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CHAPTER 2

THEORITICAL FOUNDATION

In this section, I will provide knowledge to support my thesis throughout the

time I studied in Binus IUP. There are some ideas that I am going to discuss and

elaborate. This information is highly important in order to explain the details of the

thesis itself. Things that are going to be discussed in this chapter:

- Information System

- Marketing

- Internet

- E-Commerce

- Niche online business

- Human Computer Interaction

- SWOT Analysis

- Use Case Diagram

Each of the facts will not be discussed fully detailed, but just enough so that the

information is applicable to my thesis.

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2.1. Information System Understanding

According to Laudon and Laudon, Information System is defined as a collection

of components that are related and work together to collect, process, store and distribute

information in order to make a decision, organize, control, analyze and create

visualization within certain company.

In addition, according to Wilkinson, Information System is a framework where

human and technology are coordinated together to change data input into information as

the output, again and the target is to achieve the company’s goal or objective.

2.1.1. System Analysis

From Jogiyanto, he states system analysis as an elaboration of

information system that is expanded in details with intention of identifying and

evaluating problems, chances, obstruction that occurs and to provide the

requirements needed in order to present right solution

Information System Analysis is the first step system development and

also as one of the most important activity that plays an important role in

determining the goal, requirements, problems, and priority of a certain system

development.

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2.1.2 System Design

Jogiyanto also states that a system design concludes how a system will

solve what need to be solved. This particular step includes the configuration of

software and hardware into a system. Therefore after the installation of the

system, it will show that the original design will stay original up until the end of

the system analysis.

Another addition is by Cushing, he states that a system information

design is a process of preparing a detailed specification for the development of a

new system.

2.2. Marketing

Marketing, as suggested by the American Marketing Association, is an

organizational function and a set of processes for creating, communicating and

delivering value to customers and for managing customer relationships in ways

that benefit the organization and its stakeholders.

Brian Norris, 2005, 2006 states in his workshops that Marketing is the

ongoing process of moving people closer to making a decision to purchase, use,

follow, refer, up load, download, obey, reject, conform, become complacent to

someone else's products, services or values. Simply, if it doesn't facilitate a sale

then it's not marketing

Philip Kotler, S.C. Johnson & Son Distinguished Professor of

International Marketing defines Marketing in his books as human activity

directed at satisfying needs and wants through exchange processes.

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Add to Kotler's definitions, the Chartered Institute of Marketing (CIM)

claims marketing to be the management process of anticipating, identifying and

satisfying customer requirements profitably. Thus, operative marketing involves

the processes of market research, new product development, product life cycle

management, pricing, channel management as well as promotion.

2.3. Internet

2.3.1 Internet Understanding

Internet is a network that changes the way people communicate, interact

and socialize. Internet has a lot of different kinds of virtual world that we could

only dream of. Internet represents a different paradigm for human interaction.

According to Kelly, as network of networks, Internet connects computers

from all over the world by using a standardized procedure. That procedure is

called TCP / IP. The total network that is connected to the Internet consists of a

range between 45.000 with an approximation of 5.000.000 computers connected

to a network.

2.3.2 History and Development

From Ambegaonkar, in the beginning, Internet comes from ARPAnet that

was built by Advanced Research Project Agency (ARPA). ARPAnet was a

network for research and defense that was built for United States of America

Department of Defense in 1968.

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The first time in 1969, ARPAnet network was connected to 4 different

research facilities:

- University of Utah

- Stanford Research Institute

- University of California at Los Angeles (UCLA)

- University of California at San Barbara (UCSB)

Then, in 1970, a research was done in Stanford University that produced

a new communication technology that was called packet switching, and that is

when a data is being sent, it’ll be divided into smaller packages and will be

tagged with the destination address. The method of delivery is using what is

called routing and that is sending data using a couple of routes. This method then

became a standard that is now known as Transmission Control Protocol / Internet

Protocol (TCP / IP).

Moments later, the ARPAnte project is forwarded o the National Science

Foundation (NSF) with NSFnet as their new name was originally designed to

connect universities and research facilities, but then this connection is called

Internet.

2.4. E-Commerce

Electronic commerce (e-commerce) is the marketing, promoting, buying,

and selling of goods and services electronically, particularly via the Internet—as

a new way of transacting business. E-commerce encompasses various modes of

Internet use.

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Ecommerce includes: e-tailing (virtual store fronts), which is a site for

shopping and making purchases; electronic data interchange (EDI), which is

business-to-business exchange of data; e-mail and computer faxing; business-to-

business buying and selling; and ensuring the security of data and transactions

(Van Ketel & Nelson, 1998).

There are many additions to the definition of e-commerce:

- The trading of goods and services in which the final order is placed over the

Internet. (Forrester Research, Inc., 1998).

- A wide range of online business activities for products and services. (Anita

Rosen, The E-commerce Question and Answer Book, 2000, p5)

- Buying and selling over the Internet, or conducting any transaction involving

the transfer of ownership or rights to use goods or services through a

computer-mediated network. (Thomas L. Mesenbourg, Measuring Electronic

Business: Definitions, Underlying Concepts, and Measurement Plans.)

- The use of electronic communications and digital information processing

technology in business transactions to create, transform, and redefine

relationships for value creation between or among organizations, and

between organizations and individuals. (Definition adapted and expanded

from Emmanuel Lallana, Rudy Quimbo, Zorayda Ruth Andam, ePrimer, An

Introduction to eCommerce, 2000, 2)

In e-commerce, information and communications technology (ICT) is

used in inter-business or inter-organizational transactions (transactions between

and among firms/organizations) and in business-to-consumer transactions

(transactions between firms/organizations and individuals).

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2.4.1. Internet and E-Commerce relevance

The Internet allows people from all over the world to get connected

inexpensively and reliably. As a technical infrastructure, it is a global collection

of networks, connected to share information using a common set of protocols.

(Industry Canada, Canada’s Business and Consumer Site; available from http://

strategis.gc.ca; accessed 26 September 2002) Also, as a vast network of people

and information, the Internet is an enabler for e-commerce as it allows businesses

to showcase and sell their products and services online and gives potential

customers, prospects, and business partners access to information about these

businesses and their products and services that would lead to purchase.

Before the Internet was utilized for commercial purposes, companies

used private networks-such as the EDI or Electronic Data Interchange-to transact

business with each other. That was the early form of e-commerce. However,

installing and maintaining private networks was very expensive. With the

Internet, e-commerce spread rapidly because of the lower costs involved and

because the Internet is based on open standards. (Lallana, Quimbo and Andam,

p2)

2.4.2. E-Business

According to Lallana, Quimbo, Andam and Cf. Ravi Kalakota and

Andrew B. Whinston in Electronic Commerce: A Manager’s Guide (USA:

Addison Wesley Longman, Inc., 1997, p19-20.):

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E-business is: “The transformation of an organization’s processes to

deliver additional customer value through the application of technologies,

philosophies and computing paradigm of the new economy.” In E-Business, ICT

is used to enhance one’s business. It includes any process that a business

organization (a for-profit, governmental or non-profit entity) conducts over a

computer-mediated network.

Three primary processes are enhanced in e-business:

1. Production processes, which include procurement, ordering and

replenishment of stocks; processing of payments; electronic links with

suppliers; and production control processes, among others;

2. Customer-focused processes, which include promotional and

marketing efforts, selling over the Internet, processing of customers’

purchase orders and payments, and customer support, among others; and

3. Internal management processes, which include employee services,

training, internal information-sharing, video-conferencing, and recruiting.

Electronic applications enhance information flow between production and

sales forces to improve sales force productivity. Workgroup

communications and electronic publishing of internal business

information are likewise made more efficient.

The CREC (Center for Research and Electronic Commerce) at the

University of Texas has developed a conceptual framework for how the Internet

economy works. (Based on Centre for Research in Electronic Commerce,

University of Texas, "Measuring the Internet Economy," 6 June 2000; available

from http://www.Internetindicators.com)

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Table 1 - Conceptual framework for how the Internet economy works

2.4.3 .Components of E-commerce

According to Mr. Chris Coward, E-commerce does not refer merely to a

firm putting up a Web site for the purpose of selling goods to buyers over the

Internet. For e-commerce to be a competitive alternative to traditional

commercial transactions and for a firm to maximize the benefits of e-commerce,

a number of technical as well as enabling issues have to be considered.

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A typical e-commerce transaction loop involves the following major

players and corresponding requisites:

The Seller should have the following components:

• A corporate Web site with e-commerce capabilities (e.g., a secure

transaction server);

• A corporate intranet so that orders are processed in an efficient

manner; and

• IT- literate employees to manage the information flows and

maintain the e-commerce system.

Transaction partners include:

• Banking institutions that offe r transaction clearing services (e.g.,

processing credit card payments and electronic fund transfers);

• National and international freight companies to enable the

movement of physical goods within, around and out of the

country. For business-to-consumer transactions, the system must

offer a means for cost-efficient transport of small packages (such

that purchasing books over the Internet, for example, is not

prohibitively more expensive than buying from a local store); and

• Authentication authority that serves as a trusted third party to

ensure the integrity and security of transactions.

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Consumers (in a business-to-consumer transaction) who:

• Form a critical mass of the population with access to the Internet

and disposable income enabling widespread use of credit cards;

• Possess a mindset for purchasing goods over the Internet rather

than by physically inspecting items.

Firms/Businesses (in a business-to-business transaction) that together

form a critical mass of companies (especially within supply

chains) with Internet access and the capability to place and take

orders over the Internet.

Government , to establish:

• A legal framework governing e-commerce transactions (including

electronic documents, signatures, and the like); and

• Legal institutions that would enforce the legal framework (i.e.,

laws and regulations) and protect consumers and businesses from

fraud, among others.

And finally, the Internet, the successful use of which depends on the

following:

• A robust and reliable Internet infrastructure; and

• A pricing structure that doesn’t penalize consumers for spending

time on and buying goods over the Internet (e.g., a flat monthly

charge for both ISP access and local phone calls).

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2.4.4. E-commerce payment method

According to Zorayda Ruth B. Andam, e-primer: An Introduction to

Electronic Commerce (2000), an electronic payment system (EPS) is a system of

financial exchange between buyers and sellers in the online environment that is

facilitated by a digital financial instrument (such as encrypted credit card

numbers, electronic checks, or digital cash) backed by a bank, an intermediary,

or by legal tender.

EPS plays an important role in e-commerce because it closes the e-

commerce loop. In developing countries, the underdeveloped electronic

payments system is a serious obstacle to the growth of e-commerce. In these

countries, entrepreneurs are not able to accept credit card payments over the

Internet due to legal and business concerns. The primary issue is transaction

security.

The relevant issues that need to be resolved with respect to EPS are:

consumer protection from fraud through efficiency in record-keeping; transaction

privacy and safety, competitive payment services to ensure equal access to all

consumers, and the right to choice of institutions and payment methods. Legal

frameworks in developing countries should also begin to recognize electronic

transactions and payment schemes.

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2.5. Niche online business

According to Susan Ward in Your Guide to Small Business: Canada,

available in http://sbinfocanada.about.com/, last accessed April 15, 2007, she

defines niche market as a focused, target-able portion of a market. By definition,

then, a business that focuses on a niche market is addressing a need for a produc t

or service that is not being addressed by mainstream providers, but as a narrowly

defined group of potential customers. It has great advantage of being alone in

that market, because occupying a niche means you won't be competing with a lot

of similar businesses solely on price. While other small businesses may not be

aware of your particular niche market, large businesses won't want to bother with

it. To capitalize on a niche market is to find or develop a market niche that has

customers who are accessible, that is growing fast enough, and that is not owned

by one established vendor already.

2.5.1. E-marketing

eMarketing or electronic marketing refers to the application of marketing

principles and techniques via electronic media and more specifically the Internet.

The terms eMarketing, Internet marketing and online marketing, are frequently

interchanged, and can often be considered synonymous.

eMarketing is the process of marketing a brand using the Internet. It

includes both direct response marketing and indirect marketing elements and

uses a range of technologies to help connect businesses to their customers.

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By such a definition, eMarketing encompasses all the activities a business

conducts via the worldwide web with the aim of attracting new business,

retaining current business and developing its brand identity. (Available on

http://www.quirk.biz/ , last accessed March 25, 2007)

Benefits of eMarketing over traditional marketing:

- Reach:

The nature of the internet means businesses now have a truly global

reach. While traditional media costs limit this kind of reach to huge

ultinationals, eMarketing opens up new avenues for smaller businesses,

on a much smaller budget, to access potential consumers from all over the

world.

- Scope:

Internet marketing allows the marketer to reach consumers in a wide

range of ways and enables them to offer a wide range of products and

services.

eMarketing includes information management, public relations, customer

service and sales. With the range of new technologies becoming available

all the time, this scope can only grow.

- Interactivity:

Whereas traditional marketing is largely about getting a brand’s message

out there, eMarketing facilitates conversations between companies and

consumers. With a two way communication channel, companies can feed

off of the responses of their consumers, making them more dynamic and

adaptive.

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- Immediacy:

Internet marketing is able to provide an immediate impact. In traditional

marketing, the advertising is in a magazine. When there are new products

or services, consumers are not able to take the step from hearing about a

product to actual acquisition. With eMarketing, it is easy to make that

step as simple as possible. Within a few short clicks consumers could

have booked or ordered the products or services. And all of the processes

can happen regardless of normal office hours. Effectively, Internet

marketing makes business hours 24 hours per day, 7 days per week for

every week of the year. By closing the gap between providing

information and eliciting a consumer reaction, the consumer’s buying

cycle is speeded up and advertising spend can go much further in creating

immediate leads.

- Demographics and targeting:

The demographics of the Internet are Internet users, considered as a

group, have greater buying power and could be considered as a

population group skewed towards the middle-classes. The nature of the

Internet is such that its users will tend to organize themselves into far

more focused groupings. Marketers who know where to look can quite

easily find access to the niche markets they wish to target. Marketing

messages are most effective when they are presented directly to the

audience most likely to be interested. The Internet creates the perfect

environment for niche marketing to targeted groups.

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- Adaptivity and closed loop marketing:

Closed Loop Marketing requires the constant measurement and analysis

of the results of marketing initiatives. By continuously tracking the

response and effectiveness of a campaign, the marketer can be far more

dynamic in adapting to consumers’ wants and needs. With eMarketing,

responses can be analysed in real-time and campaigns can be done

continuously. Combined with the immediacy of the Internet as a medium,

this means that there’s minimal advertising spend wasted on less than

effective campaigns. Maximum marketing efficiency from eMarketing

creates new opportunities to seize strategic competitive advantages. The

combination of all these factors results in an improved ROI and

ultimately, more customers, happier customers and an improved bottom

line.

2.5.2. Search Engine Marketing

Search engine marketing increases the amount of targeted traffic as

opposed to general "web-surf" traffic. Coupled with this is the fact that

customers driven to a site via SEM efforts are in search mode. This means they

are actively seeking out your product or service, and are therefore highly

receptive as potential customers. Sales conversion rates are therefore much

higher from traffic that originates from a search engine compared with normal

web traffic.

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Search Engine Marketing is divided into two distinct categories:

- Paid Search : Pay Per Click or PPC

Simple, targeted, effective. In paid search, owners buy sponsored

adverts on Search Engine Results Pages (SERPs), and pays purely

on a performance basis, that is, when the ad is clicked on.

Advertising positioning is based on a bidding system. The highest

bidder gets the highest advertising placement. A PPC campaign is

a dynamic strategic process. It needs to be closely monitored and

managed to ensure maximum ROI. An appropriate keyword

strategy is imperative to ensure the clicks the owners pay for are

as targeted as possible. The more targeted the traffic, the greater

the conversion rates, and the better the ROI.

- Organic Search : Search Engine Optimisation or SEO.

SEO is optimizing websites to achieve high rankings on the

Search Engines for certain selected key phrases. Sometimes called

organic or natural optimization, SEO involves making changes to

the HTML code, content and structure behind your website,

making it more accessible for Search Engines, and by extension,

easier to find by users. SEO rewards relevant, helpful websites

that add value and give visitors what they’re looking for. SEO is

an extremely cost effective way of generating new business to a

web site. Once the site ranks highly on a Search Engine Results

Page, web owners do not pay for any traffic that arrives at their

sites from that listing.

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SEO is a continuous to maintain rankings and improve

rankings for other terms that may bring in relevant traffic.

Because the clicks are free, over time, ROI is excellent. Ideally

PPC and SEO work synergistically to maximize Search Engine

traffic.

2.5.3. Online Advertising

Online Advertising is advertisings on websites, email newsletters and

other electronic publications and is generally paid for on a Cost Per Acquisition

(CPA) basis. Online advertising is not biased towards directly measurable ROI.

Rather, it provides a means for combining the brand awareness bias of traditional

advertising techniques with the immediacy of eMarketing.

2.5.4. Affiliate Marketing

Affiliate Marketing uses affiliate partner websites to display advertisings,

and pays them on a Cost Per Acquisition (CPA) basis. Advertisers earn a

commission on sales generated. So while increasing brand visibility, owners are

only paying for results. Additionally, owners create revenue making

opportunities for many other online publishers, helping to grow the eMarketing

industry.

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2.5.5. Viral Marketing

Viral Marketing uses the connectedness of the Internet and the social

networks characteristic of electronic communication to build brand awareness

exponentially.

People pass on and share things that provide value, especially when the

costs of sharing are low, as is case online. Funny video clips, interactive flash

games, competitions, images, text are samples of viral marketing which is

limited only by the creativity of the eMarketers. Anything that truly entertains,

informs, amuses or intrigues the recipient is likely to be further distributed. A

well-orchestrated viral campaign harnesses this basic fact of human nature for

the good of the brand.

2.5.6. ORM - Online Reputation Management

ORM means monitoring what is being said about the website. Listening

to what customers are saying, engage and respond to earn their trust with honesty

and openness. By being aware of what consumers say about the website, owners

are able to react and put the necessary damage control strategy in place as soon

as bad publicity pops up.

2.5.7. WebPR

Business has moved online and Public Relations (PR), that crucial tool of

brand awareness, has followed. Now that most business is conducted on the

Internet; PR has moved online. WebPR allows PR to reach its fullest expression

because the potential for getting your brand 'out there' is limitless.

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There is an assortment of ways to market your business globally through

WebPR. Various online channels like, Article Banks/Directory Sites, industry

related sites, as well as local and international News sites are used to distribute

content containing some element of the brand.

Online press releases must drive traffic to your site (your website is not a

fancy brochure; it is a marketing tool that needs visitors to become customers).

To achieve this, press releases need to be optimized with the appropriate key

phrases and links. The link posted at the end of a press release or feature article is

a valuable source of driving internet traffic to your website. Writing interesting,

high-quality articles on relevant topics and submitting them to content

distribution sites is a great way to effectively promote your website or brand.

2.5.8. Email Marketing

Direct marketing via electronic means - email marketing is very

powerful. It is also extremely cost effective, highly targeted, customizable,

measurable and best of all, takes advantage of the consumer's most prolific touch

point with the Internet, their inbox.

Email marketing is about building virtual relationships with existing and

potential clients and maximizing the retention and value of these customers.

Email marketing is about creating, building up, and capitalizing on the

relationships build with the clients.

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2.5.9. Conversion Optimization

Conversion optimization makes sure that the website turn traffic into

customers. A Two Phase Process:

- Analyze the collaborative effect:

1. Website Usability

2. Site analytics

3. The relative ROI of each eMarketing technique used

4. Split and multivariate testing

5. Any other available measurable

- Optimize by minimizing the drop-off rate, and making the most of the

traffic.

Based on the analysis, make incremental changes to the most inefficient factors,

then analyze again. And keep doing so for each of the factors identified.

By doing this, it is improving the conversion rate of traffic into customers. That

means a lower CPA, and a better ROI.

2.6. Human Computer Interaction

Human Computer Interaction is knowledge that applies human factor

towards principles and processes in order to produce an interactive system

(Shneiderman, p5).

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According to Saul Greenberg (1995) in Readings in human–computer

interaction, Toward the Year 2000. p2, Human–computer interaction (HCI),

alternatively man–machine interaction (MMI) or computer–human interaction

(CHI) is the study of interaction between people (users) and computers. It is an

interdisciplinary subject, relating computer science with many other fields of

study and research. Interaction between users and computers occurs at the user

interface (or simply interface), which includes both software and hardware, for

example, general purpose computer peripherals and large-scale mechanical

systems such as aircraft and power plants.

2.6.1. HCI Purpose

An Interactive system that is well designed will make it easier on the user

to concentrate more on their work, activity and entertainment. A basic goal of

HCI is to improve the interaction between users and computers by making

computers more usable and receptive to the user's needs.

Specifically, the purpose of HCI is: (Shneiderman, pp11-14)

1. Right functionality

It determines the activities that need to be done by the system. Work

analysis is important because a not reliable system will make its users

frustrated and feel rejected and not used. On the other hand, if a system is

too reliable is also dangerous because of implementation, maintenance

and difficulty of using it.

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2. Data reliability, availability, security and integrity

§ Reliability – working as expectation. Work function is according

with the assignment; the data featured is according to the

database, and updated correctly.

§ Availability – ready when needed. As a result, it has to be

supported by the software architecture, hardware components, and

a reliable network connection.

§ Security – Protected from unwanted access and unintentional

damage.

§ Data Integrity – Data is avoided from unintentional or intentional

harm.

3. Standardization, Integration, Consistency and Portability

§ Standardization – feature similarity between users on all kinds of

application.

§ Integration – Application package and software tools unity.

§ Consistency - format similarities for similar element within

application.

§ Portability – the ability to change data and information sharing in

different types of software and hardware.

§ Schedule and Budget. – A careful and managed plan is needed for

a project to finish on time and according to the initial schedule

and budget, if everything is done right, the cost might be reduced.

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2.7. SWOT Analysis

SWOT Analysis is a strategic planning tool used to evaluate the

Strengths, Weaknesses, Opportunities, and Threats involved in a project or in a

business venture or in any other situation of an organization or individual

requiring a decision in pursuit of an objective. It involves monitoring the

marketing environment internal and external to the organization or individual.

The technique is credited to Albert Humphrey, who led a research project at

Stanford University in the 1960s and 1970s using data from the Fortune 500

companies.

2.8. Use Case Diagram

In the mid-1980.s, Ivar Jacobson put forward the idea of usage cases and

usage scenarios. More recently these have become popularly known as use cases

and use case scenarios.

The true value of a use case lies in two areas:

§ The written description of system behavior regarding a business

task or requirement.

§ This description focuses on the value provided by the system to

external entities such as human users or other systems.

§ The position or context of the use case among other use cases. As

an organizing mechanism, a set of consistent, coherent use cases

promotes a useful picture of system behavior, a common

understanding between the customer/owner/user and the

development team.

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It is common practice to create supplementary specifications to capture

requirement details that lie outside the scope of use case descriptions. Examples

of these topics include performance, scale/management issues, or standards

compliance.

Figure 1 - Use Case for a Simplistic Restaurant Model

The diagram above describes the functionality of a simplistic Restaurant

System. Use cases are represented by ovals and the actors are represented by

stick figures. The Patron actor can Eat Food, Pay for Food, or Drink Wine. Only

the Chef actor can Prepare Food. Note that both the Patron and the Cashier are

involved in the Pay for Food use case. The box defines the boundaries of the

Restaurant System, i.e., the use cases shown are part of the system being

modeled, the actors are not.

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Interaction among actors is not shown on the use case diagram. If this

interaction is essential to a coherent description of the desired behavior, perhaps

the system or use case boundaries should be re-examined. Alternatively,

interaction among actors can be part of the assumptions used in the use case.

However, note that actors are a form of role, a given human user or other

external entity may play several roles. Thus the Chef and the Cashier may

actually be the same person.

2.8.1. Use Case Relationships

Three major relationships among use cases are supported by the UML

standard, which describes graphical notation for these relationships:

- Include:

In one form of interaction, a given use case may include another.

The first use case often depends on the outcome of the included

use case. This is useful for extracting truly common behaviors

from multiple use cases into a single description.

The notation is a dashed arrow from the including to the included

use case, with the label "«include»". This usage resembles a

macro expansion where the included use case behavior is placed

inline in the base use case behavior. There are no parameters or

return values.

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- Extend :

In another form of interaction, a given use case, (the extension)

may extend another. This relationship indicates that the behavior

of the extension use case may be inserted in the extended use case

under some conditions. The notation is a dashed arrow from the

extension to the extended use case, with the label «extend». This

can be useful for dealing with special cases, or in accommodating

new requirements during system maintenance and extension.

- Generalization:

In the third form of relationship among use cases, a

generalization/specialization relationship exists. A given use case

may be a specialized form of an existing use case. The notation is

a solid line ending in a hollow triangle drawn from the specialized

to the more general use case. This resembles the object-oriented

concept of sub-classing, in practice it can be both useful and

effective to factor common behaviors, constraints and

assumptions to the general use case, describe them once, and deal

with same as except details in the specialized cases. Another

concept is Depends on.