name can play a pivotal part in ensuring steady traffic to its website. In any given case, it will continuously require to adopt new strategies to perform in the price-sensitive, ever-changing, fast-growing economy. E-marketing tools broadly fall under two categories: online advertising and search engine optimisation. Online advertising requires the aid of an online marketing firm which helps attract customer attention towards promotion of the services being offered. Advertising may be done through Search engine results, whereby specific keywords when returned on Yahoo, Google, Lycos, and other agencies give adverts of the concerned company along the side. Another method is to take the help of Advertising Networks which is often a consortium of several online advertising companies, e.g. Google, Yahoo, 24x7 Real Media, Blue Lithium, Tremor Networks, Advertising.com, and many others (Wikipedia). Such advertisement campaigns use several inventory, e.g. banner ads, rich media, emails, etc. This inventory can be purchased or downloaded for free from websites, instant messaging services, adwares which are softwares supporting the installing and application of advertisements. In most general cases, such applications are delivered from a central Ad server (wikipedia). There are several payment conventions in an online advertising coupe (Wikipedia). Since an online bookstore will require a highly interactive website to facilitate frequent entry and removal of titles by various authors (Amazon.com currently handles a minimum of 250,000 books), it must work out on balance-sheet which of the following techniques must appear most cost-effective. CPA (Cost per Acquisition) business plan: This advertising plan is performance-based, and takes away the entire liability of running the ad from the advertiser to the publisher. It is the publisher who runs the risk of running the ad. An acquisition is validated when a payment is approved or a sign-up form is filled. This is highly-suitable for Amazon's affiliate-based programme, and its implementation depends on the confidence bookstore owners can have for its affiliate programme in China. CPC (Cost per Click) business plan: This is a very successful tactic for publishers who make advertisers pay on a per click basis. It basically refers to the end user clicking an advertisement as it appears on a frontal webpage. This effectively means not only the user is seeing the ad, he is also responding by following the hyperlink. CPM (Cost per Thousand) business plan: Under this plan, the advertiser pays for the amount of exposure received by the advertisement by a targeted user group. The average costs collected from a variety of agencies runs at $1 per 1000 crowd to be exposed to the contents of the webpage. A very popular method followed by all professional websites today, is to take the help of Rich Media to grab the attention of the target viewership. Rich Media is in the form of interactive advertising techniques, generally using Macromedia Flash, which support a broad variety of colours, fonts, images, and moving graphics. Such media or pop-ups as they are commonly known, ultimately help promote online advertising. The common forms of Rich Media are (wikipedia): Banner Ads: Generally in rectangular boxes of 480x80 pixels. Interstitial Ads: Display of a number of pages of ads before opening required webpage (this can be annoying to many customers, of course). Floating Ads Expanding Ads Wallpaper Ads Polite Ads: These ads occupy minimum space and activate only when their browsers are clicked. For our concerned bookstore, the most viable alternative would be to go for an affiliate programme wherein, affiliates and their sponsors send correspondence to a broad function of customers having email addresses, and bring in successful referrals for the website. A knowledge of Rich Media can help stimulate customer interest, and develop credibility. Some useful features can be borrowed from successful companies, e.g. Amazon.com has a very useful feature called, "Search Inside Books", which enables users to skim through a host of copyrighted content made available by publishers. Most marketing websites have "Cartlists" for a sequence of items, and it can be an extremely user-friendly experience for a buyer looking for multiple items. All features incorporated into the entire process from getting a click, to buying, and finally, closing payments, must be smooth and easy. The customer doesn't like to grapple with inconveniences, such as downloading of files, or webpages which require leaner browser configuration in view of reduced privacy. Advertising needn't be always an online affair. Before entering a new market, successful companies launch favourable PR initiatives to gain widespread recognition of the availability of their service. The online bookstore can promote educational events, secure tie-ups with universities and public libraries, and conduct cultural programmes to make its brand image well-known. For online assistance, it can embark on PR initiatives with online PR agencies such as PR Leap. If the start budget of the online bookstore is less, it would do it good to go for search engine optimisation which is a mandatory prerequisite to gain consumer interest. More number of people take the aid of search engines to find information about the product or service they are interested in. People's attention spans are so small that they normally, don't like to look beyond first 2-3 search results if they get what they were after, and in most cases they do. There are a variety of cost-effective tools and techniques available for search engine optimisation procedures, so much so mention a book and Amazon.com figures among first few results in a standard Google search. Here, we discuss some of the important tips in brief (Source: Microsoft) Potential site design/set up problems: Most sites would use Flash for navigation. Now the problem erupts when the search engines built out of standard HTML programming language, cannot decipher the index of such flash programs. It can easily be avoided by making page copies of the flash programs, and in the HTML source code, carefully adding Meta Tags and Title Tags. Same goes for site hyperlinks that cannot be indexed by Google when built in Flash. The end target is that when a potential customer, types in "bookstores" in Google, the target company must feature among the key entries. And of course, needless to say, the code in tags must support Chinese language characters, since that's what we are dealing with in this case. Optimising the correct keywords: Marking the right keyword in the source code, for each webpage to be driven by marketing efforts (and remember, for an online bookstore, this will run into 100's of thousands), so that the concerned webpage shows up properly in search engine results. Optimisation of keywords is a creative process. The programmer must be told what words are going to grab ready attention of the target buyers. It is important to get into the shoes of the target so that their "need" and "wants" are assessed before choosing the optimum keyword. Also it is important to check competition for better "keyword ideas". Optimising the title tag: On the lines of the previous discussion, most search engines give importance to a website based on the content posed in the title tags. The optimum length for the content between the tags lie between 50-80 words. It is useful to mention a word or two among keywords inside the title tags, but overdoing it can lead to spamming of search engines, and thus a possible blacklisting in the future. Another important prerequisite is that the content inside the title tags should be enticing enough to bring in customers. E.g., "The Da Vinci Code" may be sold by a number of online bookstores, but if your bookstore can have catchy phrases such as the "insider story of Da Vinci", more readers will be tempted to visit the site, and more leads mean more purchases. Optimising the page copy: After title tags, the contents inside a webpage also get the attention of search engine spiders (or web crawlers as they are called). A useful tip is to ensure that there are at least 200 words per webpage. The text must contain the most important keywords for good results. E.g. it is far more useful to write, "We offer Da Vinci Code to customers in original Chinese translation from the English publication of the Da Vinci Code, written by the author of the Da Vinci Code, Dan Brown", than "We offer the Chinese translation of the Da Vinci Code, payment details." Quite simply, a customer is likely to type in Dan Brown and Da Vinci more often than anything else. These pages must contain Metas, Alts, Titles and headings to be filtered in during the optimisation processes. Meta tags: Meta tags often accurately describe the contents of the website being probed in the title tags. Some useful tips to be followed is usage of plurals (e.g. Da Vincis' and Da Vinci). Many common misspellings of target keyword should also be included in the Meta tags, e.g. "Louver and Louvre museums", "Merovingian and Merovingan", etc. Images and Alt attributes: Many images also help in optimising search results, if coming with Alt attribute. The attribute basically describes an image to the HTML spider, and a proper coining of this attribute can increase rank of website in given search listings. To avoid spam: Search Engines are always on the lookout for catching, delivering and blacklisting search engine results that do activities to spams in between meta tags, e.g. putting a list of keywords, using the same colour on the webpage as background page to stuff keywords along all engine entries, using multiple entries of the same tag, submitting identical pages, submitting same page to the same search engine more than once in less than 24 hours, and using wrong content in between meta tags. Other factors that play an important role in search engine optimisation are as follows (Wikipedia): Age of site (It would be difficult to upstage Amazon.com on popular searches) Length of time domain is registered Age of content Regularity with which new content is added Age of link and reputation of linking site (E.g., It is useful to link a webpage on the book, "Da Vinci Code" with Dan Brown's personal homepage). Uniqueness of content Google page rank External and hyperlinks Citations and research sources Incoming backlinks and anchor text of these blacklinks. Hosting uptime IP of hosting service Rate of document addition or change Actual click-through rates There are several Search Engine Marketing companies that cater to the search engine optimisation needs of companies. In all, we have discussed all the potential e-marketing tools that would be used to build and promote the online bookstore website. Through a good combination of affiliate programmes, sponsorships, promotional events, marketing strategies and search engine optimisation techniques, our online bookstore would be ready to capture the Chinese market. The most important thing being, of course, all such activities and their content must be published in the Chinese language. Distribution and Logistics Once an order is completed, the customer can rest and stay assured with the fact that the parcel will be delivered at the doorstep; this is where the true story begins. It is important to understand the significance of distribution and logistics activities for the online bookstore, especially that caters to the Chinese market. Amazon.com has an extensive network of logistics partners like FedEx, UPS, etc. that perform door-to-door delivery of books; the entire chain getting activated as soon as the order is processed, so much so that many-a-times it can sell a book free of shipping charges, and appeal to the most penny-pinching customer. But, that's Amazon.com, a $15 billion company. If a new player wants to achieve the level of efficiency that Amazon.com has, then it must understand the whole logistics and distribution process carefully. There are several professional consignment agencies that handle international and domestic shipping of goods. This whole procedure is called E-fulfilment. For a client like our online bookstore, the entire process begins with the signing in with a professional E-fulfilment agency. Each country has its own leading head of this supply-side business. Major Chinese experts in this arena are: Snt Global based in Shanghai , which provides end-to-end logistics solution by its sophisticated BPO arm. The good news is that China is looking majorly into revving up its logistics industry, according to a senior official of the State Economic and Trade Commission (SETC) (Source: English). The problem with logistics in China lies in the fact that here, often as a matter of direct management policy, production and sales are kept separate. This affects the timely delivery of consignment, and can cause a rift between customers and suppliers, something that cannot be conducive at the start of the business. Generally, the cost of such logistics business is very affordable, with professional fulfillment agencies charging upfront for a bulk of assignment, this brings down the operating costs of per unit assignment. A US-based E-fulfilment service normally charges $1.50 per order for order size less than 1000. Additional charge is taken for UPS, DHL or other transport partners. Finally, it comes to storage and/or inventory, where the typical charge may be $70 per month for a 4'x4'x4' pallet. (Source: E-fulfillment) Such agencies also provide assembly labour, return processing, export orders, legal formalities, and shipping duties, all for nominal fee. The first thing to do before working out with any such agency is to discuss the order fulfillment costs, which can get significantly lower with volume orders. This can reduce per unit shipping costs, and bring an effective relief in overall expenses. E.g. if 1000 copies of "The Da Vinci Code" are to be supplied to two neighbouring Chinese cities in a week, a prenegotiated agreement with the e-fulfillment service provider can bring down the overall costs of transportation. Many customers prefer to do their own packaging and initial-handling activities, and it can further reduce costs. With the advent of customised softwares such as YahooStore and UltraCart, the orders can be directly exported to standard XML files, and thus, the webstore can be integrated with the standard control panel database of the logistics' agency. A successful tip to reduce delivery costs is to initiate First Class Mail for a given quantity/ weight of consignment, and simultaneously back up with Priority Mail for any consignment beyond that. Other factors that must be kept in mind before signing up an e-fulfillment agency for giving orders (E-fulfilment): Is the company financially stable Oil and Gas rates are uncontrollable. The consignment thus, cannot be trusted with a loss-making agency. The policy of the company in lieu of transit damage and lost goods. A professional company will always share liability in the event of errors made by it. Watch out for partners who find blames/excuses. The policy of the company in lieu of wrong order fulfillment, and recovery methods. There must be sufficient insurance to cover up any damaged inventory. Simultaneously, the logistics partner must have insurance cover for transport fleet, etc. Is the company providing individual Stock Keeping Unit (SKU) labelling Wrong labels invariably translate into wrong deliveries. Is the company able to handle Cash-on-Delivery (COD) operations successfully What is the policy followed by the company in lieu of failed payments, bounced cheques, fraud, deceit, etc Lines of communication between the Call Centre of the online bookstore and the order delivery centre of the logistics company. Management Seneca, an ancient philosopher once said, "When a man knows not what port he saileth, then no wind is favourable." Running an online bookstore needs a careful analysis of the stakeholder situation of the product line. The difference from conventional management lies in the fact that here rewards and promotions are directly linked to the amount of selling taking place, so affiliates are in effect running the show, as in case of Amazon. As there is increased utilisation of multi-level marketing endeavours, there is more opportunity for entrepreneurial growth within the organisation. An organisation of modest size and comparison needs effective personal selling to reap in profits. Being small, there lies a danger of being heavily coerced and brow-beaten by logistics suppliers, vendors and export rules bureaucrats. The personal charisma of the owner of such an agency plays a major role in extracting a fair deal from unscrupulous elements. The central premise on which such an agency can run is: Information. The more information a company has at its disposal, and more effectively that it manages the information, can its start-up be a success. An online bookstore agency whether big or small, would do well to tap into any information database it can lay its hands on. It must be able to minimise its spending and overheads by carefully managing its information in separate registries, with sufficient back-up data in case of information loss due to undesirable information. Payment modules must be separately taken care of, and VeriSign or any such authentication agency must be used to finish secure online transactions. Another matter of concern to do business in China is a knowledge of legal issues. It is necessary for the online agency, even though having its headquarters in some other part of the world, to maintain a representative office in China with Chinese language experts to facilitate legal processes in lieu of fraud and deceit. For a smaller company, it is advisable to confront straightaway with Giants like Amazon.com, in every possible sphere. It is more useful to identify suitable niche categories where to face less competition. Research techniques must be devised to identify sections of Chinese books, periodicals and other literature that have been overlooked by bigger companies. A winning business plan While summarising the effective points discussed in this case study, we give a formulation strategy for a business plan that must succeed in building an online bookstore for the Chinese market: The Brand: A brand name and image goes a long way in promoting and selling a successful product. It is said that the brand lives on long after the product is forgotten. In order to appeal to the Chinese consumer, the name should have some association with Chinese culture and tradition. It need not be Chinese(e.g. the highly-popular Alibaba.com which handles a great chunk of present E-commerce in China), but it must leave an indelible impact. If the owner of the agency cannot think of a creative name, a PR agency can be brought in to picture a name and a logo, which is as important in brand-building. The business plan: We have formulated a plan to install a Bricks-and-click model for our online bookstore along with an affiliate programme and an auctions module which should appeal to the price-savyy Chinese customer. Finances and budgetary considerations are next in importance, and should be carefully thought over with a detailed homework on present and future spending. Questions asked should be like: how much to be invested in real property, how much money to be paid to consultants, market researchers and legal experts, how much money to be raised through loans, etc. Answers to these question must be given according to the scale and magnitude of the business plan as in whether to go for an all-out expansion in China or a slow entry plan in the lines of Amazon.com which didn't achieve any profits for the first 5 years of its business established in 1994, but carefully studied the market, and pioneered E-commerce. Website Design: As the whole business is about E-commerce, the design of the website plays a crucial role in attracting customer traffic, and delivering a viable means to achieve user-friendly buying experience. Many technical aspects of such a website were discussed, e.g. instituting a Cash-on-Delivery (COD) model for a credit-card sceptic Chinese consumer, Flash-built websites on lines of popular book agencies like Amazon.com, easy navigation toolbars, "search-inside the book features" and of course, delivery of core content in the Chinese language. Online marketing: Online marketing is done through affiliate programmes on lines of Amazon.com which achieves 40% sales through this medium. Based on running costs, 3 delivery models were suggested for online advertising costs. Finally, Rich Media Formats were discussed for more-focussed marketing efforts. Rich Media formats included Banner Ads, Interstitial Ads, Floating Ads, Expansion Ads, etc. The best way to achieve effective promotion is through Advertising networks such as Google, 24x7 Real Media, Blue Lithium and so on. Search Engine Optimisation: A lot was discussed on the importance of Search Engines in deciding a winner or loser among online marketing agencies, and the precise mechanics of how the system works was clearly explained. Many popular tips on HTML formatting were presented which come free of cost, but can go a long way in making a website a hit marketplace through effective strategising. Logistics and Distribution: We discussed the scope and feasibility of what are known as E-fulfilment agencies which prove cost-effective vendors and suppliers for running an online marketplace. Management and legal issues: Some useful tips on effective management for an online agency, and legal implications of doing E-commerce in China were discussed. Last but not the least, the online bookstore must conduct an array of trial runs and PR exercises to gain a foothold into the immensely lucrative Chinese market. References Asia-source (2001). E-commerce in China. Retrieved 19 May 2006 from http://www.asiasource.org/news/at_mp_02.cfmnewsid=9470 E-fulfillment service (2006). E-fulfillment. Retrieved 19 May 2006 from http://www.efulfillmentservice.com/ English (2001). China to rev up development of Logistics Solution. Retrieved 19 May 2006 from http://english.people.com.cn/english/200104/05/eng20010405_66944.html Global-reach (2004). Forrester Projections. Retrieved 19 May 2006 from http://www.glreach.com/eng/ed/art/2004.ecommerce.php3 Microsoft Small Business Center (2004). Search Engine Optimization. Retrieved 19 May 2006 from http://www.submit-it.com/subopt.htmtipq=5&sell_page=1 Richardson, T. (2005). China set for E-commerce boom. Retrieved 19 May 2006 from http://www.theregister.co.uk/2005/01/17/china_ecommerce/ Wikipedia (2006). Retrieved 19 May 2006 from www.wikipedia.org Other websites visited: www.amazon.com, www.half.com, www.amazon.co.uk, www.rediff.com, www.allbookstores.com, www.joyo.com. Read More