1. 1 Prentice Hall, 2002 Chapter 3 (Class4 22.01.02) Retailing in Electronic Commerce (E-Tailing) modifications by J.Molka-Danielsen

2. 2 Prentice Hall, 2002 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

3. 3 Prentice Hall, 2002 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 Identify various managerial issues of concern to e-tailers

4. 4 Prentice Hall, 2002 Opening Case: Amazon.com B2C business model where customers look for a: Low price Fast shipment Good return policy Helpful customer service

5. 5 Prentice Hall, 2002 Opening Case: Amazon.com (cont.) Largest Bookstore in the world Offers millions of items Books and music DVDs and videos Toys and video games Electronics and software Home improvement products

6. 6 Prentice Hall, 2002 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

7. 7 Prentice Hall, 2002 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 backend order fulfillment processing

8. 8 Prentice Hall, 2002 Opening Case: Amazon.com (cont.) 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 Features

9. 9 Prentice Hall, 2002 Opening Case: Amazon.com (cont.) Customer relationship management 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 E-mails customers purchase recommendations based on their purchasing history

10. 10 Prentice Hall, 2002 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

11. 11 Prentice Hall, 2002 Opening Case: Amazon.com (cont.) Diversification through business alliances Online sale of cars - greenlight.com Online health and beauty aids - drugstore.com Wireless phones – multiple business partners Toys - ToysrUs.com

12. 12 Prentice Hall, 2002 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

13. 13 Prentice Hall, 2002 Case Study From HSM Survey: Motivation for broadband networks High capacity telecom-networks are essential to support services that require the exchange of complex multimedia documents and for integrating many B2C and B2B services. What types of Information Services do businesses want to participate in? Video conferencing, working from home, remote education, group meetings, etc. Announcing products, taking orders, process payments, track orders, integrate with order replacement systems, integrate with partner trading systems, etc.

14. 14 Prentice Hall, 2002 Geographical distribution of business respondents in Møre and Romsdal.

15. 15 Prentice Hall, 2002 The Survey Do businesses feel they need broadband? Do they have plans to implement broadband technology? Are businesses satisfied with their network access technology? What do businesses expect to do with it, broadband technology as it relates to their business activities? How do companies access their future use of e-business technology? For this Lecture we examine the last two questions

16. 16 Prentice Hall, 2002 Buisness repondents plans to invest in broadband technology 15% of all business repondents in Q1 already have broadband access. 65% of respondents From Q8 have plans To get broadband Within 2-3 years.

17. 17 Prentice Hall, 2002 Company participation in traditional business activities.

18. 18 Prentice Hall, 2002 Company participation in e-business activities

19. 19 Prentice Hall, 2002 What do we learn from the HSM Case Study? There is a progression for becoming an e- business. E-tailing is not just about B2C activities, but ties to the businesses back end operations and. It involves a full range of business processes, some that are also used in B2B activities. E-tailing must be integrated into the organizations Business Plan.

20. 20 Prentice Hall, 2002 E-Tailing and B2C Market Growth (cont.) The B2C Market success is derived from: Offering quality merchandise at good prices Excellent customer service Convenience

21. 21 Prentice Hall, 2002 E-Tailing and B2C Market Growth (cont.) Characteristics of goods leading to high online sales volumes Brand recognition and guarantees Digitized products Frequently purchased, inexpensive items Well-known items with standard specifications

22. 22 Prentice Hall, 2002 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

23. 23 Prentice Hall, 2002 Figure 3-1 The Consumer Purchase Decision Process

24. 24 Prentice Hall, 2002 Consumer Purchase Process and Marketing Plan (cont.) Time-starved consumers Shopping avoiders New technologists Time-sensitive materialists or click- and-mortar consumers Traditionalists Hunter-gatherers Brand loyalists Single shoppers Types of online shoppers

25. 25 Prentice Hall, 2002 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

26. 26 Prentice Hall, 2002 A Marketing Plan 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

27. 27 Prentice Hall, 2002 Online Purchasing Aids Shopping portals Comprehensive portals Links to many different sellers Shopping comparison sites Comparison tools are available Niche oriented Specialize in a certain line of products (dogtoys.com) Some collect referral fee only Others have formal relationships with affiliates

28. 28 Prentice Hall, 2002 Online Purchasing Aids (cont.) Shopbots and agents—tools that scout the Web for specific search criteria requested by consumers Mysimon.com - best prices on multiple items AutoBytel.com – cars Zdnet.com/computershopper – computers Office.com – office supplies

29. 29 Prentice Hall, 2002 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

30. 30 Prentice Hall, 2002 Online Purchasing Aids (cont.) 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 Trust verification sites—evaluate and verify trustworthiness and integrity of e-tailers

31. 31 Prentice Hall, 2002 Online Purchasing Aids (cont.) Other shopping tools Escrow services—3 rd 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

32. 32 Prentice Hall, 2002 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)

33. 33 Prentice Hall, 2002 Figure 3-2 Disintermediation in the B2C Supply Chain Source: M. Warkentin, et al. (2000). Used with permission of Dr. Merrill Warkentin.

34. 34 Prentice Hall, 2002 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 Click-and-mortar Additional marketing channel to the conventional one Effectively supports build-to-order requests

35. 35 Prentice Hall, 2002 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

36. 36 Prentice Hall, 2002 E-Tailing Business Models (cont.) Traditional retailers with Web sites Physical store May include mail-order or catalog sales Multichannel store operates both Physical store E-tail site

37. 37 Prentice Hall, 2002 ODDS: Grocery Market Case On-Demand Delivery Services (ODDS) Own fleet of delivery vehicles Regular deliveries (weekly bases) Delivery within short time period (1 hour or same day)

38. 38 Prentice Hall, 2002 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 Example: Parknshop in Hong Kong

39. 39 Prentice Hall, 2002 Digital Delivery Digital (“soft”) goods 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

40. 40 Prentice Hall, 2002 Table 3-2 Digital Goods

41. 41 Prentice Hall, 2002 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

42. 42 Prentice Hall, 2002 Digital Delivery (cont.) New developments Custom-publishing music CD sites—collection of personal favorites Disintermediation of traditional print media Journals and magazines Newspapers (e.g., Wall Street Journal)

43. 43 Prentice Hall, 2002 Successful Click-and-Mortar Strategies Click-and-mortar hybrid strategies 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

44. 44 Prentice Hall, 2002 Successful Click-and-Mortar Strategies (cont.) Circuit City Case: transform to click-and- mortar (CircuitCity.com) 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

45. 45 Prentice Hall, 2002 Successful Click-and-Mortar Strategies (cont.) Amazon and Toys R Us: alliance of pure- play with traditional retailer 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

46. 46 Prentice Hall, 2002 Disintermediation & Reintermediaries Disintermediation—manufacturer sells directly to consumer Reintermediaries—new intermediary roles in the digital environment offer new ways to: Reach new customers Bring value to customers Generate revenues

47. 47 Prentice Hall, 2002 Channel Conflict & Personalization Channel conflict— members antagonistic over: Incentives Rewards Policies Support Personalization— custom designed marketing plan Tailored to buying patterns Appeal to sense of value Excellent customer service Mass customization

48. 48 Prentice Hall, 2002 E-Tailing : Lessons Learned Profitability—online marginal sales don’t lead to marginal profits Branding—drive to establish brand can lead to excessive spending 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

49. 49 Prentice Hall, 2002 Managerial Issues First-mover advantage or wait and learn Strategic positioning Trust New risk exposure Financial viability Successes