Global Marketing Program (MAS)

Electronic Commerce

A Global Perspective

Professor: Jacques Nantel, Ph.D HEC Montréal Canada

E-commerce and RetailingSeveral myths, one reality

The e-sky is falling!(Amazon.com)

Yet….

• There are more consumers surfing

• Who stay longer on the net

• And who buy more and more

“…global marketing information from a global research company, with

unequalled expertise and experience in internet issues …”Taylor Nelson Sofres Taylor Nelson Sofres

Interactive -Interactive -GGloballobaleeCommerceCommerceRReport 2001eport 2001

Taylor Nelson Sofres Taylor Nelson Sofres Interactive -Interactive -GGloballobaleeCommerceCommerceRReport 2001eport 2001

What it all comes down to:eCommerce is growing, and the future looks bright

for e-businesses• Between 2000 and 2001, the proportion of internet users that

shop online has increased by 50%. From 10% of all Internet users globally in 2000, to 15% globally in 2001.

• Integrated offline and online shopping activities continue to contribute to revenue opportunities for businesses: fully 15% of all Internet users globally have shopped offline for goods as a result of information they found online.

• Online security is the biggest single concern for those Internet Users who have not shopped online. However, over 60% of non-shoppers did not state this reason.

• Younger internet users are not being persuaded to spend as much online as older users.

Key findings 2001...Internet usage

• Scandinavian countries continue to lead the way in the adoption and use of the internet. Norway, has 63% of the total adult population using the internet in the past 4 weeks, and Denmark (at 62%) have both pushed ahead of last year’s leader, the USA.

• Although growth has varied considerably across all countries, it is still universally true that under 30 year olds are driving the adoption of this medium.

Online shopping

• The USA retains its position as the nation with the greatest proportion of Internet Users being online shoppers - at 33%. This compares with the global average of 15%. Germany and Great Britain have also seen a big increase in this area over the past year.

GeR

Key findings 2001...To shop, or not to shop...• Last year saw more online dropouts than shoppers, but this

year 15% of internet users are still dropping out and 15% have actually shopped online.

• 55% of internet users have done none of the following: bought online, dropped out, bought offline or plan to buy online in the future.

Total Internet related shopping behaviour• Over a quarter of internet users globally have actively

engaged in either online or offline purchases in the past month.

GeR

Offline shopping• 15% of all Internet users have bought goods or services outside the

Internet as a direct result of information found online.

• Younger people’s (under 20) offline spending is not being influenced by information found online as much as the older internet users.

• While it may be possible to convert offline into online sales in the future, this result emphasises the need for integrated online and offline business models. This is evident in the commercial success of established offline brands in the online world.

Future online shopping

• 17% of all internet users plan to shop online in the next 6 months. However, of these, a quarter have already purchased online.

• Confidence in eCommerce therefore appears not to have diminished despite media attention highlighting security problems.

GeR

Products purchased online• Books and CDs continue to be the most popular

items to purchase online. However, smaller proportions have purchased both when compared to last year.

• Clothes have become the third most popular category to be purchased online.

• There appears to be a broader spread of product categories purchased in 2001, as people become more confident in purchasing different items online.

GeR

Reasons not to shop• The biggest reasons for not purchasing online are security related.

25% of abstainers stated that they didn’t want to give credit card details and 21% citing general security concerns. (Please note: that 8% highlighted both of these as reasons)

• Germany was the most reluctant nation to provide credit card details (71%), and was only surpassed by the Czech Republic when it came to general security concerns.

• In addition to security, the tangibility and physical experience of shopping offline was identified as a barrier to online purchasing. 19% of abstainers stated it was easier / more fun to buy in a store.

• Only 6% did not buy online for price related reasons.

GeR

Mobile phone penetration• Almost 2 out of 3 people represented in this study have access to a

mobile phone.

• This figure would have been higher but for the fact that 64% of over 60 year olds stated they did not have access.

• Finland leads the way - with 85% of the total adult population having access to a mobile phone.

GeR

Mobile phone usageAlthough access figures are high - only 46% use a mobile for speaking to people.

The second highest usage type was for receiving text messages, followed closely by sending them.Finnish mobile phone users were the most active text messagers, with 71% of the adult population receiving text messages.

Key numbers 2001...

GeRCountry average

2001

Country average

2000

Year on year

changeLowest Highest

Internet users 31% 27% + 4% 4% 63%Indonesia Norw ay

Online shoppers 15% 10% + 5% 1% 33%Philappines/

Turkey USA

Online dropouts 15% 15% no change 0% 34%Hungary Korea

Offline shoppers 15% 13% + 2% 0% 31%Hungary Hong Kong

Future online shoppers 17% 14% + 3% 0% 41%Hungary Japan

Internet users across the world 2001

4 4

911

13 1315 15 16 16 17

19

2426 26

3033 33 33 34

3639 40 40

4345

48 4851 52

5760

62 63

0

10

20

30

40

50

60

70

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Percentage of the population who have personally used the Internet during the past month

Country average (31%)

GeR

Japan results = 68% (data collected in the TNS AP M-commerce study)China results = 23% (data collected in the TNS AP M-commerce study)

Internet users across the world 2000/2001

4 4

911

13 1315 15 16 16 17

19

2426 26

3033 33 33 34

3639 40 40

4345

48 4851 52

5760

62 63

0

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Percentage of the population who have personally used the Internet during the past month

Country average (31%)

GeR

Japan results (2001) = 68% (data collected in the TNS AP M-commerce study)China results (2001) = 23% (data collected in the TNS AP M-commerce study)

1 12 2 3 3 3 3 3 4 5 6 6 6 7 7 8 9 9 9

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17 17 18 18 18 18 18 19 19

24

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Percentage of Internet users who have bought goods or services onlineduring the past month

• The USA retains its position as the nation with the greatest proportion of online shoppers at 33%. This compares with the global average of 15%.

• In India, the Philippines,Thailand and Turkey, 2% or less of the online population shop online.

Country average (15%)

GeR

• As spending power increases with age (up to 40 years of age), so shopping online becomes a more popular option.

• The youngest age group is so unlikely to shop online that even the oldest (age 60+), internet users surpass them. This is likely to be due to the non-availability of credit (and cards), rather than any difference in attitude and willingness.

GeR

1516

13

7

14

17

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0

2

4

6

8

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12

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16

18

20

Total Male Female Under20

20-29 30-39 40-59 60+

Please note that percentages given for the different age groups exclude data from Portugal, France, Canada, Ireland, Israel and Japan - where different age bands are used

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6 67 7

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Percentage of Internet users who have bought goods or services offlineas a result of information found online during the past month

• The Internet as an information channel for offline purchasing continues to be important.

• Hong Kong, demonstrates this well, supplementing online purchasing with substantial offline revenues.

Country average (15%)

GeR

• The most significant demographics issue is that those in the youngest age group, although they are unlikely to purchase online because of practical issues, are also not purchasing offline.

• The youth market is strong in traditional sectors, but the internet appears to be failing in attracting youth spending.

GeR

15

17

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16 16 15

9

0

2

4

6

8

10

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14

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Total Male Female Under20

20-29 30-39 40-59 60+

Please note that percentages given for the different age groups exclude data from Portugal, France, Canada, Ireland, Israel and Japan - where different age bands are used

Per

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34 5 5

7 7 79 10 10

11 11 12 12 13 1314 15 15 15

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23 23 23 2425 26

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Percentage of Internet users who plan to shop online within the next 6 months

• The future of online shopping looks healthy in many countries, with this metric predicting significant increases in eCommerce activity over the next 6 months.

• It should be remembered that this figure includes a number of people that have already shopped online (25% of future shoppers bought online in the last 6 months).

Country average (17%)

GeR

32 34 35 39 42 42 44 46 48 50 51 52 52 54 55 55 56 57 58 60 6167 69 71 72 73 74 74 74 74 76 76 78 79

84

96

68 66 65 61 58 58 56 54 52 50 49 48 48 46 45 45 44 43 42 40 3933 31 29 28 27 26 26 26 26 24 24 22 21

16

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Internet users who have never shopped online, and who do not plan to shop online Internet users who have shopped online or offline, or who will shop online in the near future

GeR

Products purchased online

26

17

13

11 10 109

87

5 5 4 4 4 4 42

1

18

0

5

10

15

20

25

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Books

Mus

ic/ C

Ds

Clothe

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Electro

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Electri

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PC Har

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Holida

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Equ

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s/ sh

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Furnit

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Fashio

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Car

Other

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Trends

ACTUAL SALES (BILLIONS)

Forcasts 1999 2000 2001

1997 4,8 $

1999 20,5 $ 38,7 $ 64,1 $

2000 48 $ 74 $

Source: eMarketer sept 2001

In brief, a growing market but one has to understand the real

opportunities

• Internet will not be the revolution that some had predicted

• It will not be a fad

• For most retailers it will be a necessary evil

• Building a new distribution network does not create any new demand

• There are not two types of consumers one virtual the other one tangible

• forget the first mover’s advantage

• Technology is important but brand equity and bricks are key

Some dying myths

1- The world of retailing

Sales trends

Forrester Mai 2000

Media

Software

Total convenience (millions)

Total US revenue (millions) 11%

28%

16%

51%

Music

Videos 21%

Event tickets

40%

17%

16%Flowers

Books 21%

$44,784

$6,670

$1,752

$1,801

$1,020

$350

$760

$15,445

$2,096

$73,926

$9,807

$2,465

$2,629

$1,666

$933

$1,266

$25,070

$2200

$110,748

$13,019

$2,983

$3,618

$2,463

$1,986

$1,812

$37,194

$3,955

$155,833

$16,513

$3,431

$4,726

$3,484

$3,289

$2,384

$52,664

$4,872

$207,270

$20,529

$3,814

$6,076

$4,837

$4,462

$2,944

$71,061

$5,802

$269,158

$25,817

$4,200

$8,007

$6,717

$5,626

$3,560

$93,001

$6,893

% of totalretail 20052000 2001 2002 2003 2004 2005

Total US revenue (millions) 11%

Recreation

Video games

Sporting goods

14%

28%

13%

Apparel 12%

Toys 11%

General apparel

Footwear

Jewelry

Accessories

13%

8%

13%

18%

$44,784

$2,626

$392

$828

$5,040

$1,406

$2,756

$367

$1,370

$547

$73,926

$4,148

$631

$1,524

$8,915

$1,994

$5,194

$642

$2,217

$862

$110,748

$5,916

$939

$2,567

$14,461

$2,410

$8,988

$1,035

$3,316

$1,123

$155,833

$8,227

$1,350

$4,117

$22,251

$2,760

$14,569

$1,559

$4,776

$1,348

$207,270

$11,172

$1,877

$6,181

$31,955

$3,114

$21,577

$2,161

$6,617

$1,600

$269,158

$14,874

$2,549

$8,733

$43,124

$3,591

$29,434

$2,792

$8,921

$1,979

% of totalretail 20052000 2001 2002 2003 2004 2005

“

Forrester Mai 2000

Total US revenue (millions) 11%$44,784 $73,926 $110,748 $155,833$207,270 $269,158

30%

Total researched 11%

Leisure travel

Electronics

Computer hardware

Consumer electronics

40%

22%

23%

Automobiles 6%

$23,373

$12,200

$6,096

$3,778

$2,317

$2,845

$38,529

$16,700

$11,856

$7,127

$4,729

$5,315

$56,922

$21,000

$18,306

$10,968

$7,338

$9,360

$77,459

$25,200

$24,119

$14,516

$9,602

$15,626

$98,111

$28,900

$28,781

$17,200

$11,580

$23,813

$119,549

$32,657

$33,244

$19,320

$13,923

$32,753

% of totalretail 20052000 2001 2002 2003 2004 2005

Forrester Mai 2000

Total US revenue (millions) 11%$44,784 $73,926 $110,748 $155,833$207,270 $269,158

Small appliances

Large appliances

Tool and garden

Furniture

Linens, home décor

6%

11%

10%

10%

4%

Home products

$493

$195

$603

$378

$563

$2,232

$857

$410

$1,630

$657

$1,106

$4,659

$1,291

$720

$3,481

$1,059

$1,705

$8,256

$1,756

$1,073

$5,812

$1,626

$2,248

$12,515

$2,207

$1,373

$8,009

$2,321

$2,707

$16,617

$2,677

$1,607

$10,325

$3,090

$3,198

$20,896 6%

% of totalretail 20052000 2001 2002 2003 2004 2005

Forrester Mai 2000

Total US revenue (millions) 11%$44,784 $73,926 $110,748 $155,833$207,270 $269,158

% of totalretail 20052000 2001 2002 2003 2004 2005

Total replenishment

Total miscellaneous*

Food, beverage, supplies

Health and beauty aids

Pet supplies

8%

11%

7%

3%

$3,107

$1,131

$1,352

$624

$2,859

$6,635

$2,455

$2,656

$1,523

$3,692

$12,041

$5,063

$4,460

$2,519

$4,590

$20,010

$10,441

$6,572

$2,996

$5,700

$31,169

$18,049

$8,672

$4,448

$6,929

$48,362

$31,392

$10,840

$6,130

$8,246

20%

Forrester Mai 2000

Different strategies for different productsStrategy Type of

productsDigital

products(music,video,

software)

Services(Banks,brokers,medical

services)

Productswith local

inventories(Food,drugs,

clothing)

Specialized products or tailormade

(automobiles, furniture,antiques)

Distribution Download Downloadsand mortar

ClickAnd mortar

Click

Barriers Few entrybarriers,

could createexit barriers

No entrybarriers.High exitbarriers(banks)

Few entrybarriers.

Could createexit

barriers(e-passports)

Few barriers

Branding Artist not site Key Key Product not site

Price sensitivity High High Low Variable

1-Digital products

• New networks

• Cost and price reduction

• Standard technology

Sales of music on the Internet(000 $ us)

0

1000

2000

3000

4000

5000

6000

2000 2001 2002 2003 2004 2005

CD Download

Source: Forrester Sept 2001

Source: MediaMetrix oct 2001

2- Services

• Travel agencies, Law, Medical services

• Cost reduction, standardization of basic functions

• Cross marketing and up-selling

3- Convenience goods

• Most of them are available within 1 mile from the source of demand

• 80% of consumption is made by 20% of goods (Pareto law)

Barnes&Nobles Amazon.com B&N.com

Sales 3 486 043,00 $ 1 151 765,00 $ 202 567,00 $Costs of goods sold 2 483 729,00 $ 887 567,00 $ 159 937,00 $Gross margin 1 002 314,00 $ 264 198,00 $ 42 630,00 $%Gross margin 28,75% 22,94% 21,04%

Sales and administartion 651 099,00 $MARKETING 269 924,00 $ 111553Technology 128 376,00 $ 21006DEPRECIATION 112 304,00 $ 163 368,00 $Other costs 6 801,00 $ 80 799,00 $ 32714Opertion costs 770 204,00 $ 642 467,00 $ 165273% Operation costs 22,09% 55,78% 81,59%Net margin 232 110,00 $ -378 269,00 $ -122 643,00 $%Net margin 6,66% -32,84% -60,54%

STOCKS 1 100 000,00 $ 200 000,00 $ 3 886,00 $Stock turnover 3,17 11,52 52,13

Thus...

• Consumers will want to shop in store AND surf on the net

• Retailers must provide both opportunities

• Retailers must provide real time information including their stocks

• Sell popular product in store with low margins

• Sell products with slow turnovers on line and increase margins

Make sure to play on both networks in a coordinated fashion

4- Specialty products

• Car, furnitures

• Inventory cost are often huge

• Yet consumers are still waiting often more than a month

2- What about advertising ?

Yet, there are opportunities

• Focus on the consumer not on the content

• Keep in mind that the consumer is active and searching

• Provide indication for your ROI

• Use personalization

Current StatusB2B

• The marginal contribution of e-commerce where EDI was already established– True opportunities for the standardization of protocols

• Winners: SAP, Oracle etc.– Important order givers gained power over small suppliers

• Market places– For commodities and indirect inputs

• Verticalnet Vs Dell computers

• Changing business models– From registration fees to transaction fees– Volume is the key

What have we learned ?• Internet per say will rarely be a competitive advantage• Internet should be seen as a complement to traditional

ways of competing• Make sure that it offer true added value, either as a

way to improve a process (banks) or as a way to distribute original content (MIT on line)

• Create an exit barrier not an entry one (Switching cost)• Central product must have unique value, do not rely on

advertising alone