TOPIC 3: ELECTRONIC RETAILING (E-TAILING) BUSINESS MODELS 3.1 E-tailing, its characteristics and business models 3.2 Online travel & tourism services and industry impact 3.3 Online real estate, insurance and stock trading 3.4 Cyberbanking and online personal finance. 3.5 On-demand delivery services and e-grocers. 3.6 Online delivery of digital products and entertainment. 3.7 Online purchase aids & comparison-shopping aids 3.8 Critical success factors and problems with e-tailing and lessons learned 3.9 Reintermediation, channel conflict, and personalisation in e-tailing.

Case Study: : The King of E-Tailing The Opportunity July 1995, e-tailing pioneer Amazon.com, offered books via an electronic catalog from its Web site (amazon.com) The company has continually enhanced its business models and electronic store by: expanding product selection improving the customer’s experience adding services and alliances recognising the importance of order fulfillment and warehousing

Case Study: : The King of E-Tailing Technology used Amazon.com has expanded in a variety of directions: Offers specialty stores (professional and technical store) Expands its editorial content through partnerships with experts in certain fields Increases product selection with the (used and out-of-print titles) Expands its offerings beyond books (June 2002 became an authorised dealer of Sony Corporation selling Sony products online) Today: a diversified retailer of products and services

Case Study: : The King of E-Tailing Key features of Amazon.com: Easy browsing, searching, and ordering Useful product information, reviews, recommendations, and personalisation Broad selection Low prices Secure payment systems Efficient order fulfillment Personalisation Enjoyable features: “Gift Ideas” section features seasonally appropriate gift ideas and services “Community” section provides product information and recommendations shared by customers “E-Cards” section, free animated electronic greeting

Case Study: : The King of E-Tailing Marketplace services: Hosts and operates auctions zShops service hosts electronic storefronts for a monthly fee Allowing small businesses the opportunity to have customised storefronts supported by the richness of Amazon.com’s order-fulfillment processing

Case Study: : The King of E-Tailing Amazon.com is an online leader in CRM Informative marketing front ends One-to-one advertisements Free posting of menus from thousands of restaurants “Welcome back, Sarah Shopper” with recommendations of new books from the customers preferred genre based on previous purchases. Sends buy recommendations via e-mail to cultivate repeat buyers Efficient search engine and other shopping aids Customers can personalise their accounts and manage orders online with the patented “One-Click” order feature including an electronic wallet

Case Study: : The King of E-Tailing In 1997, Amazon.com started an extensive affiliates program By 2002, the company had more than 500,000 partners that refer customers to Amazon.com Amazon pays a 3 to 5% commission on any resulting sale Alliances with major “trusted partners” provide knowledgeable entry into new markets Carsdirect.com allows it to sell cars online Drugstore.com connects to health and beauty aids AT&T, Nextel and others suggest service plans for wireless phones

Case Study: : The King of E-Tailing The Results Number one e-tailer since 2001 generated $3.12B Very successful in reducing its costs and increasing its profitability Annual sales have trended upward (over $5B in 2003) $15.7 million in 1996 to $600 million in 1998 to about $4 billion by 2002 In 2003 the site offers over 17 million book, music, and DVD/video titles to some 20 million customers Offers several features for international customers In January 2002, Amazon.com declared its first ever profit—for the 2001 fourth quarter

Case Study: : The King of E-Tailing What can we learn… demonstrates the evolution of e-tailing some of the problems encountered by e-tailers solutions employed by Amazon.com to expand its business the opportunities for e-tailing

3.1: Internet Marketing and E-Tailing Overview of e-tailing Electronic retailing (e-tailing): Retailing conducted online, over the Internet E-tailers: Those who conduct retail business over the Internet The concept of retailing and e-tailing implies sales of products/services to customers, that is B2C EC.

3.1: Internet Marketing and E-Tailing Size and Growth of the B2C Market Reported amounts of online sales deviate substantially based on how the numbers are derived Annual online 2004 sales were estimated to be over $70 billion The average online shopper spent over $350 per quarter Forrester Research estimates that e-tailing will reach $316 billion by 2010

3.1: Internet Marketing and E-Tailing What Sells Well on the Internet? Toys Health and beauty products Apparel and clothing Jewelry Cars Services Others Computer hardware and software Consumer electronics Sporting goods Office supplies Books and music Entertainment

3.1: Internet Marketing and E-Tailing Characteristics of successful e-tailing High brand recognition (eg., Lands’ end, Dell) Guarantee provided by highly reliable or well-known vendors (eg., Dell) Digitised format (eg., software, music, videos) Relatively inexpensive items (eg., office supplies) Frequently purchased items (eg., groceries) Commodities with standard specifications (eg., books, airline tickets), physical inspection unimportant. Well-known packaged items that cannot be opened even in a traditional store (eg., vitamins, chocolates)

3.1: Primary E-Tailing Business Models Classification by Distribution Channel 1. Mail-order retailers that go online Retailers leveraging on existing infrastructures by using direct online marketing as their main distribution channel 2. Direct marketing from manufacturers Manufacturers market directly online to customers 3. Pure-play e-tailers No physical stores, only online presence 4. Click-and-mortar retailers Traditional retailers with supplementary Web sites 5. Internet (online) malls Many independent online merchants in one location.

3.1: Classification by Distribution Channel Direct marketing by mail order companies Broadly, marketing that takes place without intermediaries between manufacturers and buyers; In our context, marketing done online between any seller and buyer For a successful Mail-Order company to have a distinct advantage in online sales, it must have good payment processing, inventory management and order-fulfillment operations as shown in the following Lands’ End case study.

Case Study: Lands’ End Lands’ End: How a mail-order company moved online Successful because of the logistics system already in place A subsidiary of Sears, Roebuck and Company Internet sales in 2000—10% of the company’s $1.3B total Projected Internet sales are 20 percent in 2003 In 1995 it offered only 100 products online; as of 2002, all of its products are online Global presence in Japan, Germany, and the United Kingdom Orders generated online are shipped from these distribution outlets—U.S. customers usually receive their orders in 2 days

Case Study: Lands’ End Women customers can build and store a three-dimensional model of their body (Personal Model) that recommends outfits that flatter certain body profiles and suggests sizes based upon customer’s measurements Male customers can use a feature called “Oxford Express” to sort through hundreds of fabrics, styles, collar and cuff options, and sizes within minutes Customers can track their order status online and request catalogs using the Internet Maintains a B2B “store” where companies can customise clothing such as polo shirts with their logo for use as company uniforms, incentives, or gifts.

3.1: Classification by Distribution Channel Direct sales by manufacturers Sellers understand their markets better because of the direct connection to consumers Consumers gain greater information about the products through direct connection to the manufacturers Example: Dell Computers: build-to-order customisation Virtual (pure-play) e-tailers Firms that sell directly to customers over the Internet without maintaining a physical sales channel. Example: cattoys.com.

3.1: Classification by Distribution Channel Click-and-mortar retailers Brick-and-mortar retailers with a transactional Web site from which to conduct business. Multichannel business model A business model where a company sells in multiple marketing channels simultaneously Example: A company conducting its business using both physical stores and online stores.

3.1: Classification by Distribution Channel Retailing in online malls or e-mall Referring directories Directory organised by product type Catalog listings or banner ads at the mall site advertise the products or stores Malls with shared services Consumer can find the product, order and pay for it, and arrange for shipment Hosting mall provides these services, but they are executed by each store independently. Ideally, the customer would like to go to different stores in the e-mall, use one shopping cart, and pay only once. This integrated services (with a single checkout for many merchants) is possible in Yahoo!store (smallbusiness.yahoo.com/merchant).

3.1: Representative B2C Services Of the many other B2C services, four of interest are those that deliver physical products, digital products and services: Postal Services Services and Products for Adults Wedding Channels Gift Registries

3.2: Travel and Tourism Services Online Online travel is probably the most successful e-commerce implementation Online services provided include: General information Reserving and purchasing tickets, accommodations, and entertainment Travel tips Electronic travel magazines Fare comparisons Travel products store Expert opinion Frequent-flyer deals

3.2: Travel and Tourism Services Online Benefits of Online Travel Services Benefits to consumers Large amount of free information available 24/7 Potential for for substantial discounts in price Benefits to providers Airlines, hotels, and cruise lines are selling otherwise-empty spaces Direct selling saves the provider’s commission and its processing. (Otherwise it has to sell via a transaction broker which charges fees for its services)

3.2: Travel and Tourism Services Online Role of software (intelligent) agents in travel services Intelligent agents could provide a service to travel customers by providing buyer-seller negotiations. Future applications would allow greater information flow for better pricing and decision making.

3.3: Real Estate, Insurance & Stock Trading Online Real Estate Applications Advice to consumers on buying or selling a home Directory and new sites Property listings (commercial and residential) Links to realtors Maps are available Information on current mortgage rates Mortgage comparisons Mortgage brokers Online lenders Sites for persons who want to sell their homes privately, without using a real estate agent Rental properties are listed.

3.3: Real Estate, Insurance & Stock Trading Online Insurance Online An increasing number of companies use the Internet to offer standard insurance policies (automobile, home, life, or health) at a substantial discount Third-party aggregators offer free comparisons of available policies Many large insurance companies are using a dual distribution strategy, by adding online distribution of standard insurance policies to their traditional agency distribution system.

3.3: Real Estate, Insurance & Stock Trading Online

3.3: Real Estate, Insurance & Stock Trading Online Investment Information Online Current financial news (money.cnn.com) Bond prices (bloomberg.com) Free (expert) advice (thestreet.com) Stock screening and evaluation tools (MultexInvestor) Trading strategies (Schwab Trader) The latest on funding and pricing of IPOs Financial information (earnings estimates)

3.3: Real Estate, Insurance & Stock Trading Online Advantages of Trading Stocks Online Ease-of-use Access to large amounts of information Convenience Reduced costs. Risk of Trading Stocks Online The major risk of online trading is security The risks of delayed information as well as the relative ease of trading (increasing the amount of trading overall).

Case Study: Dangers of Online Stocks Trading Almost 55% of stock trading in Korea is done online Fraudulent online stock trading—August 2002 A criminal used a PC in an Internet cafe to place a buy order at a high price for 5 millions shares of “Delta Information & Communication”. He used the trust company’s stolen account number and password In 90 seconds, over 100 people sold more than 10,000 shares each for a total of 2.7 million shares pushing the price of the shares way up Hacker stopped buying and disappeared Without buyers the price of Delta’s shares started to decline In 2 days, Daewoo Securities (manager of the Hyundai account) suffered U.S. $5 million paper losses