Norton UniversityE-commerce in Action1 PART THREE E-commerce in Action

Norton UniversityE-commerce in Action2 Chapter 6: Online retailing and services

Norton UniversityE-commerce in Action3 Learning Objectives - Understand the environment in which the online retail sector operates today. - Explain how to analyze the economic viability of an online firm. - Identify the challenges faced by the different types of online retailers. - Describe the major features of the online service sector. - Discuss the trends taking place in the online financial services industry. - Describe the major trends in the online travel services industry today. - Identify current trends in the online career services industry.

Norton UniversityE-commerce in Action4 RETAIL INDUSTRY The retail industry is composed of many different types of firms. The retail industry divides into nine segments: - Clothing - Durable goods - General merchandise - Groceries - Specialty stores - Gasoline and fuel - Eating and Drinking - MOTO - Online retail firms

Norton UniversityE-commerce in Action5 E-commerce Retail: The Vision The retail industry would be revolutionized, based on some of beliefs: 1- Greatly reduced search costs on the Internet would encourage consumers to abandon traditional marketplaces in order to find the lowest prices for goods. First movers who provided low- cost goods and high-quality service would succeed.

Norton UniversityE-commerce in Action6 E-commerce Retail: The Vision 2- Market entry costs would be much lower than those for physical storefront merchants, and online merchants would more efficient at marketing and order fulfillment than their offline competitors because they had command of the technology. ( Technology prices were falling sharply )

Norton UniversityE-commerce in Action7 E-commerce Retail: The Vision 3- Online Companies would replace traditional stores as physical store merchants were forced out of business. Older traditional that too slow to enter the online market would locked out of the marketplace.

Norton UniversityE-commerce in Action8 E-commerce Retail: The Vision 4- In certain industries, the “middleman” would be eliminated (disintermediation) as manufacturers or their distributors entered the market and build a direct relationship with the consumer. This cost savings would ensure the emergence of the Web as the dominant marketing channel.

Norton UniversityE-commerce in Action9 E-commerce Retail: The Vision 5- In other industries, online retailers would gain the advantage over traditional merchants by outsourcing functions such as warehousing and order fulfillment, resulting in a kind of hyper- mediation, in which the online retailer gained the upper hand by eliminating inventory purchasing and storage costs.

Norton UniversityE-commerce in Action10 ADVANTAGES AND CHALLENGE TO ONLINE RETAIL Advantages - Lower supply chain costs by aggregating demand at a single site and increasing purchasing power. - Lower cost of distribution using Web sites rather than physical stores. - Ability to reach and serve a much larger geographically distributed group of customers. - Ability to react quickly to customer tastes and demand. - Ability to change prices nearly instantly.

Norton UniversityE-commerce in Action11 ADVANTAGES AND CHALLENGE TO ONLINE RETAIL Advantages - Ability to rapidly change visual presentation of goods. - Avoidance of direct marketing costs of catalogs and physical mail. - Increased opportunities for personalization, customization. - Ability to greatly improve information and knowledge delivered to customer. - Ability to lower consumer’s overall market transaction costs.

Norton UniversityE-commerce in Action12 ADVANTAGES AND CHALLENGE TO ONLINE RETAIL Challenge - Consumer concerns about the security of transactions. - Consumer concerns about the privacy of personal information given to Web sites. - Delays in delivery of goods when compared to store shopping.

Norton UniversityE-commerce in Action13 ADVANTAGES AND CHALLENGE TO ONLINE RETAIL Challenge - Consumer concerns about the security of transactions. - Consumer concerns about the privacy of personal information given to Web sites. - Delays in delivery of goods when compared to store shopping.

Norton UniversityE-commerce in Action14 ANALYZING THE VIABILITY OF ONLINE FIRMS To understanding the near-to-medium term ( 1-3 years ) economic viability of these firms and their business models.

Norton UniversityE-commerce in Action15 What is economic viability ? Refers to the ability of firms to survive as profitable business firms during a specified period. To answer the question of economic viability, we take two business analysis approaches: Strategic analysis and Financial analysis.

Norton UniversityE-commerce in Action16 Strategic Analysis Strategic approaches to economic viability focus on both the industry in which a firm operates and the firm itself. The key industry strategic factors are: - Barriers to entry - Power of suppliers - Power of customers - Existence of substitute products - Industry value chain - Nature of intra-industry competition - Technology - Social and legal challenges

Norton UniversityE-commerce in Action17 Financial Analysis Strategic analysis helps us comprehend the competitive situation of the firm. Financial analysis helps us understand how in fact the firm is performing. There are two parts to a financial analysis: The statement of operations and the balance sheet. The statement of operations tells us how much money (or loss) the firm is achieving base on current sales and costs. The balance sheet tells us how many assets and the firm has to support its current and future operations.

Norton UniversityE-commerce in Action18 Financial Analysis Here are some of the key factors to look for in a firm’s statement of Operations: - Revenues - Cost of sales - Gross margin - Operating expenses - Operation margin - Net margin