IMS 6485: Retailing on the Web 1 Dr. Lawrence West, MIS Dept., University of Central Florida Topics Retail and the Internet Assumptions About Online Retailing Four Kinds of Online Retailers –Virtual Merchants –Multi-Channel Integration –Catalog Merchants Move to the Web –Merchant-Direct Trends Amazon Revisited

IMS 6485: Retailing on the Web 2 Dr. Lawrence West, MIS Dept., University of Central Florida Retail at the End of the Value Chain Where did the majority of the chapter's focus apply?

IMS 6485: Retailing on the Web 3 Dr. Lawrence West, MIS Dept., University of Central Florida What are the Implications of…? Personal consumption of retail goods accounted for $9.3 trillion of the $13.2 trillion US economy (≈ 70%) ≈ 75% of US Internet users have shopped online Individuals online in US reached 200 million (of 300 million total) * Of the 120 million US households 78 million (65%) were online * –65 million (54%) had some sort of broadband access Online retailing only 3% of retail market –14% growth * From Chapter 1

IMS 6485: Retailing on the Web 4 Dr. Lawrence West, MIS Dept., University of Central Florida More Implications… This job will never be outsourced to India Slogan on a billboard soliciting enrollment in a plumbing apprenticeship program 59% of personal consumption is for services* –Medical –Educational 12% for durable goods 29% for nondurable goods * Covered in Chapter 11

IMS 6485: Retailing on the Web 5 Dr. Lawrence West, MIS Dept., University of Central Florida Successful Commerce What are the elements of successful retail sales organizations? How does the Internet affect these elements? How are these elements implemented on the Internet –Similar to traditional channels –Different from traditional channels

IMS 6485: Retailing on the Web 6 Dr. Lawrence West, MIS Dept., University of Central Florida Structure of Traditional Retail Look at the chart at Figure 9.1—note the proportion of sales in the three categories below of sales that could be made via the Internet –Note the dominance of the large general retailers in US markets (pp ) –Also note the role of specialty retailers –And MOTO (Mail Order / Telephone Order?) Why are the large general retailers so dominant? Are there parallels and implications for Internet retailing?

IMS 6485: Retailing on the Web 7 Dr. Lawrence West, MIS Dept., University of Central Florida Four Bad Ideas—Assumptions About Online Retailing These assumptions didn't pan out 1.Consumers would flock to the web to find lower prices and stay there 2.Entry costs to online retail were much lower than traditional markets 3.Falling online prices would force traditional retailers out of business 4.Disintermediation would take place destroying retailers all together Why were these ideas incorrect? Will they stay incorrect?

IMS 6485: Retailing on the Web 8 Dr. Lawrence West, MIS Dept., University of Central Florida Online Retailing—What Consumers Do Consumer Activities –Identify needs –Search for products, evaluate, and select –Search for vendors, evaluate, and select –Negotiate transaction Inspecting, testing, acceptance Delivery –Make payment –Perform maintenance –Receive service (including warranty)

IMS 6485: Retailing on the Web 9 Dr. Lawrence West, MIS Dept., University of Central Florida Economic Issues and Concepts Transaction costs are the total of all costs incurred by buyers and sellers to execute a business transaction –Search –Purchase price –Contracting cost –Inspection costs –Possibility of being cheated or of the product not being suitable The non-price transaction costs can sometimes be the most important cost component, or the most important that can be affected by new technologies

IMS 6485: Retailing on the Web 10 Dr. Lawrence West, MIS Dept., University of Central Florida Four Types of Retail eCommerce Four categories of retail product eCommerce –Virtual Merchants—online only ("pure play") –Multi-channel—Click 'n' Mortar –Catalog merchant –Manufacturer Direct Only the virtual merchants were created from the ground up to sell products on the Web Other three had going concerns that transitioned into Web sales

IMS 6485: Retailing on the Web 11 Dr. Lawrence West, MIS Dept., University of Central Florida The Pure Play—Virtual Merchants Contrast WebVan.com with the online grocery services discussed in the opening case for Chapter 2 ( Where did WebVan miss the mark (next slide)? What are the second wave of online grocery stores doing differently? Analyze using –Business model elements (chapter 2) –Strategic analysis factors (next slide)

IMS 6485: Retailing on the Web 12 Dr. Lawrence West, MIS Dept., University of Central Florida Virtual Merchants—WebVan's Failure Industry-specific factors –Barriers to entry –Power of suppliers –Power of customers –Existence of substitute products –Industry value chain –Intra-industry competition Firm-specific factors –Firm value chain –Core competencies –Synergies –Technology –Social and legal challenges Question: How did 115 $800 office chairs contribute to WebVan's value or operational efficiency? Analyze the WebVan case based on the Strategic Analysis factors (pp )

IMS 6485: Retailing on the Web 13 Dr. Lawrence West, MIS Dept., University of Central Florida Virtual Merchants—Blue Nile's Success Industry-specific factors –Barriers to entry –Power of suppliers –Power of customers –Existence of substitute products –Industry value chain –Intra-industry competition Firm-specific factors –Firm value chain –Core competencies –Synergies –Technology –Social and legal challenges Analyze the Blue Nile case (beginning of the chapter) based on the same factors (pp )

IMS 6485: Retailing on the Web 14 Dr. Lawrence West, MIS Dept., University of Central Florida Buying Gasoline on the Internet Why do you think that Priceline's foray into Web marketing of gasoline failed? (See

IMS 6485: Retailing on the Web 15 Dr. Lawrence West, MIS Dept., University of Central Florida Multi-Channel Integration Three of the four types of eCommerce retailing involved existing firms using to Web to expand their channel offerings (next 3 slides) –Multi-channel merchandising –Catalog merchants –Manufacturer-direct sales What advantages do these participants have over the virtual merchants when moving into eCommerce?

IMS 6485: Retailing on the Web 16 Dr. Lawrence West, MIS Dept., University of Central Florida Multi-Channel Merchandising What were the advantages cited for 'brick-and-click' or 'click-and-mortar' retailers? How did these advantages apply to JCPenney.com? What do you think the impact of Web retailing has been on the catalog operations of the major retailers (Sears, Penney's, etc.)? Why?

IMS 6485: Retailing on the Web 17 Dr. Lawrence West, MIS Dept., University of Central Florida Catalog Merchants Move to the Web "Nevertheless, catalog merchants have the highest margins in the retail sector because they have achieved very efficient operations." (p. 583) "[L.L. Bean's] process for picking orders—pulling together the components of an individual's purchase, packing, and shipping them—is legendary. Bean reportedly picks about 500,000 items and ships over 160,000 packages a day. Most orders, whether by Internet or by phone, are processed and ready for shipment within 2 hours."

IMS 6485: Retailing on the Web 18 Dr. Lawrence West, MIS Dept., University of Central Florida Catalog Merchants Move to the Web (cont.) What technical and social factors drove the growth of catalog sales in the 60s, 70s, & 80s? How were catalog merchants in a position to realize the best of both worlds? –Traditional retailers –Web retailing

IMS 6485: Retailing on the Web 19 Dr. Lawrence West, MIS Dept., University of Central Florida Manufacturer-Direct Sales M-D sales disintermediate the market by removing layers of distributors and retailers Did not have the expected impact except for computer hardware sales –Why not more M-D sales in other sectors? –Why the success in hardware sales? Has anyone noticed the wealth of sales channels we have seen Dell take over its history? What have they been?

IMS 6485: Retailing on the Web 20 Dr. Lawrence West, MIS Dept., University of Central Florida Issues in Mixed Retailing Channel interference—robbing sales from one channel because of another –When is this a problem? –When is it an advantage? Mixed retailers need to leverage their traditional assets into the Web –Inventory systems– Brand name –Order fulfillment – Multi-channel service –Leverage with vendors – Customer lists –Marketing expertise

IMS 6485: Retailing on the Web 21 Dr. Lawrence West, MIS Dept., University of Central Florida Trends Revisited Largest growth in online retailing in two sectors –'Offline' general merchandisers establishing online channels –Specialty stores—including virtual merchants Why are these two sectors succeeding despite their differences?

IMS 6485: Retailing on the Web 22 Dr. Lawrence West, MIS Dept., University of Central Florida Amazon Revisited Review the Amazon case (pp ) Amazon has seemingly adopted a revenue reducing strategy of –Lowering costs –Reducing customer shipping costs Why? (See discussion of Business Strategy) What position will Amazon be in when Web retailing is saturated? Can Amazon's partners ever break free?