Online Retailing The consumer is not primarily price-driven when shopping on the Internet but instead considers brand name, trust, reliability, delivery time, convenience, ease of use, and above all “the experience,” as at least as important as price. The Internet has created an entirely new venue for omni-channel firms (those that sell products through a variety of channels and integrate their physical stores with their Web sites and mobile platform). In some cases, the Internet has supported the development of pure-play online-only merchants, both general merchandisers as well as specialty retailers. Online retail refers solely to sales of physical goods over the Internet.

Online Retail: Advantages & Challenges Lower supply chain costs by aggregating demand at a single site and increasing purchasing power Consumer concerns about the security of transactions Lower cost of distribution using Web sites rather than physical stores Consumer concerns about the privacy of personal information given to Web sites Ability to reach and serve a much larger geographically distributed group of customers Delays in delivery of goods when compared to store shopping Ability to react quickly to customer tastes and demand Inconvenience associated with return of damaged or exchange goods Ability to change prices nearly instantly Overcoming lack of consumer trust in online brand names

Online Retail: Advantages & Challenges Ability to rapidly change visual presentation of goods Added expenses for online photography, video, and animated presentations Avoidance of direct marketing costs of catalogs and physical mail Online marketing costs for search, e-mail, and displays Increased opportunities for personalization, customization Added complexity to product offerings and customer service Ability to greatly improve information and knowledge delivered to consumer Greater customer information can translate into price competition and lower profits Ability to lower consumers’ overall market transaction costs

E-tailing Business Models There are four main types of online retail business models: Virtual merchants Omni-channel merchants (Bricks-and-clicks) Catalog merchants Manufacturer-direct firms In addition, there are small mom-and-pop retailers that use eBay, Amazon, and Yahoo Stores sales platforms, as well as affiliate merchants whose primary revenue derives from sending traffic to their “mother’ sites. Each of these different types of online retailers faces a different strategic environment, as well as different industry and firm economics.

Virtual Merchants Virtual merchants (such as Amazon) are single-channel e- commerce firms that generate almost all their revenue from online sales. They must build a business and brand name from scratch, quickly, in an entirely new channel and confront many virtual merchant competitors (especially in smaller niche areas). Because these firms typically do not have any physical stores, they do not have to bear the costs associated with developing and maintaining physical stores, but they face large costs in building and maintaining an e-commerce presence, building an order fulfillment infrastructure, and developing a brand name. Most merchants in this category adopt low-cost and convenience strategies, coupled with extremely effective and efficient fulfillment processes to ensure customers receive what they ordered as fast as possible.

Omni-channel Merchants (Bricks-and-clicks) Bricks-and-clicks companies (such as Walmart) have a network of physical stores as their primary retail channel, but also have online offerings. While bricks-and-clicks merchants face high costs of physical buildings and large sales staffs, they also have many advantages such as a brand name, a national customer base, warehouses, large scale (giving them leverage with suppliers), and a trained staff. Bricks-and-clicks companies face the challenge of leveraging their strengths and assets to the Web, building a credible Web site, hiring new skilled staff, and building rapid-response order entry and fulfillment systems.

Catalog Merchants Catalog merchants (such as L.L.Bean) are established companies that have a national offline catalog operation, but who have also developed online capabilities. Catalog merchants typically have developed centralized fulfillment and call centers, extraordinary service, and excellent fulfillment in partnership with package delivery firms. Catalog firms are uniquely advantaged because they already possess very efficient order entry and fulfillment systems. However, they face many of the same challenges as bricks-and- mortar stores—they must leverage their existing assets and competencies to a new technology environment, build a credible Web presence, and hire new staff.

Manufacturer-direct Firms Manufacturer-direct firms are either single- or multi-channel manufacturers that sell directly online to consumers without the intervention of retailers. Manufacturer-direct firms were predicted to play a very large role in e-commerce manufacturers, but this has generally not happened. The primary exceptions are computer hardware, such as Apple, Dell, Sony, and Hewlett-Packard, and apparel manufacturers, such as Ralph Lauren, Nike, and Deckers. Manufacturer-direct firms sometimes face channel conflict challenges. Channel conflict occurs when retailers of products must compete on price and currency of inventory directly against the manufacturer, who does not face the cost of maintaining inventory, physical stores, or sales staffs.