Theoretical Aspects and

Market Research

E-COMMERCE MARKET

CONTENT:

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Theoretical Aspects of Ecommerce Market

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Market Research of US Ecommerce Market wi- 17

THEORETICAL ASPECTS OF US E-COMMERCE MARKET

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THEORETICAL ASPECTS OF

ECOMMERCE MARKET

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CONTENT

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Stages of B2C ecommerce

Competitive Advantage of ecommerce

Advantage of E-Commerce from Advertising costs perspective

Drivers for E-Commerce

Drivers for E-Commerce from the Low risk Perspective

Mobile E-Commerce

E-Business as E- Commerce extension

Electronic Data Interchange (EDI)

Integration of B2B systems

STAGES OF B2C ECOMMERCE

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1st STAGE: Engaging in information-seeking and communication, via the search engines and

community building;

2nd STAGE: Establishing an online marketing presence.

3rd STAGE: Creating an online catalogues.

4th STAGE: Conducting online ordering.

5h STAGE: Handling online payment.

6th STAGE: Offering online delivery.

7th STAGE: Performing customer profiling and referencing

COMPETITIVE ADVANTAGE OF ECOMMERCE

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Price competitiveness

Timeliness

Knowledge of Market

Customer insights

PRICE COMPETITIVENESS

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Reduced transaction costs in automated ordering and

invoicing systems can lead to lower prices

TIMELINESS

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Faster ordering, delivery and invoicing can reduce the time to market for suppliers

KNOWLEDGE OF MARKET

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Trading electronically provides additional methods for companies to acquire knowledge of the

market in which they operate

CUSTOMER INFORMATION AND PROFILING

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Helps to improve the trading relationship and lead to new marketing opportunities

ECOMMERCE COMPARISON ANALYSIS

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VS traditional advertising

VS website

VS TRADITIONAL ADVERTISING

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Newspapers $$ TV $$$$$ Radio $$$$ Magazines $$$

Traditional advertising is expensive

VS WEBSITE

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Creating an online presence is comparatively cheap.

WHY?

No hosting fees - $50 or $150(if it is online store)

No domain costs - $20 per year

No software (- developers and support costs)

ECOMMERCE ADVANTAGES

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Multideviceveness (?)

Non stop working

Social Marketing

SOCIAL ADVERTISING

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Cross advertising via social platform is free and effective vs traditional

EASY ACCESSES FROM ANY DEVICES

NO NEED FOR REBUILDING YOUR

WEBSITE 17

Tablets, laptops allow fast access to

E-Business platform

NON STOP WORKING

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Once running, a online profile provides 24/7 access to your company online presence, products

across

CUSTOMIZABLE DESIGN

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Adopted the creativity and quality of television advertising

Individual design customization is available

Design could be changed as many times as you want

DRIVERS FOR ECOMMERCE

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COST

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The entry costs for participating in eComrnerce are relatively low. Systems can be designed and

implemented and a web presence can be established cheaply.

The systems therefore offer a potentially fast return on the investment.

FLEXIBILITY

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Organizations can select the appropriate level of participation from simple access to the

Internet through the creation of a Web presence to full -blown transaction-handling

systems.

The systems can be developed incrementally to add this additional functionality.

DRIVERS FOR ECOMMERCE FROM THE LOW RISK

PERSPECTIVE

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Protecting investment: In the Internet world, many common and open standards are

employed. The switching costs incurred when a business selects an alternative system

are, as a result, relatively low.

Connectivity and communications opportunities: Internet technology brings an

accompanying range of opportunities, such as creating a local intranet or establishing

video-conferencing links.

Technology perspectives: A critical mass of e-commerce participants already exists, and

the technology, although constantly developing.

Government support: There are many government initiatives aimed at promoting e-

commerce, and there is a significant level of activity in educational institutions to provide

additional backup.

Customer service: Improved customer service promotes relation- ships at a distance, the

Internet does also provide opportunities for businesses to work more closely with

customers.

MOBILE E-COMMERCE

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Mobile e-commerce is a large opportunity for e-Commerce, but mobile browser sites and poor

apps leave several unmet needs open

Today, e-commerce is not a popular activity on tablets (even less on mobile phones), rated as

one of the lowest use cases in surveys

Tablet usage is still in early stages, and consumers are focusing on core use cases (e.g.,

reading, gaming) over other use cases more prevalent on PC

E-commerce companies are not investing heavily in mobile, and so the experience on tablets

is subject to poor browser experience or uninventive one-off apps, and the lack of a hard

keyboard makes the check-out process cumbersome

In the current app-heavy environment, the need to download multiple apps from each e-

commerce retailer a user likes is cumbersome

To help solve the problems in mobile e-commerce, a few companies have quietly released early-

stage apps in 2011. They aggregate several retailers’ offline catalogs into one downloadable

app, and users can peruse catalogs, click-through to buy on retailers’ sites, and bookmark

favorite products

Source: http://www.slideshare.net/joshyang/ecommerce-landscape-2012#btnNext

EBUSINESS

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• Internet technology has fundamentally changed the environment and structure of

business. The marketplace for all vendors has become potentially global;

• Execution and settlement of transactions can easily be automated for small as well as

large organizations. The trading model has moved from 'normal business opening hours'

to a 24 hours a day, seven days a week trading model;

• The interconnections throughout the supply chain are being reconfigured.

EBUSINESS AS ECOMMERCE EXTENSION

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Organizational activity within electronic hierarchies, markets or networks normally

referred to as eBusiness or eCommerce.

eBusiness can be seen as a Superset of eCommerce.

eBusiness can be seen as the application of ICT in support of all activities

undertaken by a commercial organization.

eCommerce focuses on the use of ICT to enable the external activities and

relationships with individuals, groups and other businesses.

ELECTRONIC DATA INTERCHANGE (EDI)

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• Companies, in their regular dealings with other trading partners, such as suppliers and

retail outlets, might establish electronic communications to process the volume of

transactions carried out;

• EDI provides a standard protocol for encoding this data exchange;

INTEGRATION OF B2B

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SystemsB2B eCommerce is an extension of the informatics infrastructure of commercial

organizations

- Such information systems are supplier-facing

Purchase order processing and payment processing systems handle the settlement and

execution stages of the commerce cycle

- These information systems are an established part of the IS infrastructure of most medium

to large organizations,

Could be established and standardized for all organizations. Such standardized system

can enrich and simplify the majority of B2B interrelations.

INTEGRATION OF B2B SYSTEMS

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• Pre-sale and after-sale stages of the commerce cycle have been the

most open to innovation in B2B eCommerce

• Requisitioning, request for quote and vendor selection are part of a

supplier relationship management information system

• Area in which most of the discussion of B2B eCommerce occurs.

• Procurement is the pre-sale activity of search, negotiate and order in the

supply chain Sometimes the term is used to refer to all the activities

involved in the supply chain

• It is an important business process in the value chain and involves the

purchasing of goods and services from suppliers at an acceptable

quality and price and with reliable delivery

MARKET RESEARCH OF US ECOMMERCE

MARKET WITH EXAMPLES

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CONTENTS:

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US E-Commerce Market;

U.S. E-Commerce Market (2012-15) Chart;

US E-Commerce Shopping Data (2011-13);

Shift from physical stores to online stores;

New Business Models;

Planned purchases vs Impulse purchases business models;

Survived eCommerce business models;

New E-Commerce businesses;

Not many new businesses are applied for Mass Market;

UI features enrich customer experience and drive sales;

Recent Trends in E-Commerce Business models

• Social Commerce;

• The Group buying / Couponing space;

• Flesh Sales;

• Recommendations;

• Personalization;

• Customization;

C2C MarketPlaces

C2C MarketPlaces Difficulties;

Online Brands. Online Retail Models;

Start-ups examples of Online Brands.

US E-COMMERCE MARKET

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The U.S. e-commerce market is big ($200B+), getting bigger (9% CAGR through 2015), and still

early (only 9% of total retail) . Online shoppers in the United States will spend $327 billion in

2016, up 45% from $226 billion this year and 62% from $202 billion in 2011, according to a

projection released today by Forrester Research Inc. Market growth has been driven by

consumers becoming increasingly Internet-connected and credit card holding, and these

consumers being increasingly open to purchasing online:

In the last two years, several new business models have garnered VC attention and begun to

scale (e.g., group buying, flash sales, subscription, online brands);

Consumers have shown willingness to test new e-commerce business models (such as

Fancy, ShoeDazzle, RenttheRunway, Gilt), but these are targeted primarily to wealthier

consumers;

U.S. E-COMMERCE MARKET (2012-15) CHART

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US E-COMMERCE SHOPPING DATA (2011-13)

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More internet users are using internet for shopping. Frequency per user is expected to increase.

CONSUMERS ARE SHIFTING FROM

PHYSICAL STORES TO ONLINE STORES

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NEW BUSINESS MODELS

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The only new e-commerce business model that has gained significant traction with the mass

consumer is group buying, - Groupon, LivingSocial ; many existing well established companies

have started to offer group buying.

There is also room for companies to clone or apply existing business models as well as for new

business models:

Clones models are creating new product categories, and/or target to different customer

segments (e.g., low-end vs. high-end, male vs. female);

New business models are customer personalization, companies like Trunk Club and online

brands like Warby Parker continue to bring offline models into existence online.

Start-ups often take existing business models and apply a marketing pivot or alternate strategy.

DIFFERENT BUSINESS MODELS

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PLANNED PURCHASES VS IMPULSE PURCHASES BUSINESS

MODELS

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1. Planned purchases business models make up the majority of retail spend historically, older

companies like Amazon seems to have locked up planned purchasing on the web, as this

revolves more around search and catalog layouts than email digests.

2. Impulse E-commerce business models usually don’t provide real long-term value to

consumers. These models do not meet consumer disenchantment and end up as just a passing

trend. In general, the newer business models that have emerged are subscription, C2C

marketplaces, flash sales. They are tend to be focused on impulse purchases. Impulse

purchases generally have higher rates of regret after purchase and more returns.

TWO NEW BUSINESS MODELS WHICH SURVIVED

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1. Online brands are simply new brands/ or existing ones that have chosen online as the

marketing channel of choice over offline. Barriers to entry in online brands includes the

expertise required to build a vertically integrated supply chain, e-Commerce platform,

and user friendly interface.

2. Crowdsourced demand start-ups (e.g., Modcloth) also rely less on impulse

purchases, as do social bookmarking start-ups like Pinterest, where users create

product wishlists for “buy later”.

NEW E-COMMECE BUSINESSES ARE APPEARING IN THE SECTION OF

HIGHER MARGINS AND WEALTHIER CUSTOMERS

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NOT MANY NEW BUSINESSES ARE APPLIED

FOR MASS MARKET

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UI FEATURES ENRICH CUSTOMER EXPERIENCE

AND DRIVE SALES

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Forrester Research report says that much of the growth in U.S. e-commerce sales comes

from improved, advanced online retailers web sites and services: “This is particularly true

of categories such as apparel and jewelry, which have integrated rich selling tools such as

zoom, color switching, and configurations, as well as office supply stores, which have

broader payment options (e.g., small business purchase orders online) and subscription

plans for their buyers” (1)

(1) www.forrester.com

RECENT TRENDS IN E-COMMERCE BUSINESS

MODELS

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• Social Bookmarking, Analytics, Seeds, Commerce;

• Group Buying;

• Flesh Sales;

• Recommendations;

• Personalization;

• Customization;

• C2C MarketPlace;

• Online Brands;

• Mobile E-Commerce

SOCIAL COMMERCE

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• eBay is working on product recommendations based on Facebook data (acquired Hunch) and a feature allowing users to solicit feedback from Facebook friends prior to purchase; (1,2)

• Walmart makes an effort in social E-Commerce. Walmart has 22 million Facebook fans and an innovative social media contest called "Get on the Shelf," that allowed Facebook fans to vote for products they wanted to see offered at Walmart. The company is leveraging advanced analytics to glean new insights from Twitter and Facebook data streams. (3)

• The latest in-depth report from Nielsen concluded that: “Consumers continue to spend more time on social networks than on any other category of sites—roughly 20% of their total time online via personal computer (PC), and 30% of total time online via mobile. Additionally, total time spent on social media in the U.S. across PCs and mobile devices increased 37% to 121 billion minutes in July 2012, compared to 88 billion in July 2011.” (4)

(1) http://techcrunch.com/2011/05/15/connecting-the-dots-on-ebays-local-shopping-strategy/

(2) http://techcrunch.com/2011/06/15/milo-fetch-allows-local-retailers-to-upload-their-inventory-to-ebay/

(3) http://www.retailingtoday.com/article/walmart-touts-e-commerce-moves-annual-meeting

(4) Nielsen Consumer report for 2012

THE GROUP BUYING / COUPONING SPACE

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Now, the group buying industry is facing rising disenchantment, both from

customers and merchants:

Reasons -

• Merchants complain that the long-term economics of doing group buying is not favorable, as Groupon does little for

customer retention;

• Groupon takes 50% of companies’ profit for their service of presenting deals online;

• Customers buying impulsively often don’t end up using the coupons, resulting in ~20% breakage upon expiry;

• Some customers buy and sell in second-hand markets, but 75% either breakeven or lose money on these deals

Daily deals sites have struggled to organically retain customers, and many have spent enormous amounts on

customer acquisition and are now struggling with profitability:

• According to Yipit, one-third of tracked daily-deal sites (170 of 530) have been shut down or sold so far in 2011

• Facebook launched a daily deals service in April of 2011, and then shut down it in August;

• Yelp cut its daily deals product team by half in August, citing users being unhappy with Yelp Deals;

Source: http://online.wsj.com/article/SB10001424053111904491704576575233025971542.html

FLESH SALES

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The flash sales model is under pressure on the supply side, as remnant inventory

levels are decreasing;

While todays flash sales leaders (e.g., Gilt, Hautelook, Vente Privee) have grown

their businesses by selling luxury retailers remnant inventory, today they are looking

to change business models as unsold inventory supplies are lower;

Gilt and competitors rode the wave of obscenely high inventory levels during the

recession (up to 10x normal levels, according to a former executive of Nieman

Marcus), but retailers have adjusted and inventory levels are going down –

Therefore, as flash sales supply is decreasing, supplies prices are increasing and

flash sales discounts are decreasing (Gilts average discount has decreased from

70% to 40-50%.

RECOMMENDATIONS

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Product recommendation works particularly well in the fashion category as it

recognizes shopper behavior, patterns and recommends items of interest not only by

product type, but by brand as well;

Recommendations could be integrated into social media, so recommendations can

take into account what the customer's friends have bought or viewed;

This takes into account not only what the individual customer is doing on the site at

that moment in time, but what other shoppers who are similar in product views have

done before;

Personal recommendations are the number one driver of consumer purchase

decisions at every stage in the purchase cycle across 10 product categories studied,

from banking to vacation travel and from subscription entertainment to retail

categories, such as apparel and personal are products.

(1) Source: http://econsultancy.com/us/blog/8904-recommendations-help-drive-27-9-holiday-sales-growth-at-john-lewis

(2) Source: http://www.forbes.com/sites/kellerfaygroup/2012/07/25/recommendations-are-what-drives-your-business-remember-to-

ask-for-them/

PERSONALIZATION

48Source: http://www.slideshare.net/joshyang/ecommerce-landscape-2012#btnNext

CUSTOMIZATION

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Customization has slowed as a trend, as the model has generally failed to gain traction and prove scalability

Co-creation e-commerce isn’t new but has begun to enter the mainstream recently

Co-creation sites allow consumers to design their own products for purchase and/or buy products others have

Co-creation companies typically become cash-flow positive quickly because customized products sell at a premium and are sold on-demand (i.e., there is no excess inventory)

To date, start-ups riding the co-creation wave have primarily been e-commerce destination sites focused on a particular product category (or group of categories), and employ one or more of several business models:

Several models exist:

1. Consumers design, then buy their own products (e.g., NikeID, BlueNile, Chocri, Blank-Label, Shirtsmyway, etc.)

2. Consumers buy products designed by other consumers or indie designers (e.g., MyFab, ModCloth, Threadless, etc.)

3. Consumers connect with manufacturers and co-design offline

Two problems the co-creation market faces today are scalability and design-manufacturing accuracy :

1. Scalability. Companies will need to be creative about how to scale their businesses as consumer demand increases, since it will be harder for manufacturing to benefit from economies of scale

2. Design-manufacturing accuracy. Despite strong user interfaces allowing users to design their own products, a fraction of users will be dissatisfied with how the product actually turns out (i.e., requires stronger, more accurate UIs)

Source:

1) http://www.readwriteweb.com/start/2010/03/is-america-on-the-verge-of-a-co-creation-invasion.php

2) http://www.crunchgear.com/2010/07/21/new-wave-of-web-services-brings-customization-to-commerce

C2C MARKETPLACES

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Online C2C marketplaces can be broadly segmented into three buckets:

Hard good purchases (e.g., eBay),

Hard good rentals (AirBnB), and

Services (Skillshare)

Traditionally, eBay is the preeminent online C2C marketplace and facilitated transactions on hard

good purchases. There are not major direct competitors doe eBay while niche players like Etsy

targeted only hand-crafted goods.

Meanwhile, Craigslist has traditionally served as the go-to portal for consumers looking for hard

good rentals/purchases and services online, but it does not offer money transactions, which

make the purchase process more complex.

C2C MARKETPLACES DIFFICULTIES

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Traditional models of online marketplaces (or intermediate solutions like Craigslist) leave

many unmet needs, which many start-ups are tackling but few have perfected.

Reasons:

1) Seller’s time spent uploading product information;

2) Trust in sellers shipping on- time (or at all);

3) Inaccurate representation of product quality / condition;

4) Rentals: Trust in both buyers and sellers, ease of working with insurance companies;

5) Services: safety and trust in sellers, ability of relationships to be taken offline after initial

transaction.

ONLINE BRANDS. ONLINE RETAIL MODELS.

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“Online brands” have grown in recent years, as consumers become more

comfortable discovering new products online. Online brands are start-up product

brands (typically apparel) that have decided to leverage the Internet as a channel

over traditional offline retail.

1. Brands have only recently been able to grow a large enough presence and

scale quickly using online as the channel instead of offline, due to the

proliferation of social media;

2. Key benefits for brands going online include ability to get consumer feedback

prior to production and better margins than offline retail, but requires

marketing and production competency;

3. Bonobos, ModCloth, 20x200, and Warby Parker are brands that have largely

begun online and gone mainstream.

Sources: http://www.slideshare.net/joshyang/ecommerce-landscape-2012#btnNext

OFFLINE VS ONLINE RETAIL MODELS

53Source: http://www.slideshare.net/joshyang/ecommerce-landscape-2012#btnNext

START-UPS EXAMPLES OF ONLINE BRANDS

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Net-a-Porter just partnered with Karl Lagerfeld to launch a new online fashion brand

called Karl

Everlane has not even launched publicly (as of Nov 2011) and has generated a lot of

hype in Silicon Valley

Betabrand is trying to bring the H&M model online, iterating quickly on new 4-6 new

SKU’s per month and introducing them in small batch sizes. They also crowdsource

design ideas

WildFox, Nau, and Eliza Parker are just a few in a long list of smaller up-starts

There is also opportunity for influential online content producers (e.g., bloggers,

Youtube celebs) to pivot into manufacturing products, but many of these creative

people are scared off by the complexity of manufacturing operations

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www.glabex.com