1. Chapter 2 Retailing in Electronic Commerce

2. Learning Objectives
Define the factors that determine the business models of electronic marketing
Identify the critical success factors of direct marketing
Design the desirable relationship in a direct marketing setting
Analyze the critical success factors of electronic intermediaries
Identify the typical products that sold well in the electronic market

3. Learning Objectives (cont.)
Observe the reactive strategy of traditional department stores
Discuss whether electronic commerce should always target global markets
Describe the consumer’s shopping procedures on the Internet
Discuss the types of aiding-comparison-shopping devices
Describe the impact of EC on disintermediation and re-intermediation in retailing

4. Overview of Electronic Marketing Structure
Consumer-oriented Electronic Marketing (B2C)
Mostly online; on the Internet
Growing offline too, mainly by using smart cards, although it is still experimental
Business-oriented Electronic Marketing (B2B)
Needs more precise record keeping, trackability, accountability, and formal contracts, usually with high volume of transactions and large amount payments

5. Advantages of Electronic Marketing
Customers can order from cyberstores 24 hours a day, 7 days a week from any place in the world
Direct marketing
Customization
Online customer service
Electronic shopping malls:
Intermediaries (e.g. Internet Mall)
Stores (e.g. Amazon, J.C.Penney Online)
Electronic intermediaries
Global marketing

6. Forecast of the B2C Electronic Markets
Forecasting Institutions
IDC 1, ,000
VSAComm ,500
VeriFone ,000
Actif Media ,000
Killen & Assoc ,000
Yankee ,000
Jupiter
E-land ,000
EU ,000
USA
EITO ,000
AEA/AU ,000
Hambrecht & Quest 1, ,200
Forrester ,579
[Source: OECD, 1997]
Initial Forecast of B2C Electronic Market Size

7. Forecast of the B2C Electronic Markets (cont.)
Kinds of items sold
(Unit: Millions of U.S. Dollars)
Items
Apparel
Gifts/flowers
Books Not available
Food/drink
Clothing
Entertainment ,250
Subscription services
Pornography Not available
Music
Online games ,013
Consumer finance Not available
Consumer insurance ,110
[Source: OECD, Sept. 1997]
Initial Forecast of B2C Electronic Market Segments

8. Forecast of the B2C Electronic Markets (cont.)
What sells on the Internet?
Items with high brand recognition
Goods that can be transformed to digitized goods like books, music, and video
Items with security guarantee given by highly reliable or known vendors
Relatively cheap items
Repetitively purchased items such as groceries
Commodities with standard specification
Items whose operating procedures can be more effectively demonstrated by a video
Packaged items which are well known to customers and which cannot be opened even when customers physically visit the store

9. Business Models of Electronic Marketing
Direct Marketing Manufacturers
Vs.
Indirect Marketing Manufacturers
Electronic Mall
Vs.
Electronic Store
Active Strategic Posture
Vs.
Reactive Strategic Posture
Sales
Vs.
Customer Services
Global Marketing
Vs.
Regional Marketing
Full Cybermarketing
Vs.
Partial Cybermarketing
Electronic Store
Vs.
Electronic Broker
Generalized Mall
Vs.
Specialized Mall/Store

10. Business Models of Electronic Marketing (cont.)
Proactive Vs. reactive strategic posture toward cybermarketing
Proactive strategic posture toward cybermarketing
a company’s main distribution channel is the Internet, and internal management such as inventory and operations management is focused to affect the benefit of cybermarketing
Reactive strategic posture toward cybermarketing
the traditional physical distribution channel is left as the company’s main distribution channel even though the company has opened an online distribution channel
Global Vs. regional marketing
Sales Vs. customer services
© Prentice Hall, 2000 10

11. Dell Computer Corporation Case
Direct Marketing
Active and full direct Marketing
Dell Computer Corporation Case
Founding spirit of dell: telemarketing
Astonishingly high growth and returns
Revenue via the Internet
Dell’s products on the Internet

12. Direct Marketing (cont.)
Dell’s Critical Success Factors
Price competitiveness owing to mass-customization and direct marketing
Database marketing and customer intimacy
Global reach and value added services at a single contact point
High reliability and reputation
Delivery support
Advanced web applications

13. Direct Marketing (cont.)
Reactive and Partial Direct Marketing
Sell their products mainly through traditional channels like department stores, discount stores, and franchises
Ford Case
including dealers as partners is optimal because orders that are received directly by the automakers may not be physically fulfilled without the cooperation of dealers
the received orders can then be assigned to the nearest dealer who owns the desired car in the inventory
the dealer’s inventory information should be shared by automakers through a common network

14. Direct Marketing (cont.)
Reactive and Partial Direct Marketing
Ford’s reactive direct marketing model (procedure)
Decide whether to lease or buy,
with the aid of Payment Calculator System
You can change options to accommodate the budget,
and finalize the configuration
Search a dealer online by
dealer name, city, or state
The dealer will contact you
with a price and availability of the vehicle you configured
Apply for financing
Then the Online Shopping Service System will provide
you with a “Vehicle Summary”
Send the “Vehicle Summary” to the dealer
Choose the body style
you most desire
Pick the interior upholstery that suits your taste
Select the option package(s)
that appeals to you
Select the brand of car or truck
that interests you
Pick your favorite exterior paint color
Add other individual options
to build your most comfortable, useful customized vehicle
Ford supports a pre-owned showroom in the following way :
Print your order
Confirm your order
Test drive and accept delivery
Explore leasing or financing options
Confirm you delivery
Search the inventory
Enter your ZIP code
Enter your personal information
Secure your vehicle
Select a dealership for test-drive and delivery
Choose a Ford Extended Service Plan

15. Online Customer Service
Provided in conjunction with online sales
Provided to products which are sold offline
Example: service and support homepage of Hewlett Packard (HP)
By using computer telephone integration (CTI) technology, the same screen that a customer sees can be automatically displayed to the human agent (and vice versa) who responds to the customer’s call watching the online data about the customer

16. Active Electronic Intermediaries
Pure electronic mall
Company’s retailing business exists only on the Internet
Electronic distributors
take full responsibility of fulfilling orders and collecting payments
Electronic brokers
assist the search process of finding the appropriate products and their vendors
Partial electronic mall
Electronic mall as one of existing distribution channels

17. Active Electronic Intermediaries (cont.)
Generalized Electronic Intermediaries
Examples : Choice Mall, and iMall
Provide a directory, keyword search engine, message encryption, optional Web site hosting service and a common platform of electronic payments
Necessary factors to make shopping successful
Screening quality and reliability for assurance
customers need a reliable screening capability of quality and reliability of brands and companies
e-brokers should create a trusted third party
Competing electronic channels
several electronic channels help in finding the items needed
e-brokers should provide some differentiated attraction

18. Active Electronic Intermediaries (cont.)
Specialized Electronic Distributors
Cyber Bookstores
Amazon, Barnes and Noble
Cyber CD Stores
Columbia House, Music Boulevard, CD Universe, and CDNow
Digitized Products and Services Stores
Software, games, CDs, and videos
Cyber Flower Stores
1-800-FLOWERS

19. Reactive Electronic Department Store
The J.C. Penney Case
The Internet-based revenue amounts to only 1 to 2% of $30.5 billion total sales of 1997 (3.5% in 1999)
Updating prices and adding new items to the electronic catalogs is convenient and inexpensive
Overcoming the limitations of paper catalogs without incurring extra distribution cost

20. Reactive Electronic Department Store (cont.)
Electronic Department Stores Worldwide
Marks & Spencer in the U.K., La Redoute in France, Jusco in Japan, Nordstrom in the U.S.A., and Lotte and Hyundai in Korea
Common strategy is finding significant benefits from merchandising online
Offering electronic service on the Internet is a supplementary channel of advertisement
By 2000, 3.5% of all U.S. major retailing will be done online

21. Regional Shopping Service
Peapod Case
The leading Internet supermarket, providing consumers with broad product choices and local delivery services
Provide pictures of items, nutritional contents, past purchase records
Users: middle and upper class people, some of whom are single parents, and all of whom are very busy. Also sick and elderly people or those without transportation.
$4.95/month membership fee, and $6.95 service free + 5% of the purchased amount
= cost of delivery service

22. Procedures for Internet Shopping : The Consumer’s Perspective
Preliminary requirement determination to meet the needs
Search for the available items that can meet the requirements
Compare the candidate items with multiple perspectives: specification, price, delivery date, and other terms and conditions

23. Procedures for Internet Shopping : The Consumer’s Perspective (cont.)
Place an order
Pay the bill
Receive the delivered items and inspect; possibly while using
Contact the vendor to get service and support, or to return if disappointed

24. Aiding Comparison Shopping
Search hypertext files by agents
Search in a web-based database both by human and software agents within an e-mall
Comparable item retrieval and tabular comparison
Comparisons over multiple malls
Comparisons as a multiple criteria decision making

25. The Impact of EC on Traditional Retailing System
Disintermediation and Re-intermediation
Disintermediation — the removal of organizations or business process layers responsible for certain intermediary steps in a given value chain
eliminating the traditional intermediaries, such as wholesalers, distributors, and retailers, to reduce the cost
Re-intermediation — the shifting or transfer of the intermediary functions, rather than the complete elimination
intermediation such as electronic shopping malls, directory and search engine service, and comparison aids using agents creates the role of re-intermediation

26. The Impact of EC on Traditional Retailing System (cont.)
Impact on Manufacturer’s Distribution Strategy
Manufacturer’s monopolistic Internet-based distribution: Levi’s does not allow any one else to sell the Levi’s product on the Internet (policy changed in 1999).
Coexistence with the dealers: This is the case in car distribution.
Regionally mixed strategy: Nike sells on the Internet, but only in the U.S.A.
Mass Customization for Make-to-Order: Manufacturers have to be adaptive to the customized orders of ultimate consumers. This means the manufacturer should be ready for mass customization.

27. current manufacturing and distribution systems channel of distribution
Managerial Issues
From a manufacturer’s point of view:
Fully committed to
direct marketing,
restructuring the
current manufacturing
and distribution systems
Regard the electronic
store as an additional
channel of distribution OR

28. Managerial Issues (cont.)
From an intermediary’s point of view:
Commit to the
directory service
Retailing a
specialized breed
of items OR
For existing retailer in the physical space:
How to transform its business posture to get the highest possible customer satisfaction at a minimum operating cost?