Page 171 - Electronic Commerce

Chapter 3

In 2011, disappointed with the level of advertising revenue, the company adopted a
rather complex program that gave the newspaper some flexibility in what it would put
online (in case there was a major story it wanted to cover broadly) yet that would
generate more revenue than the advertising-based revenue model it had been using for
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the previous four years. In the new plan, The New York Times Web site visitors could
read 20 articles a month at no charge. When a visitor attempted to view the 21st article,
the site would invoke a paywall and offer several subscription plans (priced between
$15–$35 per month) that included unlimited access to the Web site and various levels of
access through mobile phones.. Subscribers to the print edition were given unlimited
access to the site.
In 2012, a year after first introducing the paywall, the newspaper announced that it
had gained more than 450,000 subscribers and, in an apparent confirmation of the
success of its strategy, reduced the number of free articles allowed to nonsubscribers to
10 per month. The publishers of the newspaper hope that this mixed revenue model will
provide an acceptable balance between the editors’ desire to have as many people as
possible read the paper and the need to generate sufficient revenue to keep the newspaper
operating. Their experience with this revenue model has been, and will likely continue to
be, watched closely by the entire industry.

REVENUE STRATEGY ISSUES FOR
ONLI NE BUSINESSES

In the first part of this chapter, you learned about the revenue models that companies are
using on the Web today. In this section, you will learn about some issues that arise when
companies implement those models. You will also learn how companies deal with those
issues.

Channel Conflict and Cannibalization
Companies that have existing sales outlets and distribution networks often worry that
their Web sites will take away sales from those outlets and networks. For example, Levi
Strauss & Company sells its Levi’s jeans and other clothing products through department
stores and other retail outlets. The company began selling jeans to consumers on its Web
site in mid-1998. Many of the department stores and retail outlets that had been selling
Levi’s products for many years complained to the company that the Web site was now
competing with them. In January 2000, Levi Strauss announced it would stop selling its
clothing products on its own Web site. Such a channel conflict can occur whenever sales
activities on a company’s Web site interfere with its existing sales outlets. The problem is
also called cannibalization because the Web site’s sales consume sales that would be made
in the company’s other sales channels. In recent years, the Levi’s Web site resumed
selling products directly to consumers, but it includes a Store Locator link that helps
customers find a nearby store if they want to buy in person. Both Levi Strauss and the
retail stores it sells through have agreed that the sales through the Web site are
insignificant. Over time, many Levi’s retailers have opened online stores themselves, so
they see the Levi’s site as less of a threat than they did in 2000.

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