1. Chapter 3 Retailing in Electronic Commerce (E-Tailing)
Prentice Hall, 2002

2. Learning Objectives
Define and describe the primary business models of electronic retailing (“e-tailing”)
Discuss various e-tail consumer aids, including comparison-shopping aids
Discuss various e-tail markets, such as groceries, music, cars, and others
Identify the critical success factors of direct marketing and e-tailing, along with mistakes to avoid
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3. Learning Objectives (cont.)
Identify the principles of “click-and-mortar” strategies for traditional retailers
Describe the issue of disintermediation, reintermediation, and channel conflicts in e-tailing
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4. Opening Case For E-tailer EC can be classified as B2C or B2B
Most companies used both classifications.
B2C business model where customers look for a:
Low price
Fast shipment
Good return policy
Helpful customer service
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5. Opening Case: Amazon.com
Largest Bookstore in the world(billions of books)
Begin since 1995
Offers millions of items
Books and music
DVDs and videos
Toys and video games
Electronics and software
Home improvement products
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6. Opening Case: Amazon.com (cont.)
Started business in 1995
Sales
1996 = $15.7 million
2000 = $1.8 billion
Products
1999 = 5 million titles
2000 = 13 million books, music, DVD/video titles
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7. Opening Case: Amazon.com (cont.)
Auctions
Hosts and operates auctions for individuals and small businesses
zShops, Amazon marketplace, Amazon payment processing
Provide the opportunity for small businesses to develop custom storefront
Storefronts are supported by Amazon’s back-end order fulfillment processing
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8. Opening Case: Amazon.com (cont.)
Key Features of Amazon
Easy browsing and searching
Useful product information
Reviews, recommendations, and personalization
Broad selection and low prices
Secure payment system
1-Click order technology
Gifts department
Online community
Secured payments
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9. Opening Case: Amazon.com (cont.)
Customer relationship management (CRM)
Creates interesting and informative front-end
Highly automated and efficient back-end support
Personalized service
Return customers are welcomed back by name
Customer wish lists available
s customers purchase recommendations based on their purchasing history
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10. Opening Case: Amazon.com (cont.)
Financial performance
Overall losses rather than profits
Ability to move into new areas of business should move them toward profitability, but makes money from books
High level of customer service and customer loyalty adds value
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11. Opening Case: Amazon.com (cont.)
Diversification through business alliances that provide knowledgeable entry into new markets
Online sale of cars - greenlight.com
Online health and beauty aids - drugstore.com
Wireless phones – multiple business partners
Toys - ToysrUs.com
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12. E-Tailing and B2C Market Growth
Business-to-business (B2B)
Requires precise record keeping, trackability, accountability, and formal contracts, usually with high volume of transactions and large amount payments
Also online retailing
Business-to-consumer (B2C)
Ability to create direct relationships with consumer without intermediaries like distributors, wholesalers, or dealers
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13. E-Tailing and B2C Market Growth (cont.)
The early days of retailer used Brochureware with no interactivity
physical retailer store or “brick-and-mortar” can combine to online…
Then become online and offline prsence or “click-and-mortar” (sometime call “brick-and-click”)
The B2C Market success is derived from:
Offering quality merchandise at good prices
Excellent customer service
Convenience
*** Not different from traditional but online retail stores have more offering services…
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14. Some statistic
During 2001, estimated about 75 million of users participated online shopping
2000, worldwide B2C revenue $53 to $238 billion
2004, forecasted $428 to $2,134 billion
(by emarketer.com: 2001)
Men are likely to purchase consumer electronics and computer HW/SW and Women likely to purchase apparel items (by Goldman Sachs research)
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15. E-Tailing and B2C Market Growth (cont.)
Characteristics of goods leading to high online sales volumes
Brand recognition and guarantees
A guarantee is provided by reliable vendors
Digitized products
Inexpensive items
Frequently purchased, inexpensive items
Well-known items with standard specifications
Well-known package item which cannot open even in department store
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16. Questions? How do online customers decide what to buy and where?
What is their decission-making process?
How can e-tailers influence consumer purchasing decissions?
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17. Consumer Purchase Process and Marketing Plan
Purchase decision process
Prepurchase steps
Awareness of need for purchase
Identify basic need or want
Actual purchase
Establish decision criteria
Seek recommendations and information
Make purchase
Postpurchase steps
Assistance with installation or setup
Online help desks and instruction manuals
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18. The Consumer Purchase Decision Process
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19. Consumer Purchase Process and Marketing Plan (cont.)
Types of online shoppers
Time-starved consumers : willing to pay higher price to save time on shopping
Shopping avoiders : dislike shopping, people, traffics
New technologists : “because it’s cool”
Time-sensitive materialists or click-and-mortar consumers : use online to look for products, and make a purchase at traditional store
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20. Consumer Purchase Process and Marketing Plan (cont.)
Types of online shoppers
Traditionalists : prefer store and may never adopt to online shopping behavior
Hunter-gatherers : 20% of online shoppers enjoy the process of price comparison and search a good value
Brand loyalists : shop online for particular brand
Single shoppers : 16% of online shoppers prefer internet for shopping, banking, communication, game playing, news and other activities
What are the criteria that individual shoppers use?
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21. Decision Criteria
Value proposition—customer service, better prices, higher quality
Personal service—treat the customer as a unique individual
Convenience—self-contained site that serves all the customer’s needs
Other criteria—service after the sale, Telephone support 24/7, return policy
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22. A Marketing Plan E-tailer must identical all posible ways to …
Influence the consumer’s decision process through the “marketing mix”
Product—portfolio of items available
Price of the products
Promotion of products (advertisements and giveaways)
Packaging and delivery, place
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23. Online Purchasing Aids
Shopping portals : advice and rating producs or e- tailers
Comprehensive portals e.g. shopping.yahoo.com
Links to many different sellers
Shopping comparison sites
Comparison tools are available
Niche oriented e.g. bsilly.com
Specialize in a certain line of products (dogtoys.com)
Some collect referral fee only
Others have formal relationships with affiliates
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24. Online Purchasing Aids (cont.)
Shopbots and agents—tools that scout the Web for specific search criteria requested by consumers(include negotiation and auction agents)
Mysimon.com - best prices on multiple items using SKU(Stock Keeping Unit)
AutoBytel.com – cars
Zdnet.com/computershopper – computers
Office.com – office supplies
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25. Online Purchasing Aids (cont.)
Business ratings sites—sites that rate e-tailers
Bizrate.com—compiles results provided by a network of shoppers
Gomez.com—consumer identifies relative importance of different criteria
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26. Online Purchasing Aids (cont.)
Trust verification sites—evaluate and verify trustworthiness and integrity of e-tailers
TRUSTe seal of assurance
E-tailers pay TRUSTe for use of seal
Hope consumers use seal as proxy for actual research about their site
BBBOnLine
Yearly license fees based on company’s annual revenue
Secure Assure
Yearly license fees based on company’s annual revenue
Ernst and Young
Created its own service for auditing e-tailers
Offers some guarantee of integrity of business practices
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27. Online Purchasing Aids (cont.)
Other shopping tools
Escrow services—3rd party to assure quality
Proper exchange of money and goods
Research information
Payment-processing support
Communities of consumers
Epinions.com—searchable recommendations on products
PriceGrabber.com—comparison shopping
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28. E-Tailing Business Models
Subscription models: charge monthly or annual subscription fee for service
Transaction fee models: charge service fee based on the level of transaction offered
Advertising-supported models: charge fee to advertisers instead of customers
Sponsorship models: companies sponsor the business through donations (usually supplemental income)
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29. E-Tailing Business Models (cont.)
Direct marketing—sell directly to consumers
Manufactures can sell directly to customers
Disintermediation—removal of business process layers in the value chain
Shortens the distribution chain
Eliminates inefficiencies
Shortens delivery time
Builds closer relationships with consumers
As Click-and-mortar
Additional marketing channel to the conventional one
Effectively supports build-to-order requests
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30. Disintermediation in the B2C Supply Chain
Source: M. Warkentin, et al. (2000). Used with permission of Dr. Merrill Warkentin.
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31. E-Tailing Business Models (cont.)
Pure-play e-tailers—sell over the Internet without a physical sales channel
General purpose e-tailers (Amazon.com)
Broad range of products
Large number of consumers
Specialty or niche e-tailers (CatToys.com)
One specific product area
High demand items in the area
Effective practices for customer appeal
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32. E-Tailing Business Models (cont.)
Traditional retailers with Web sites
Physical store
May include mail-order or catalog sales
Multichannel store operates both
E-tail site
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33. ODDS: Grocery Market Case
On-Demand Delivery Services (ODDS): use common carrier to handle outbound logistics/distribution
Own fleet of delivery vehicles
Regular deliveries (weekly bases)
Delivery within short time period (1 hour or same day)
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34. ODDS: Grocery Market Case (cont.)
Potential online grocery shoppers
Shopping avoiders
Necessity users—limited by their ability to shop
New technologists
Time-starved consumers
Responsible consumers
Traditionals
Repeat customers : provide help for repetitive orders, items
Example: Parknshop in Hong Kong, peapod.com
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35. Digital Delivery
Digital (“soft”) goods : customer may prefer physical distribution
Music, movies, videos, software, newspapers, magazines, graphics, etc.
Can be delivered in “hard” or “soft” form
Computer program on CD-ROM with owner’s manual and warranty card
Download from Web site after payment
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36. Digital Goods
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37. Digital Delivery (cont.)
Napster experience—person-to-person sharing tool
Enables individual users to download music files from each other’s computers
Phenomenal growth of Napster community
New version of its file-swapping software includes a “buy button” linked to CDNow
May be beneficial to overall music sales as individuals easily sample a broader range of music
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38. Digital Delivery (cont.)
New developments : invented on Internet
Custom-publishing music CD sites—collection of personal favorites in CD shiped to customer
Disintermediation of traditional print media
Journals and magazines : paper only subscription, online only subscription or dual-mode
Newspapers (e.g., Wall Street Journal)
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39. Successful Click-and-Mortar Strategies
Click-and-mortar hybrid strategies (mature)
Speak with one voice—link all back-end systems to create an integrated customer experience
Empower the customer—powerful channel for service and information
Leverage the channels—offs advantages of each channel to customers from all channels
Return item purchased online at physical store
Order via the Web at the physical store items not available there
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40. Successful Click-and-Mortar Strategies (cont.)
Circuit City Case: transform to click-and-mortar (CircuitCity.com) electronic store
Educates customers about features and capabilities of products
Customers can perform powerful searches to find most appropriate products
Offers extensive amount of information on electronics etc., organized very flexibly
Online purchases are smooth, secure and seamless
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41. Successful Click-and-Mortar Strategies (cont.)
Amazon and Toys R Us: alliance of pure-play with traditional retailer (new model)
Toys R Us had limited logistics capabilities including distribution centers
Amazon failed in the toy market lacking supplier relationships with toy manufacturers
Alliance allows each partner to leverage each others core strengths
Innovative model still working out problems
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42. Disintermediation & Reintermediaries in E-tailing
Disintermediation—manufacturer sells directly to consumer so customers need to select among a large number of manufacturers online
Reintermediaries—new intermediary roles in the digital environment(online assistance) offer new ways to:
Reach new customers
Bring value to customers
Generate revenues
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43. Channel Conflict & Personalization
Channel conflict—members antagonistic over:
Incentives
Rewards
Policies
Support
*Make Channel cooperation
Personalization—custom designed marketing plan
Tailored to buying patterns
Appeal to sense of value
Excellent customer service
Mass customization
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44. E-Tailing : Lessons Learned
Profitability—online marginal sales don’t lead to marginal profits
Branding—drive to establish brand can lead to excessive spending(50% of Venture capital)
Performance—Web sites need to function in a fast, user-friendly manner
Static design—dynamic sites with rich databases of information appeal most to customers
Prentice Hall, 2002