Chapter 2 The Essence

and Trends of E-
Commerce
Course Teacher ： Menghao Zhang

Context information:zhangmhyy@163.com
2.5 The essence of e-
commerce
 2.5.1 The essence of e-commerce

(1)Flow rate (flow cost) (7) Long tail

theory

(2) Magnification (8) Free strategy

(3) Price or quantity

(4) Solving information symmetry

(5) Network effect

(6) Marginal cost

 Flow rate (flow cost)

 What is flow? It’s the number of potential

customers entering your sales funnel.
 What is the flow cost? It is in each channel that
the average price of getting a potential customer.
 What is an advanced retail business model? After
you have finished a lot of calculations, you have
found the cheapest way to get the flow.
 Magnification rate

The magnification rate is the price on the

market divided the cost of making the
product. Cost of 100, sell 500, the
magnification rate is 5 times. Shoes and
clothing industry: generally 5 to 10 times.
Cosmetics industry: generally 20 to 50
times.
 Magnification rate

 If the weapon in your hand is innovative, that is, you can do

something that others can't do, then please boldly increase the
magnification.
 If the weapon in your hand is efficient, you are qualified to pick
up the knife of the rate, cut it to the inefficient link under
today's technology, and gain a subversive competitive advantage.
 Fixed magnification is an important criterion and basic logic for
observing the structure and efficiency of each different industry.
 Cases: book publish; Kindle
 Price or quantity

 Sell more or more expensive?

 First, we must judge according to the nature of this product. For

example, products that focus on emotions or are based on irreplaceable
technology, you can consider raising prices.
 Second, when you choose to sell the product model, you must confirm the
market, whether it has enough capacity and sufficient frequency of
consumption. In other words, confirming a lower price will indeed lead
to a larger sales increase.
 Third, when you want to choose the gross profit model, you must also
confirm that the brand premium that supports this price is already
accepted by consumers.
 Solving information symmetry

 In the past, we solved this asymmetry problem through a

series of means such as brand chain operation and secured
transactions, but today's Internet provides us with a new
and efficient way to make information symmetrical. Internet
companies, if they make good products, have the opportunity
to win the favor of consumers from the big companies.
Information symmetry is the underlying logic of the Internet
to change the business world.
 Network effect

 The value of a product to a user depends on the number

of other users who use the product. In economics, we
call it the network effect. The more users, the more
valuable; the more valuable, the more users; the
constant accumulation of user stickiness. If the total
number of users breaks through a critical point, it
will eventually enter the "winner-take-all" state.
 Cases: WeChat, Taobao/Amazon,Didi/Uber; Pin Duoduo
 Marginal cost

Marginal cost refers to the increase in total

cost per product or product sold. The
structural change in marginal cost is the
most important impact of the Internet economy
on the traditional economy.
Case: Suning VS JingDong/ Walmart VS Amazon

Uber and Airbnb

 Long tail theory

 The establishment of the long tail theory has three

premises:
 There is no display cost, which causes the marginal cost to
drop to almost zero; breaking the geographical restrictions,
small demand can be collected; personalization can be met by
scale.
 Small business can use long tail theory through two methods:

 1, with the help of the big platform, do a small explosion.

 2. With multiple teams, do a quick personality.

 Free strategy

 Free is the transfer of the cost of a free item, such as a

transfer to another item, or a follow-up service. The true
essence of free is actually a "two-stage charge":
 In the first paragraph, some companies use money first, buy
your attention, your circle of friends, your future needs,
and so on.
 In the second paragraph, you will take the money and buy a
"free" product.
 Free strategy

 Free is to transfer the cost of free goods. There is

no free lunch in the world. All "free" are "two-stage
charges."
 How should I practice a free business model? Remember
three things:
 1. Cross subsidy.

 2, first free and then receive.

 3. Three-party market.
 2.5.2 The significance of e-commerce
to society

(1) The way e-commerce changes business

activities

(2) E-commerce has changed the way of

business management

(3) E-commerce has changed people's

consumption patterns
 2.5.3 Problems caused by the
development of e-commerce

(1) Security issues

(2) Application technology issues

(3) Taxation issues in e-commerce

(4) Other issues


technical problem
First, security issues
① Computer network
security refers to the use
of network management
controls and technical
measures to ensure that
the confidentiality,
integrity and usability of
information data are
protected in a network
environment.
② Business transactions with
the help of the network
have more security
considerations, including
ensuring the
confidentiality, integrity
and non-repudiation of
Second, payment problems
In recent years, although many
commercial banks have launched
online banking to realize electronic
payment, this payment method is
still relatively backward, and there
are still some obstacles in cross-
bank payment, which causes
consumers to face many problems
in electronic payment.
The inconsistency of payment forms
has greatly affected the transaction
efficiency of e-commerce, which has
a great relationship with the degree
of informatization of banks. The
imperfections and low security of
relevant regulations are also the key
factors that restrict online payment.
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Third, big data problems
In the era of big data, e-
消费者网
commerce has ushered in
购行为特
great opportunities and
点
created enormous value. At
the same time, there are
many problems that need
to be overcome, including
collecting real and effective
information in big data,
processing and analyzing
data information and
preventing data faults.
 2.6 Trends in e-commerce

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 1, O2O mode

O2O is not only online payment, offline

consumption, but also a variety of new business
models.
     1 Online communication, offline purchase
(traditional store retail);
2 online purchase, offline consumption (store
consumption of service products);
    

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 1 O2O mode

3 online purchase, online supply (transformation of

mail order);
4 offline gathering (experience), online purchase
(for customized products, advanced
customization, etc.);
5 online purchase, online consumption (home
service).

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 1, O2O mode- O2O life service structure chart

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 1 O2O mode

According to the industry, O2O has a total

of 14 industries and involves almost all of
a person's life behavior: eating, drinking,
living, dying, marriage and education.
Because each industry is a big market,
choosing a subdivision point is a good way
to avoid the vision of the giants, and to
easily form core competitiveness.
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 2. Mobile e-commerce is maturing

In 2014, the commercialization of 4G networks, the

popularization of smart phones, and the continuous
maturity of technologies such as mobile shopping, mobile
payment and QR codes will definitely promote the
development of mobile internet.
       Optimistic: mobile shopping; mobile payment; based on
mobile search; location services; mobile social (WeChat);
health care.

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 2. Mobile e-commerce is maturing
The range of properties of a smartphone determines the
capabilities of a mobile terminal far beyond that of a
traditional computer.

Number authentication capability Ability to pay

a series of properties

NFC
of a smartphone
Positioning ability

QR code
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 2. Mobile e-commerce is maturing

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 2. Mobile e-commerce is maturing

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 3. Internet finance promotes financial system reform

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 3. Internet finance promotes financial system reform

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 3. Internet finance promotes financial system reform

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 3. Internet finance promotes financial system reform

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 3. Internet finance promotes financial system reform

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 3. Internet finance promotes financial system reform

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 3. Internet finance promotes financial system reform

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 4, cross-border e-commerce developed very quickly

According to the monitoring data of China E-Commerce Research

Center, the cross-border e-commerce transaction volume reached 4

trillion yuan in 2014, a year-on-year increase of over 30%, which

is higher than the increase of traditional foreign trade

transactions. Therefore, in 2015, cross-border e-commerce was

overseas. The two models of import and export will be improved.

The Zhengzhou Municipal Government focused on building cross-

border e-commerce in 2015. Achieve "buy the world, sell the world"

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 4, cross-border e-commerce developed very quickly

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 4, cross-border e-commerce developed very quickly

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 5. Manufacturing to service-oriented

　　 "Reverse Customization (C2B)" has gradually

matured. Production companies will use the technological
advantages to customize the products required by users
from the needs of users.

       Haier: Connected factory + open platform.

      The transformation of productive enterprises into

production services is a trend.

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 5. Manufacturing to service-oriented

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 5. Manufacturing to service-oriented

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 6, local life services are popular

At the end of 2013, B2C giant Jingdong launched

“Jingpinhui” on the line, aiming to focus on
key cities and businesses to seize the market in
the buyout mode; Alibaba established a mobile
product family in the field of life services to
create group advantages; public comment, Tencent
WeChat, etc. Competing for the layout.

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 Local service websites are opened

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 7, big data to open e-commerce new space

　 　 Big data analytics gives companies the

opportunity to turn more of the value chain into
new strategic advantages. Such as precision
marketing, user customization, health care, life
services, dynamic analysis and so on.

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 Big data in the Spring Festival

“ 百度迁徙”发布的腊月二十六 22 支付宝发布的春运路线热点图
时前的全国 8 小时最热线路图

40 days, 3.6 billion people. This is the total time of the Spring Festival 2014

and the total number of people traveling. Where did the crowd go from in this

short-term migration, the largest in human history? Which lines are the most
 微信中的大数据

“ 百度迁徙”发布的腊月二十六 22 时前的
全国 8 小时最热线路图

WeChat 600 million people, each person sends 10 words per

day, calculated according to 1500 words per page, the amount
of information generated will be 4 million pages, if calculated
according to 400 pages per book, it will be 10,000 books.
 Big data unit
1ZB=1 trillion GB, the global production of 3.5ZB
in 2013 is equivalent to the capacity of 34.4
billion 32GB smartphones.
1KB = 1024B (Kilobyte kilobytes),
1MB = 1024KB (Megabyte megabytes referred to as "mega"),
1GB = 1024MB (Gigabyte gigabytes, also known as "gigabit"),
1TB = 1024GB (Terabyte terabytes),
1PB = 1024TB (Petabyte beats bytes of petabytes),
1EB = 1024PB (Exabyte A byte, billions of bytes),
1ZB = 1024 EB (Zettabyte Zebytes 10 trillion bytes),
1YB = 1024 ZB (Yottabyte 尧 byte one billion terabytes),
1BB = 1024 YB (Brontobyte one hundred billion terabytes).
Note: “Mega” is a million-level unit.
 8, intelligent logistics upgrade

　　 In 2014, the intelligent logistics system will be the king

of development. Speaking of this point, it is necessary to
mention Jingdong's large-scale investment in logistics and
distribution, as well as the introduction of diversified
services such as speed-speed and night-time distribution, and
still be able to escort the platform in the face of a surge in
orders. In the future, whether it is Alibaba's "novice" or
Jingdong's "Asian No. 1", the combination of intelligent
logistics with big data, cloud computing, GIS and other
technologies will become the main theme of e-commerce

competition.
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 8, intelligent logistics upgrade

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 8, intelligent logistics upgrade

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 8 、智能物流升级

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 8, intelligent logistics upgrade

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 8, intelligent logistics upgrade

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 9, the rise of intelligent hardware

　　 Can the hardware return? Looking around the launch of

smart watches, bracelets, glasses and other products,
although still in the early stages, but the commercial value
behind it has emerged. In 2014, the Internet giant's
aggressive entry into smart hardware will be an important
trend. For example, Jingdong revised the product
classification of its website a few months ago, specifically
added the "network box" section, and revealed the intention
to accelerate the layout of intelligent hardware.

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 9, the rise of intelligent hardware

In 2015, it entered the era of intelligence.

IoT construction mentions the agenda (incorporating

into smart cities)

Wearable devices, smart healthcare, smart

education, smart home, smart environmental
protection, smart municipality, smart energy, smart
transportation, etc.

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 研究 The methods to learn e-commerce

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 研究 The methods to learn e-commerce

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 Assessment content and proportion

Requirements
Examination Content Score

70
Important knowledge points,
exam （ 70%) Final exam
analytical methods and thinking

15
Optional case
ppt report
analysis
Usual
grades(30%)
15 attendence, answer questions,
Attendance
discuss in class

合计 100

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 Questions for group work

1. Find a small demand and plan to use the

long tail effect to satisfy it and get more
benefits.
 2. If you can produce high-quality socks
at a lower cost, are you planning to sell
the socks more expensive or sell more. why?