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Clearly, if it is believed that e-commerce will primarily replace other channels, then it is
important to invest in the technical, human and organizational resources to achieve this.
Kumar (1999) suggests that replacement is most likely to happen when:

1 customer access to the Internet is high;
2 the Internet can offer a better value proposition than other media (i.e. propensity to
purchase online is high);
3 the product can be delivered over the Internet (it can be argued that this is not essential
for replacement);
4 the product can be standardized (user does not usually need to view to purchase).
If at least two of Kumar’s conditions are met there may be a replacement effect. For example,
purchase of travel services or insurance online fulfils criteria 1, 2 and 4. As a consequence,
physical outlets for these products may no longer be viable since the service can be provided
in a cheaper, more convenient form online. The closure of British Airways travel retail units
and AA shops is indicative of this change, with the business being delivered completely by a
phone or online sales channel. The extent to which these conditions are met will vary
through time, for example as access to the Internet and propensity to purchase online
increase. A similar test is de Kare-Silver’s (2000) Electronic Shopping Test (Chapter 8, p. 435).
A similar vision of the future can be developed for buy-side activities such as procure-
ment. A company can have a vision for how e-procurement and e-enabled supply chain
management (SCM) will complement or replace paper-based procurement and SCM over a
future time period.

How can e-business create business value?

As Chaffey and Wood (2004) have emphasized, much of the organizational value created by
e-business is due to more effective use of information. The strategic importance of business
information management in an organization can be reviewed and communicated as part of
vision using Figure 5.12. This analytic tool, devised by Professor Don Marchand, shows dif-
ferent ways in which information can create value for organizations.
The main methods are:

1 Adding value. Value is added through providing better-quality products and services to an
organization’s customers. Information can be used to better understand customer charac-
teristics and needs and their level of satisfaction with services. Information is also used to
sense and respond to markets. Information about trends in demands, competitor products

and activities must be monitored so organizations can develop strategies to compete in the
marketplace. For example, all organizations will use databases to store personal character-
istics of customers and details of their transaction history which shows when they have
purchased different products, responded to marketing campaigns or used different online
services. Analysis of these databases using data mining can then be used to understand
customer preferences and market products that better meet their needs. Companies can
Sense and respond use sense and respond communications. The classic example of this is the personaliz-
communications ation facilities provided by Amazon where personal recommendations are provided.
Organizations use
technology to monitor 2 Reduce costs. Cost reduction through information is achieved through making the business
consumers’ preferences processes shown in Figure 10.2 more efficient. Efficiency is achieved through using infor-
indicated by their mation to source, create, market and deliver services using fewer resources than previously.
responses to web sites or
e-mail communications in Technology is applied to reduce paperwork, reduce the human resources needed to operate
order to target them with the processes through automation and improve internal and external communications.
relevant, peronalized and
targeted communications. Capital One (Case Study 5.1) has used Internet technology so that customers can apply for
and service their credit cards online – the concept of ‘web self-service’.