1. Chapter 3 Retailing in Electronic Commerce (E-Tailing)

2. Opening Case: Amazon.com
B2C business model where customers look for a:
Low price
Fast shipment
Good return policy
Helpful customer service
Customer profile different from traditional bookstore
From Buy-and-sell to Sell-Order-Deliver

3. 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

4. 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

5. 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

6. Opening Case: Amazon.com (cont.)
Features
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

7. 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
s customers purchase recommendations based on their purchasing history

8. 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

9. 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

10. 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

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

12. 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

13. 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

14. Figure 3-1 The Consumer Purchase Decision Process

15. Consumer Purchase Process and Marketing Plan (cont.)
Types of online shoppers
Time-starved consumers
Shopping avoiders
New technologists
Time-sensitive materialists or click-and-mortar consumers
Traditionalists
Hunter-gatherers
Brand loyalists
Single shoppers
Which are your targets?

16. Decision Criteria Value proposition Personal service Convenience
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

17. 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

18. 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

19. 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

20. 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

21. 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

22. 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

23. 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)

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

25. 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

26. 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

27. 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

28. 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

29. Table 3-2 Digital Goods

30. 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

31. 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)

32. 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

33. 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

34. 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

35. 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

36. 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

37. 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

38. Managerial Issues First-mover advantage or wait and learn
Strategic positioning
Trust
New risk exposure
Financial viability
Successes