1. The iPACE of eCommerce
Information: Teaching and learning easier online
Price: Online buying cheaper
Assortment: The range of products better matches buyer desires,
Convenience: The timing, location, and buying process is superior
Entertainment: Buying online is more fun
Online buying is change. Change needs motivation to overcome inertia.
Early adopters motivated by change – not so for almost everyone else.

2. The Twin Budgets & iPACE
Price
Assortment
Convenience
Entertainment
Value per dollar
Enjoyment per hour

3. The Simplest Reason is Price
Full online price =
(1) (2)
( online price) * (1 + sales tax rate)
(3)
+ shipping cost
(4)
+ shopping/purchasing cost
(5)
+ extra cost if returns required

4. Goolsbee studies show small price gaps boost ecommerce
Study 1 (2000): High local sales tax boosts online shopping – consumers reacting to total online price savings.
Study 2 (2001): cross-price elasticity of shopping online with local computer store prices is 1.5.

5. Internet Car Retailing
Morton- Zettlemeyer-Risso: Dec. 2000: Careful analysis of online buying of cars through Autobytel finds a saving of about 2%
54% of new vehicle buyers at least researched online in 2000 (JD Powers)
Conditional on the car:
$451 less per car using Autobytel ($72 from dealer selection, $379 lower price than other shoppers at same dealership)
Women save more, because their prices are higher in face-to-face negotiation.

6. Pharmaceuticals (how potential savings motivates search)
Many states prohibit price advertising on prescriptions. Sorensen (2001) looks at impact of this on search costs and likelihood of consumer searching.
Results: Average cost of local price search is approx. $15 (Mkt 1: $15.47, Mkt 2: $14.07)
Cash-paying consumers shopping driven by
price point, (+)
price dispersion, (+)
if chronic condition, (+)
if female. (+)

7. Prescriptions and Searching
Drug (pills) Primary Use Av. Price Search Prob.
Lanoxin (30 tabs) cardiac glycoside $ <1%
Tyleno + Codeine (30) pain reliever $ <1%
Cephalexin (28) antibiotic $ <1%
Biaxin (14) antibiotic $ %
Premarin (30) conj. Estrogens $ %
Capoten (100) antihypertensive $ %
Triphasil (28) oral contraceptive $ %
Prozac (30) antidepressant $ %
Mevacor (100) chol. Reducer $ %
Procardia XL (100) C-C blocker $ %

8. Advantages of Brick-and-Mortar Retailers
Sample, Feel Product
Immediacy
Convenience
Entertainment
Tangible
Intangible
Prestige
Trust
Quick – name a fun online retailer that you hang out at.
“They Know Me”

9. BAM’s are Better Understood
Milk in the back
Decompress
End of aisle displays
High margin impulse purchases

10. What are the advantages of physical stores?
Leveraging Location
What are the advantages of physical stores?

11. Community Focal Points

12. Physical stores can bundle entertainment
Better Theatre
At Mall of America, MN
Physical stores can bundle entertainment

13. Better Status Providers
Sak’s New York
How do I “get seen” as Ashford?

14. Online Paths to Success or Failure
Pricing Opportunities
Reduced Attrition
Lower Proportionate Sales and Marketing Expense
Less Vulnerability to New Entrants
So how has Rakuten done it?
Develop Intangibles
Strong Tangibles
Poor Tangibles
Ignore Intangibles
Fast Death
Slow Death