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

Learning Objectives Define and describe the primary business models of electronic retailing (“e-tailing”) Discuss various e-tail consumer aids, including comparison-shopping aids Discuss various e-tail markets, such as groceries, music, cars, and others Identify the critical success factors of direct marketing and e-tailing, along with mistakes to avoid Prentice Hall, 2002

Learning Objectives (cont.) Identify the principles of “click-and-mortar” strategies for traditional retailers Describe the issue of disintermediation, reintermediation, and channel conflicts in e-tailing Prentice Hall, 2002

Opening Case For E-tailer EC can be classified as B2C or B2B Most companies used both classifications. B2C business model where customers look for a: Low price Fast shipment Good return policy Helpful customer service Prentice Hall, 2002

Opening Case: Amazon.com Largest Bookstore in the world(billions of books) Begin since 1995 Offers millions of items Books and music DVDs and videos Toys and video games Electronics and software Home improvement products Prentice Hall, 2002

Opening Case: Amazon.com (cont.) Started business in 1995 Sales 1996 = $15.7 million 2000 = $1.8 billion Products 1999 = 5 million titles 2000 = 13 million books, music, DVD/video titles Prentice Hall, 2002

Opening Case: Amazon.com (cont.) Auctions Hosts and operates auctions for individuals and small businesses zShops, Amazon marketplace, Amazon payment processing Provide the opportunity for small businesses to develop custom storefront Storefronts are supported by Amazon’s back-end order fulfillment processing Prentice Hall, 2002

Opening Case: Amazon.com (cont.) Key Features of Amazon Easy browsing and searching Useful product information Reviews, recommendations, and personalization Broad selection and low prices Secure payment system 1-Click order technology Gifts department Online community Secured payments Prentice Hall, 2002

Opening Case: Amazon.com (cont.) Customer relationship management (CRM) Creates interesting and informative front-end Highly automated and efficient back-end support Personalized service Return customers are welcomed back by name Customer wish lists available E-mails customers purchase recommendations based on their purchasing history Prentice Hall, 2002

Opening Case: Amazon.com (cont.) Financial performance Overall losses rather than profits Ability to move into new areas of business should move them toward profitability, but makes money from books High level of customer service and customer loyalty adds value Prentice Hall, 2002

Opening Case: Amazon.com (cont.) 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 partners Toys - ToysrUs.com Prentice Hall, 2002

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 payments Also online retailing Business-to-consumer (B2C) Ability to create direct relationships with consumer without intermediaries like distributors, wholesalers, or dealers Prentice Hall, 2002

E-Tailing and B2C Market Growth (cont.) The early days of retailer used Brochureware with no interactivity physical 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 prices Excellent customer service Convenience *** Not different from traditional but online retail stores have more offering services… Prentice Hall, 2002

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) Prentice Hall, 2002

E-Tailing and B2C Market Growth (cont.) Characteristics of goods leading to high online sales volumes Brand recognition and guarantees A guarantee is provided by reliable vendors Digitized products Inexpensive items Frequently purchased, inexpensive items Well-known items with standard specifications Well-known package item which cannot open even in department store Prentice Hall, 2002

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? Prentice Hall, 2002

Consumer Purchase Process and Marketing Plan Purchase decision process Prepurchase steps Awareness of need for purchase Identify basic need or want Actual purchase Establish decision criteria Seek recommendations and information Make purchase Postpurchase steps Assistance with installation or setup Online help desks and instruction manuals Prentice Hall, 2002

The Consumer Purchase Decision Process Prentice Hall, 2002

Consumer Purchase Process and Marketing Plan (cont.) Types of online shoppers Time-starved consumers : willing to pay higher price to save time on shopping Shopping avoiders : dislike shopping, people, traffics New 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 Prentice Hall, 2002

Consumer Purchase Process and Marketing Plan (cont.) Types of online shoppers Traditionalists : prefer store and may never adopt to online shopping behavior Hunter-gatherers : 20% of online shoppers enjoy the process of price comparison and search a good value Brand loyalists : shop online for particular brand Single 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? Prentice Hall, 2002

Decision Criteria Value proposition—customer service, better prices, higher quality Personal service—treat the customer as a unique individual Convenience—self-contained site that serves all the customer’s needs Other criteria—service after the sale, Telephone support 24/7, return policy Prentice Hall, 2002

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 available Price of the products Promotion of products (advertisements and giveaways) Packaging and delivery, place Prentice Hall, 2002

Online Purchasing Aids Shopping portals : advice and rating producs or e- tailers Comprehensive portals e.g. shopping.yahoo.com Links to many different sellers Shopping comparison sites Comparison tools are available Niche oriented e.g. bsilly.com Specialize in a certain line of products (dogtoys.com) Some collect referral fee only Others have formal relationships with affiliates Prentice Hall, 2002

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 – cars Zdnet.com/computershopper – computers Office.com – office supplies Prentice Hall, 2002

Online Purchasing Aids (cont.) Business ratings sites—sites that rate e-tailers Bizrate.com—compiles results provided by a network of shoppers Gomez.com—consumer identifies relative importance of different criteria Prentice Hall, 2002

Online Purchasing Aids (cont.) Trust verification sites—evaluate and verify trustworthiness and integrity of e-tailers TRUSTe seal of assurance E-tailers pay TRUSTe for use of seal Hope consumers use seal as proxy for actual research about their site BBBOnLine Yearly license fees based on company’s annual revenue Secure Assure Yearly license fees based on company’s annual revenue Ernst and Young Created its own service for auditing e-tailers Offers some guarantee of integrity of business practices Prentice Hall, 2002

Online Purchasing Aids (cont.) Other shopping tools Escrow services—3rd party to assure quality Proper exchange of money and goods Research information Payment-processing support Communities of consumers Epinions.com—searchable recommendations on products PriceGrabber.com—comparison shopping Prentice Hall, 2002

E-Tailing Business Models Subscription models: charge monthly or annual subscription fee for service Transaction fee models: charge service fee based on the level of transaction offered Advertising-supported models: charge fee to advertisers instead of customers Sponsorship models: companies sponsor the business through donations (usually supplemental income) Prentice Hall, 2002

E-Tailing Business Models (cont.) Direct marketing—sell directly to consumers Manufactures can sell directly to customers Disintermediation—removal of business process layers in the value chain Shortens the distribution chain Eliminates inefficiencies Shortens delivery time Builds closer relationships with consumers As Click-and-mortar Additional marketing channel to the conventional one Effectively supports build-to-order requests Prentice Hall, 2002

Disintermediation in the B2C Supply Chain Source: M. Warkentin, et al. (2000). Used with permission of Dr. Merrill Warkentin. Prentice Hall, 2002

E-Tailing Business Models (cont.) Pure-play e-tailers—sell over the Internet without a physical sales channel General purpose e-tailers (Amazon.com) Broad range of products Large number of consumers Specialty or niche e-tailers (CatToys.com) One specific product area High demand items in the area Effective practices for customer appeal Prentice Hall, 2002

E-Tailing Business Models (cont.) Traditional retailers with Web sites Physical store May include mail-order or catalog sales Multichannel store operates both E-tail site Prentice Hall, 2002

ODDS: Grocery Market Case On-Demand Delivery Services (ODDS): use common carrier to handle outbound logistics/distribution Own fleet of delivery vehicles Regular deliveries (weekly bases) Delivery within short time period (1 hour or same day) Prentice Hall, 2002

ODDS: Grocery Market Case (cont.) Potential online grocery shoppers Shopping avoiders Necessity users—limited by their ability to shop New technologists Time-starved consumers Responsible consumers Traditionals Repeat customers : provide help for repetitive orders, items Example: Parknshop in Hong Kong, peapod.com Prentice Hall, 2002

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 card Download from Web site after payment Prentice Hall, 2002

Digital Goods Prentice Hall, 2002

Digital Delivery (cont.) Napster experience—person-to-person sharing tool Enables individual users to download music files from each other’s computers Phenomenal growth of Napster community New version of its file-swapping software includes a “buy button” linked to CDNow May be beneficial to overall music sales as individuals easily sample a broader range of music Prentice Hall, 2002

Digital Delivery (cont.) New developments : invented on Internet Custom-publishing music CD sites—collection of personal favorites in CD shiped to customer Disintermediation of traditional print media Journals and magazines : paper only subscription, online only subscription or dual-mode Newspapers (e.g., Wall Street Journal) Prentice Hall, 2002

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 experience Empower the customer—powerful channel for service and information Leverage the channels—offs advantages of each channel to customers from all channels Return item purchased online at physical store Order via the Web at the physical store items not available there Prentice Hall, 2002

Successful Click-and-Mortar Strategies (cont.) Circuit City Case: transform to click-and-mortar (CircuitCity.com) electronic store Educates customers about features and capabilities of products Customers can perform powerful searches to find most appropriate products Offers extensive amount of information on electronics etc., organized very flexibly Online purchases are smooth, secure and seamless Prentice Hall, 2002

Successful Click-and-Mortar Strategies (cont.) Amazon and Toys R Us: alliance of pure-play with traditional retailer (new model) Toys R Us had limited logistics capabilities including distribution centers Amazon failed in the toy market lacking supplier relationships with toy manufacturers Alliance allows each partner to leverage each others core strengths Innovative model still working out problems Prentice Hall, 2002

Disintermediation & Reintermediaries in E-tailing Disintermediation—manufacturer sells directly to consumer so customers need to select among a large number of manufacturers online Reintermediaries—new intermediary roles in the digital environment(online assistance) offer new ways to: Reach new customers Bring value to customers Generate revenues Prentice Hall, 2002

Channel Conflict & Personalization Channel conflict—members antagonistic over: Incentives Rewards Policies Support *Make Channel cooperation Personalization—custom designed marketing plan Tailored to buying patterns Appeal to sense of value Excellent customer service Mass customization Prentice Hall, 2002

E-Tailing : Lessons Learned Profitability—online marginal sales don’t lead to marginal profits Branding—drive to establish brand can lead to excessive spending(50% of Venture capital) Performance—Web sites need to function in a fast, user-friendly manner Static design—dynamic sites with rich databases of information appeal most to customers Prentice Hall, 2002