1 Prentice Hall, 2002 Chapter 3 Retailing in Electronic Commerce (E-Tailing)

Prentice Hall, 2002 1

Chapter 3

Retailing in Electronic Commerce (E-Tailing)


Learning Objectives

Define and describe the primary business models of electronic retailing (“e-tailing”)Discuss various e-tail consumer aids, including comparison-shopping aidsDiscuss various e-tail markets, such as groceries, music, cars, and othersIdentify the critical success factors of direct marketing and e-tailing, along with mistakes to avoid


Learning Objectives (cont.)

Identify the principles of “click-and-mortar” strategies for traditional retailersDescribe the issue of disintermediation, reintermediation, and channel conflicts in e-tailing


Opening Case

For E-tailer EC can be classified as B2C or B2BMost companies used both classifications.B2C business model where customers look for a:

Low priceFast shipmentGood return policyHelpful customer service


Opening Case: Amazon.com

Largest Bookstore in the world(billions of books)Begin since 1995Offers millions of items

Books and musicDVDs and videosToys and video gamesElectronics and softwareHome improvement products


Opening Case: Amazon.com (cont.)

Started business in 1995Sales

1996 = $15.7 million2000 = $1.8 billion

Products

1999 = 5 million titles2000 = 13 million books, music, DVD/video titles



Auctions Hosts and operates auctions for individuals and small businesseszShops, Amazon marketplace, Amazon payment processing

Provide the opportunity for small businesses to develop custom storefrontStorefronts are supported by Amazon’s back-end order fulfillment processing



Easy browsing and searchingUseful product informationReviews, recommendations, and personalization

Broad selection and low pricesSecure payment system 1-Click order technologyGifts departmentOnline communitySecured payments

Key Features of Amazon



Customer relationship management (CRM)Creates interesting and informative front-endHighly automated and efficient back-end supportPersonalized service

Return customers are welcomed back by nameCustomer wish lists availableE-mails customers purchase recommendations based on their purchasing history



Financial performanceOverall losses rather than profits Ability to move into new areas of business should move them toward profitability, but makes money from booksHigh level of customer service and customer loyalty adds value



Diversification through business alliances that provide knowledgeable entry into new markets

Online sale of cars - greenlight.com Online health and beauty aids - drugstore.com Wireless phones – multiple business partnersToys - ToysrUs.com


E-Tailing and B2C Market Growth

Business-to-business (B2B)Requires precise record keeping, trackability, accountability, and formal contracts, usually with high volume of transactions and large amount paymentsAlso online retailing

Business-to-consumer (B2C)Ability to create direct relationships with consumer without intermediaries like distributors, wholesalers, or dealers


E-Tailing and B2C Market Growth (cont.)

The early days of retailer used Brochureware with no interactivityphysical retailer store or “brick-and-mortar” can combine to online…Then become online and offline prsence or “click-and-mortar” (sometime call “brick-and-click”)The B2C Market success is derived from:

Offering quality merchandise at good pricesExcellent customer serviceConvenience

*** Not different from traditional but online retail stores have more offering services…


Some statistic

During 2001, estimated about 75 million of users participated online shopping

2000, worldwide B2C revenue $53 to $238 billion

2004, forecasted $428 to $2,134 billion

(by emarketer.com: 2001)

Men are likely to purchase consumer electronics and computer HW/SW and Women likely to purchase apparel items (by Goldman Sachs research)


E-Tailing and B2C Market Growth (cont.)

Characteristics of goods leading to high online sales volumes

Brand recognition and guaranteesA guarantee is provided by reliable vendorsDigitized productsInexpensive itemsFrequently purchased, inexpensive itemsWell-known items with standard specificationsWell-known package item which cannot open even in department store


Questions?

How do online customers decide what to buy and where?What is their decission-making process?How can e-tailers influence consumer purchasing decissions?


Consumer Purchase Processand Marketing Plan

Purchase decision processPrepurchase steps

Awareness of need for purchaseIdentify basic need or want

Actual purchaseEstablish decision criteriaSeek recommendations and informationMake purchase

Postpurchase stepsAssistance with installation or setupOnline help desks and instruction manuals


The Consumer Purchase Decision Process


Consumer Purchase Processand Marketing Plan (cont.)

Time-starved consumers : willing to pay higher price to save time on shoppingShopping avoiders : dislike shopping, people, trafficsNew technologists : “because it’s cool”Time-sensitive materialists or click-and-mortar consumers : use online to look for products, and make a purchase at traditional store

Types of online shoppers


Traditionalists : prefer store and may never adopt to online shopping behaviorHunter-gatherers : 20% of online shoppers enjoy the process of price comparison and search a good valueBrand loyalists : shop online for particular brandSingle shoppers : 16% of online shoppers prefer internet for shopping, banking, communication, game playing, news and other activities

What are the criteria that individual shoppers use?

Consumer Purchase Processand Marketing Plan (cont.)

Types of online shoppers


Decision Criteria

Value proposition—customer service, better prices, higher qualityPersonal service—treat the customer as a unique individual Convenience—self-contained site that serves all the customer’s needsOther criteria—service after the sale, Telephone support 24/7, return policy


A Marketing Plan

E-tailer must identical all posible ways to …Influence the consumer’s decision process through the “marketing mix”

Product—portfolio of items availablePrice of the productsPromotion of products (advertisements and giveaways)Packaging and delivery, place


Online Purchasing Aids

Shopping portals : advice and rating producs or e- tailers

Comprehensive portals e.g. shopping.yahoo.com

Links to many different sellersShopping comparison sitesComparison tools are available

Niche oriented e.g. bsilly.comSpecialize in a certain line of products (dogtoys.com)Some collect referral fee onlyOthers have formal relationships with affiliates


Online Purchasing Aids (cont.)

Shopbots and agents—tools that scout the Web for specific search criteria requested by consumers(include negotiation and auction agents)

Mysimon.com - best prices on multiple items using SKU(Stock Keeping Unit)AutoBytel.com – carsZdnet.com/computershopper – computersOffice.com – office supplies



Business ratings sites—sites that rate e-tailers

Bizrate.com—compiles results provided by a network of shoppersGomez.com—consumer identifies relative importance of different criteria



TRUSTe seal of assuranceE-tailers pay TRUSTe for use of sealHope consumers use seal as proxy for actual research about their site

BBBOnLineYearly license fees based on company’s annual revenue

Secure AssureYearly license fees based on company’s annual revenue

Ernst and YoungCreated its own service for auditing e-tailersOffers some guarantee of integrity of business practices

Trust verification sites—evaluate and verify trustworthiness and integrity of e-tailers



Other shopping toolsEscrow services—3rd party to assure quality

Proper exchange of money and goodsResearch informationPayment-processing support

Communities of consumersEpinions.com—searchable recommendations on productsPriceGrabber.com—comparison shopping


E-Tailing Business Models

Subscription models: charge monthly or annual subscription fee for serviceTransaction fee models: charge service fee based on the level of transaction offeredAdvertising-supported models: charge fee to advertisers instead of customersSponsorship models: companies sponsor the business through donations (usually supplemental income)


E-Tailing Business Models (cont.)

Direct marketing—sell directly to consumersManufactures can sell directly to customers

Disintermediation—removal of business process layers in the value chainShortens the distribution chain

Eliminates inefficienciesShortens delivery timeBuilds closer relationships with consumers

As Click-and-mortarAdditional marketing channel to the conventional oneEffectively supports build-to-order requests


Disintermediation in the B2C Supply Chain

Source: M. Warkentin, et al. (2000). Used with permission of Dr. Merrill Warkentin.



Pure-play e-tailers—sell over the Internet without a physical sales channel

General purpose e-tailers (Amazon.com)Broad range of productsLarge number of consumers

Specialty or niche e-tailers (CatToys.com)One specific product areaHigh demand items in the areaEffective practices for customer appeal



Traditional retailers with Web sitesPhysical storeMay include mail-order or catalog salesMultichannel store operates both

Physical storeE-tail site


ODDS: Grocery Market Case

On-Demand Delivery Services (ODDS): use common carrier to handle outbound logistics/distribution

Own fleet of delivery vehiclesRegular deliveries (weekly bases)Delivery within short time period (1 hour or same day)


ODDS: Grocery Market Case (cont.)

Potential online grocery shoppersShopping avoidersNecessity users—limited by their ability to shopNew technologistsTime-starved consumersResponsible consumersTraditionals

Repeat customers : provide help for repetitive orders, itemsExample: Parknshop in Hong Kong, peapod.com


Digital Delivery

Digital (“soft”) goods : customer may prefer physical distribution

Music, movies, videos, software, newspapers, magazines, graphics, etc.Can be delivered in “hard” or “soft” form

Computer program on CD-ROM with owner’s manual and warranty cardDownload from Web site after payment


Digital Goods


Digital Delivery (cont.)

Napster experience—person-to-person sharing tool

Enables individual users to download music files from each other’s computersPhenomenal growth of Napster communityNew version of its file-swapping software includes a “buy button” linked to CDNowMay be beneficial to overall music sales as individuals easily sample a broader range of music


Digital Delivery (cont.)

New developments : invented on InternetCustom-publishing music CD sites—collection of personal favorites in CD shiped to customerDisintermediation of traditional print media

Journals and magazines : paper only subscription, online only subscription or dual-modeNewspapers (e.g., Wall Street Journal)


Successful Click-and-Mortar Strategies

Click-and-mortar hybrid strategies (mature)Speak with one voice—link all back-end systems to create an integrated customer experienceEmpower the customer—powerful channel for service and informationLeverage the channels—offs advantages of each channel to customers from all channels

Return item purchased online at physical storeOrder via the Web at the physical store items not available there


Successful Click-and-MortarStrategies (cont.)

Circuit City Case: transform to click-and-mortar (CircuitCity.com) electronic store

Educates customers about features and capabilities of productsCustomers can perform powerful searches to find most appropriate productsOffers extensive amount of information on electronics etc., organized very flexiblyOnline purchases are smooth, secure and seamless


Successful Click-and-MortarStrategies (cont.)

Amazon and Toys R Us: alliance of pure-play with traditional retailer (new model)

Toys R Us had limited logistics capabilities including distribution centersAmazon failed in the toy market lacking supplier relationships with toy manufacturersAlliance allows each partner to leverage each others core strengthsInnovative model still working out problems


Disintermediation & Reintermediariesin E-tailing

Disintermediation—manufacturer sells directly to consumer so customers need to select among a large number of manufacturers onlineReintermediaries—new intermediary roles in the digital environment(online assistance) offer new ways to:

Reach new customersBring value to customersGenerate revenues


Channel Conflict & Personalization

Channel conflict—members antagonistic over:

IncentivesRewardsPoliciesSupport

*Make Channel cooperation

Personalization—custom designed marketing plan

Tailored to buying patternsAppeal to sense of valueExcellent customer serviceMass customization


E-Tailing : Lessons Learned

Profitability—online marginal sales don’t lead to marginal profitsBranding—drive to establish brand can lead to excessive spending(50% of Venture capital)Performance—Web sites need to function in a fast, user-friendly mannerStatic design—dynamic sites with rich databases of information appeal most to customers

1 Prentice Hall, 2002 Chapter 3 Retailing in Electronic Commerce (E-Tailing)

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