Global Marketing Program (MAS) Electronic Commerce A Global Perspective Professor: Jacques Nantel, Ph.D HEC Montréal Canada

E-commerce and Retailing Several 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 Interactive - Global eCommerce Report 2001 Taylor Nelson Sofres Interactive - Global eCommerce Report 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 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 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 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 usage Although 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 GeR

Internet users across the world 2001 Percentage of total adult population 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 Percentage of total adult population 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)

Percentage of Internet users Percentage of Internet users who have bought goods or services online during 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 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 Percentage of total internet users

Percentage of Internet users Percentage of Internet users who have bought goods or services offline as 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 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 Percentage of total internet users

Percentage of Internet users 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

Percentage of Internet users 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 Percentage of Internet users who shop online GeR

Trends

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) 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 total retail

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 total retail “ Forrester Mai 2000

2005 Forrester Mai 2000

Forrester Mai 2000

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 products

1-Digital products New networks Cost and price reduction Standard technology

Sales of music on the Internet (000 $ us) 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)

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 Status B2B 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