479. research study on electronic retailing

Research Study On Electronic Retailing

A RESEARCH REPORT

ON

“Research study on Electronic Retailing”

Submitted for the fulfillment towards the award of Degree in Master of Business Administration

[U.P.TECHNICAL UNIVERSITY, LUCKNOW][2006-2008]

SUBMITTED TO: SUBMITTED BY-Mr. J.N. Giri Prashant Kumar(FACULTY, MIMT) Roll No. : 0615270068

MANGALMAY INSTITUTE OF MANAGEMENT & TECHNOLOGYWebsite: www.mangalmay.org, E-Mail.: [email protected],

GREATER NOIDA

1

http://www.mangalmay.org/


ACKNOWLEDGEMENT

I, Prashant Kumar, hereby submit my Research report. This report was

made possible under the timely guidance of several people. Merely

words to thank these people would be insufficient.

I thank my project guide Mr. J.N. Giri for helping me settle all the

problems I had while my project report underwent, for settling my

queries and above all telling me my possibilities as a project report,

which inspired me to have the courage to take up this research based

project.

Finally, but definitely not the last, I thank my family for standing by me

in my confusions and apprehensions.

(Prashant Kumar)

2


Declaration

I hereby declare that the paper titled “Research study on

Electronic Retailing” is the result of individual efforts and has been

completed under the guidance of Mr. J.N. Giri, MIMT, Greater Noida.

The finding and interpretation in the report are based on the data

collected by me and the report is not a reproduction of any other

project submitted for similar purposes.

(Prashant Kumra)

3


RESEARCH METHODOLOGY

Study Design:

Literature review – Exploratory research is meaningful in any situation in which the researcher does not have enough understanding to proceed with the research project.

Descriptive researches - Major objective of descriptive research is to describe something – usually market characteristics or functions. A descriptive research study must collect data for a definite purpose. In descriptive research, hypotheses often exist, but they may be tentative and speculative.

Formations of hypotheses based on descriptive Testing of hypotheses

Sample Size: 50

Sampling Technique: Simple Random Sampling

Sample SelectionData Collection Procedure:

Primary Source of Data: The questionnaire formed the basis of collecting the primary data.

Secondary Source of Data: The secondary sources of data where various business journals, magazines, newspapers, websites etc. will be analyzed.

Data analysis procedure:

The data obtained through questionnaire was processed using the statistical software SPSS 12.0 and Microsoft Excel.

Additional information has been obtained from various business journals, magazines, newspapers, websites etc.

4


SUMMARY

Title Research study on Electronic Retailing

Purpose 1. To clarify and explain the special characteristics of the Internet as a retailing media.2. To identify and explore the opportunities and difficulties associated with electronic retailing.3. To suggest a basic model of developing and implementing electronic retailing model to set up a business.

Method An exploratory research design is applied in this study. Primary data contains semi-structured questions with Internet consultants, Marketers practicing in the field of electronic retailing, and students. Secondary data contains Internet articles.

Results The study concludes that interactivity, user initiation, and global 24 hour reach within seconds, is all special characteristics of the Internet as a marketing media. This in turn encourages businesses to apply mass-customization/one-to-one techniques, pull strategies, and puts emphasis on the need for a high degree of service quality. Likewise, the study concludes that a strong brand name, and the ability to create and maintain electronic relationships, is crucial areas of concern for on-line retailers, to meet the new dynamics of the market space. A cohesive framework is outlined that incorporates all these dimensions into an integrated model of electronic retailing.

5


SUMMARYINTRODUCTION

1. ELECTRONIC ECONOMY IN PERSPECTIVE2. DEFINITIONS AND CONCEPTS3. E-COMMERCE EXAMPLES4. DEFINITION ISSUES

ELECTRONIC ECONOMY(1) Electronic Commerce (e-Commerce) (2) Electronic business supporting infrastructure(3) Electronic business processes

ELECTRONIC RETAILINGTHE INTERNET'S SPECIAL CHARACTERISTICSINTERACTIVITYMass-customizationUSER INITIATEDPull marketingGLOBAL 24 HOUR ACCESS WITHIN SECONDSIncreasing service demandsThe dilemmaThe Electronic Retailing MarketDistinct featuresRetaining an e-tail customerChanging economicsShopping on the Net

BRANDING IN ELECTRONIC RETAILINGBRAND NAME AWARENESSBRAND LOYALTYPERCEIVED QUALITY

1. Do not keep web shoppers waiting2. Do not hide the merchandise: 3. Build trust: 4. Do not hide the prices: 5. Make human contact.

BRAND ASSOCIATIONSBARRIERS TOWARDS ELECTRONIC RETAILING

EXTERNAL BARRIERSINTERNAL BARRIERSTHE HURDLES1. Need for a critical mass

2) Despite a higher Internet penetration3) Cheap labour4) The usual Indian aversion to use credit cards

What will work? Goods for consumersTraditional retailingOther forms: Retailing to E-retailingNew Classes of E-retailingBenefits of E-retailing

6

INDEX


Analogies between real stores and online retail storesE-Tailing Business Models

Business model issuesSteps in Development MethodologyREVENUE MODEL FOR B2CCyber shoppingELECTRONIC RELATIONSHIPSPains & pleasures of e-tailing

Internet and Online ScamsTen Internet Scams

1. Internet Auctions2. Internet Access Providers3. Web Cramming4. Travel and Vacation5. Investments6. International Modem Dialing7. Credit Cards8. Multilevel Marketing and Pyramid Schemes9. Business Opportunities10. Health Care Products & Services

What Every Online Retailer Needs to KnowMETHODOLOGY

PHASES AND CHOICES IN THE RESEARCH PROCESSPRIMARY DATA

Choice of reference groups and respondentsCritique of primary data

SECONDARY DATAThe InternetCritique of secondary data

ANALYSISE-Retailing: The Small Business Development CenterIt Looks So EasyKnow YourselfKnow Your Customer

CommitmentCostsFraud

Reality of SuccessCONCLUSION11. References

7


INTRODUCTIONMeasuring Electronic Business: Definitions, Underlying Concepts

The growth, integration, and sophistication of information technology and communications is changing our society and economy. Today, computers and other electronic devices increasingly communicate and interact directly with other devices over a variety of networks, such as the Internet. Consumers and businesses have been particularly quick to recognize the potential and realize the benefits of adopting new computer-enabled networks. Consumers now routinely use computer networks to identify sellers, evaluate products and services, compare prices, and exert market leverage. Businesses use networks even more extensively to conduct and re-engineer production processes, streamline procurement processes, reach new customers, and manage internal operations. This electronic revolution in our economy is spurring additional investments in facilities, hardware, software, services, and human capital. Ultimately, it may change the structure and performance of the American economy as much as the introduction of the computer a generation ago.

While the burgeoning use of electronic devices in our economy is widely acknowledged and discussed, it remains largely undefined and unrecognized in official economic statistics. The terms Internet, electronic commerce, electronic business, and cyber trade are used often. However, they are used interchangeably and with no common understanding of their scope or relationships. Establishing terms that clearly and consistently describes our growing and dynamic networked economy is a critical first step toward developing useful statistics about it. This paper presents definitions and concepts to describe the electronic revolution taking place in our economy. They were developed by the Census Bureau for discussion purposes, are based on reviews of available information and consultations with interested professionals, and are intended to provide a frame of reference for developing useful official statistical measures. The paper also describes Census Bureau related program plans for FY 2000 (October 1999 to September 2000) and concludes with a number of questions seeking interested parties views and comments.

1. ELECTRONIC ECONOMY IN PERSPECTIVE

Whatever definitions are used for the electronic revolution taking place in our economy, we must recognize that these changes take place in a larger economic context. For example, global competition, interest rates, laws and regulations, social concerns, industry traditions, and consumer preferences are all part of the broader "environment" which can affect all business activities. Similarly, electronic and non-electronic businesses share an infrastructure of available economic resources, including natural resources, utilities, structures, equipment, telecommunication and other services, employees, and workforce skills. While keeping this larger economic context in mind, the emphasis in this paper is to describe and encourage understanding of the "electronic" portion of our overall economy.

8


It is useful to think of the electronic economy as having three primary components--supporting infrastructure, electronic business processes (how business is conducted), and electronic commerce transactions (buying and selling). These components are defined and discussed in the following sections, and pictured in Exhibit 1. In addition, it is important to note that a common feature of both electronic business processes and electronic commerce transactions is reliance on the use of computer-mediated networks. It is reliance on the use of computer networks, and the benefits this can provide, that is the "bottom line" difference between electronic and other kinds of business. This important shared feature is also defined and discussed in following sections of this paper.

2. DEFINITIONS AND CONCEPTS

The three primary components of our electronic economy, and the feature shared by two of them, are defined below. Each definition includes examples of its scope and content. The definitions are intentionally broad to provide an inclusive framework for planning statistical measures, and to allow flexibility to incorporate continuing changes in the electronic economy.

E-business infrastructure is the share of total economic infrastructure used to support electronic business processes and conduct electronic commerce transactions. It includes hardware, software, telecommunication networks, support services, and human capital used in electronic business and commerce. Examples of e-business infrastructure are:

Computers, routers, and other hardware Satellite, wire, and optical communications and network channels System and applications software Support services, such as web site development and hosting, consulting,

electronic payment, and certification services. Human capital, such as programmers.

Electronic business (e-business) is any process that a business organization conducts over a computer-mediated network. Business organizations include any for-profit, governmental, or nonprofit entity. Their processes include production-, customer-, and internal or management-focused business processes. Examples of electronic business processes are:

Production- focused processes include procurement, ordering, automated stock replenishment, payment processing and other electronic links with suppliers, as well as production control and processes more directly related to the production process.

Customer-focused processes include marketing, electronic selling, processing of customers orders and payments, and customer management and support

Internal or management-focused processes include automated employee services, training, information sharing, video conferencing, and recruiting.

9


Electronic commerce (e-commerce) is any transaction completed over a computer-mediated network that involves the transfer of ownership or rights to use goods or services. Transactions occur within selected e-business processes (e.g., selling process) and are "completed" when agreement is reached between the buyer and seller to transfer the ownership or rights to use goods or services. Completed transactions may have a zero price (e.g., a free software download). Examples of both e-commerce and non e-commerce transactions are listed below.

Computer-mediated networks are electronically linked devices that communicate interactively over network channels. Generally, both electronic devices will be computer-enabled, but at a minimum at least one device must be computer-enabled as in the case of a typical telephone linking with an computer-enabled interactive telephone system. Typically, the interactive link involves minimal human intervention though someone activates the electronic devices, accesses the network, and may even assist with the process or transaction. For example, many e-commerce businesses are providing shoppers with the on-line capability of "chatting" with customer support representatives or even speaking with them through the use of internet telephony software. Examples of devices and networks are:

Linked electronic devices such as computers, personal digital assistants, WebTV, Internet-enabled cellular phones and telephones linked with interactive telephone

systems. Networks such as the Internet, intranets, extranets, Electronic Data Interchange

(EDI) networks, and telecommunication networks. Networks may be either open or closed.

3. E-COMMERCE EXAMPLES

Examples of e-commerce transactions are:

An individual purchases a book on the Internet. A government employee reserves a hotel room over the Internet. A business calls a toll free number and orders a computer using the seller's

interactive telephone system. A business buys office supplies on-line or through an electronic auction. A retailer orders merchandise using an EDI network or a supplier's extranet. A manufacturing plant orders electronic components from another plant within

the company using the company's intranet. An individual withdraws funds from an automatic teller machine (ATM).

Identifying e-commerce transactions often is not as straight forward as the previous examples may make it appear. Some additional examples that demonstrate the complexity of implementing the proposed definition are provided below.

A consumer visits a bookstore and inquires about the availability of an out-of-stock book. A bookstore employee downloads a digital copy of the book and

10


prints it along with cover. Not an e-commerce retail transaction since agreement to purchase did not occur over an electronic network. However, the right to access the digital archived copy is an e-commerce service transaction.

Consumer uses Internet to research the purchase of a computer, but calls a toll free number and places the order with an operator. Not an e-commerce transaction because agreement to transfer ownership did not occur over computer-mediated network; neither telephone was computer-enabled.

An individual visits a retail store and purchases merchandise not currently in stock from a computer-enabled kiosk located inside the shop. An e-commerce transaction since agreement occurred over computer-mediated networks. In contrast, the purchase of a pre-packaged music CD from a computerized kiosk would not be considered an e-commerce transaction. If the kiosk was network linked, the digital music was downloaded, and the CD was mastered within the kiosk this would be an e-commerce transaction.

4. DEFINITION ISSUES

This section of the research poses some questions associated with the proposed definitions presented earlier.

E-business is any process that a business organization conducts over a computer-mediated network.

E-commerce is any transaction completed over a computer-mediated network that involves the transfer of ownership or rights to use goods or services. The definition includes both monetary and non monetary transactions. Some transactions may have a zero price (for example, the download of free software) while other transactions may be paid in-kind or through barter (portal pays for an e-commerce consulting service by providing banner advertising).

We do not define transaction. Should we? Since any e-commerce measure will focus on the value of transactions, not the

quantity, should we exclude free or zero priced e-commerce transactions from the definition?

Do you think barter or trade-in-kind is more prevalent in e-commerce transactions than in traditional transactions? Is it reportable or measurable?

Do you find the e-commerce examples useful?

E-business infrastructure is the share of total economic infrastructure used to support processes and conduct e-commerce transactions. The definition includes hardware, software, telecommunication networks, support services, and human capital along with associated examples. Measuring the electronic infrastructure will be a daunting task. Since we have no short term plans to begin measuring e-business infrastructure, we have not focused much attention on it to date, but will begin focusing on it during this coming year.

11


Is the e-business infrastructure separable from the broader economic infrastructure?

What are the priority components of infrastructure that we should focus on? Do you have specific examples that would clarify what to include in each

component? Should human capital be included in the e-business infrastructure? Is it separable?

Computer-mediated networks are electronically linked devices that communicate interactively over network channels. Network channels include the Internet, intranets within organizations, extranets and Electronic Data Interchange networks linking trading partners, and telecommunication networks.

Do you agree with the decision to include open and closed networks? Have we excluded other important examples of networks?

Electronic linked devices include computers, personal digital assistants, WebTV, Internet-enabled phones, and interactive telephone systems. While the e-commerce examples also include a computer-enabled kiosk and an ATM as linked electronic devices, in our definition we have chosen to go with a short, rather than a long list of electronic devices to minimize possible reporting confusion.

Should the list of linked electronic devices include all possible devices or focus only on the most important devices?

The definition and one of the examples considers a consumer using a telephone linked to an interactive telephone system with no human operator to be a computer-mediated network. Do you agree?

Fax machines, while clearly electronic devices that can link over network channels, were excluded because they do not communicate interactively. Do you agree with their exclusion and the rationale?

Electronic gas pumps often are linked interactively over network channels with other electronic devices. The device, the electronic pump, can be activated in a number of different ways. The purchaser may "swipe" a credit card, wave Speed-Pass, go to an outside station or inside the store to pay by cash or credit card. Just as in the case of an ATM machine or a computer-enabled kiosk, once the device is activated the consumer can specify the transaction (regular or premium gasoline) and complete the transaction. The electronic pumps also support a number of E-business processes including tracking sales and gallons sold, with links to automated inventory replenishment systems to name a few. The functionality embedded in pumps is expected to grow. For example, BP Amoco PLC is planning to introduce even more sophisticated pumps that will include Web browsers and Windows CE operating system that will even permit the gas purchaser to order fast food at the pump (WSJ 8/17/99). Would you consider the sales of gasoline through electronic pumps as an e-commerce transaction? Why?

12


ELECTRONIC ECONOMY

Electronic or Internet economy as having three primary components:

(1) Electronic Commerce (e-Commerce) as defined by the U.S. Census Bureau.Any transaction completed over a computer-mediated network that transfers ownership of, or rights to use, goods or services. The value of goods and services sold on-line. The term “on-line” includes the use of the Internet, Intranet, and Extranet, as well as proprietary information that runs over systems such as Electronic Data Interchanges (EDI) networks.

(2) Electronic business supporting infrastructure

The economic infrastructure that is used to support electronic business processes and conduct electronic commerce transactions. It includes hardware, software, telecommunication networks, support services, and human capital used in electronic business and commerce.

(3) Electronic business processes

Processes that a business organization conducts over a computer-mediated network. Business organizations include any for-profit, governmental, or nonprofit entity. Examples of on-line e-business processes include the following:

Purchasing Selling Vendor-managed inventory Production management Logistics Communication and Support Services such as on-line training and recruiting

Broad definition of e-business is:

“The transformation of an organization’s processes to deliver additional customer value through the application of technologies, philosophies and computing paradigm of the new economy.”

Electronic Business, or "E-business", may be defined broadly as any business process that relies on an automated information system. Today, this is mostly done with Web-based technologies. The term "e-business" was coined by Lou Gerstner, CEO of IBM.

Electronic business methods enable companies to link their internal and external data processing systems more efficiently and flexibly, to work more closely with suppliers and partners, and to better satisfy the needs and expectations of their customers.

13

http://en.wikipedia.org/wiki/Lou_Gerstner

http://en.wikipedia.org/wiki/Automated_information_system


In practice, e-business is more than just e-commerce. While e-business refers to more strategic focus with an emphasis on the functions that occur using electronic capabilities, e-commerce to be a subset of an overall e-business strategy. E-commerce seeks to add revenue streams using the Worldwide Web or the Internet to build and enhance relationships with clients and partners and to improve efficiency using the Empty Vessel strategy. Often, e-commerce involves the application of knowledge management systems.

E-business involves business processes spanning the entire value chain: electronic purchasing and supply chain management, processing orders electronically, handling customer service, and cooperating with business partners. Special technical standards for e-business facilitate the exchange of data between companies. E-business software solutions allow the integration of intra and inter firm business processes. E-business can be conducted using the Web, the Internet, intranets, extranets, or some combination of these.

E-business includes

Applications can be divided into three categories:

1. Internal business systems:

customer relationship management enterprise resource planning document management systems human resources management

2. Enterprise communication and collaboration

VoIP content management system e-mail voice mail Web conferencing

3. Electronic Commerce - Business-to-business electronic commerce or business-to-consumer electronic commerce

internet shop supply chain management online marketing

E-business Models

14

http://en.wikipedia.org/wiki/Online_marketing

http://en.wikipedia.org/wiki/Supply_chain_management

http://en.wikipedia.org/wiki/Internet_shop

http://en.wikipedia.org/wiki/Business-to-consumer_electronic_commerce

http://en.wikipedia.org/wiki/Business-to-consumer_electronic_commerce

http://en.wikipedia.org/wiki/Business-to-business_electronic_commerce

http://en.wikipedia.org/wiki/Electronic_commerce

http://en.wikipedia.org/wiki/Web_conferencing

http://en.wikipedia.org/wiki/Voice_mail

http://en.wikipedia.org/wiki/E-mail

http://en.wikipedia.org/wiki/Content_management_system

http://en.wikipedia.org/wiki/VoIP

http://en.wikipedia.org/wiki/Human_resources_management

http://en.wikipedia.org/wiki/Document_management_system

http://en.wikipedia.org/wiki/Enterprise_resource_planning

http://en.wikipedia.org/wiki/Customer_relationship_management

http://en.wikipedia.org/wiki/Supply_chain_management

http://en.wikipedia.org/wiki/Value_chain

http://en.wikipedia.org/wiki/Knowledge_management

http://en.wikipedia.org/wiki/Empty_Vessel

http://en.wikipedia.org/wiki/Internet

http://en.wikipedia.org/wiki/Worldwide_Web

http://en.wikipedia.org/wiki/E-commerce

http://en.wikipedia.org/wiki/E-commerce


Organizations go online, they have to design which e-business models suit their business goals. Business model is defended as the organization of product, service and information flows, and the sources of revenues and benefits for suppliers and customers. The concept of E-business Model is the same but used in the on-line presence. Currently, the most adopted e-business models is a list as follows:

E-shops E-procurement E-malls E-auctions Virtual Communities Collaboration Platforms Third-party Marketplaces Value-chain Integrators Value-chain Service Providers Information Brokerage

Types of Electronic business processes

Production processes

Customer-focused processes

Internal management processes

ELECTRONIC RETAILING

15

http://en.wikipedia.org/w/index.php?title=Information_Brokerage&action=edit

http://en.wikipedia.org/wiki/Virtual_Value_Chain

http://en.wikipedia.org/w/index.php?title=Value-chain_Integrators&action=edit

http://en.wikipedia.org/wiki/Amazon_Marketplace

http://en.wikipedia.org/wiki/Collaboration_platform

http://en.wikipedia.org/wiki/Virtual_Communities

http://en.wikipedia.org/wiki/Reverse_auction

http://en.wikipedia.org/w/index.php?title=E-malls&action=edit

http://en.wikipedia.org/wiki/E-procurement

http://en.wikipedia.org/wiki/Online_shop

http://en.wikipedia.org/wiki/Customers

http://en.wikipedia.org/wiki/Suppliers

http://en.wikipedia.org/wiki/Service

http://en.wikipedia.org/wiki/Product

http://en.wikipedia.org/wiki/Business_model


E-Retailing is understood as the sale of products and/or services to consumers for their personal use using methods that involve the use of the Internet for (parts of) the sales process.

E-Retailing Infrastructure

Computers, routers, and other hardware Satellite, wire, and optical communications and network channels System and applications software Support services, such as web site development and hosting, consulting,

electronic payment, and certification services. Human capital, such as programmers.

E-Tailing is emerging as an attractive alternative to the traditional brick-and-mortar retaining. Chances are that they will co-exist profitably

Retailing as an attractive business was slowly emerging out of the shadows. Quite a few corporate houses began looking at retailing as one way to corporate salvation. Notable among them are: the R P Goenka group, the Tatas, the S Kumars, the Rajan Raheja group and the Ajay Piramal group. And many more are still in the process of finalising their forays into retailing.

Considering the fact that the Internet is a new medium respondents shared to a relatively high degree similar ideas regarding its development. Common themes resurface regarding how this new media diverges from traditional communication channels and its implications. However, it may be noted that the experts interviewed tended to emphasize different issues when answering the same questions. Varying individual backgrounds and experiences go a long way in explaining this. But all agree that electronic retailing has the potential to revolutionize the way both businesses and consumers interact.

16

INTERNET AS A MEDIUM

Time

So

ph

isti

cati

on

Present position

Internet development


THE INTERNET'S SPECIAL CHARACTERISTICS

Internet technology can be used to transform business processes. It can be viewed as yet another channel to pursue business activity but it might also be perceived as a new infrastructure, like the railway, providing an endless range of opportunities for new initiatives. Figure 4.1 summarizes the three internet-specific characteristics that were emphasized by respondents during the interviews, together with their impact for electronic retailers.

17

PULL STRATEGIES

MASS-CUSTOMIZATION

ONE-TO-ONE

USER INITIATION

INTERACTIVITY

GLOBAL ACCESS 24 HOURS WITHIN

SECONDS

INCREASED SERVICE DEMANDS

Internet characteristic

Impact on retailing

Internet characteristics and their impact for electronic retailing


INTERACTIVITY

With the rise of broadcasting during this century, something very extraordinary happened to the way information was exchanged between people. Before broadcasting, communication was shared mainly through print, or by the spoken word, in contexts where people could see and respond to each other. Then, the communication process was automated, and it became possible to communicate the same message to millions of people instantly - mass-marketing was born. The great pitfall of broadcasting is that each individual receives the same message, independent of his or her previous knowledge, values, mood etc. It is obvious that this way of communication has great weaknesses of efficiency in influencing potential customers. Methods such as segmentation and target group analysis were invented to deal with these side-effects of the new mode of communication. Still, mass-media could not substitute for a technique as old itself - personal selling.

Interactivity was mentioned as one of the most important characteristics that separate the Internet from other media by all of the persons that we interviewed. Interaction between groups of people and organizations is now possible without the need for human beings to assist at every point of interaction; this can instead be handled by computer systems.

Mass-customization

The interactivity of the Internet results in a higher level of involvement on the part of the user. The interactivity is a prerequisite for customization to take place on a mass-scale, bringing its cost down to reasonable levels.

USER INITIATED

Originally, the structure of the Internet was democratic. Its content was shaped and formed by a host of virtual communities, academics alike, and individuals whose intentions mainly lied in sharing and exchanging information. The Internet as a communication channel differs from other channels in that it cannot (at least not yet) be used for broadcasting. The fact that users on the Internet, are much more active and goal oriented compared to behavior in the physical world, was pointed out .Likewise, it is stated that: "the Internet is an actively consumed, complex environment with high interconnectivity capabilities."

Pull marketing

The user initiation on the Internet is an advantage for firms that know how to handle it but might be a drawback to other businesses. It requires businesses to think in terms of pull instead of push strategies. Marketers need to provide consumers with incentives to visit their site, and buy from it, over and over again - that is, they have to use marketing pull-strategies. Commercials in television, radio, and newspapers commonly use push

18


strategies to influence customers buying decisions. A consumer cannot be forced to go to a specific URL, and he will not visit a site more than once or twice if it cannot offer substantial value.

The creation of on-line businesses has begun a trend that will sooner or later tip the power balance in favor of the consumer. Those attributes that make the Internet distinct will, thus, facilitate increased "consumer power." Thanks to increased access to information consumers have the potential to be better informed when deciding on a purchase resulting in greater leverage on the part of the consumer. Listings and comparisons that can be composed with the help of different digital tools shifts power to consumers thus making suppliers compete directly with each other.

The high involvement of on-line shoppers, and their propensity to be more considerate in terms of what they buy, is one aspect shifting the power balance towards consumers on the Internet. "The consequences of increased 'consumer power' means that traditional forms of marketing aren't as reliable. The usual practice of searching out their customers requires an adjustment since the interactive format of the Internet instead results in the customer seeking out companies. A logical conclusion implies that they have to be attractive somehow. Firms in such an environment must compete on being the most attractive.”

This implies that the power base has shifted where it is no longer an overriding organization or authority which can dictate the content of a communication on a global scale. Instead the user also becomes a creator of information allowing one to communicate over large distances with large audiences at a relatively low cost. Such possibilities did not exist in the pre-Internet era.

GLOBAL 24 HOUR ACCESS WITHIN SECONDS

The Internet is an infrastructure that covers the entire world. Just like television and radio, the rate of penetration varies around the globe due to cultural and economic differences. Currently, most Internet access is enabled through an already existing infrastructure - telephone cables. For digital products, the rise of the Internet as a channel of promotion, sales, and distribution, contributes to the creation of a truly global marketplace. Physical products however, cannot be distributed over the Internet.

Increasing service demands

Stores on the Internet can and have to be open 24 hours, every day of the week. A major reason for people to shop over the Internet is availability, allowing the consumer to make their purchases whenever it suits them best. Since electronic retailers are open 24 hours a day, customers expect service on the same premises. Purchases can be made in seconds and the next store is only a few clicks away.

19


The dilemma

Even as loose ends of retailing plans are being tied up, e-tailing has begun catching the attention of many entrepreneurs. Suddenly, we started hearing e-tailing names such as Rediff.com, Jaldi.com, Fabmart.com, Tsnshop.com and Satyamonline.com. This could well be the beginning of an e-tail revolution.

As the new sensation unfolds, it should be understood that retailing is serious business. Thanks to the popularity of the Internet, e-tailing is assuming greater significance. A number of products and services are on e-tail offer and novel plans are being worked out by many e-tailers. Consider Skumars.com for instance.

Skumars who had earlier wanted to offer its franchise only to those having 2,000 square feet space has now improved its offer. It is now offering its franchise in Skumars.com to those possessing just 50 square feet space. So, the dilemma continues: to retail or to e-tail?

How large is the retailing industry? Is e-tailing large enough to take on so many players? True, both retailing and e-tailing are still nascent and growing. One estimate by consultants KSA Technopak is that the organised retailing sector should be as large as Rs 5,000 crore and e-tailing in India should be just about Rs 12 crore. But then the growth potential for both retailing and e-tailing is tremendous.

What is the rationale behind such an assertion? Basically anything which involves a direct sale to a consumer at any point of time could be termed as retailing, be it selling of books, apparels, footwears, music or even grocery among other things. Such a retail trade could take place in a shopping mall, in a department store or in a basic mom-and-pop store or in a friendly neighborhood grocer's shop. Most of such retail trades that can be done through the brick-and-mortar retailing route can be successfully replicated on the Internet as well.

Electronic home shopping is, without a doubt, one of the most sensational developments to hit the retailing world since the advent of mail order shopping in the nineteenth century. One of the fastest-growing segments of the retail industry, it has mushroomed from a mere $350 million to $3 billion in volume in less than a decade. For the businessperson thinking about entering these new markets, the time has never been better. And now this unique study provides you with all the detailed information and analysis you need to do it right.

The Electronic Retailing Market ex-plores, in depth, every aspect of this dynamic new retailing segment, from its history and evolution, to the factors and trends that have contributed to its phenomenal growth of recent years, to its prospects for future growth. It begins with an overview of electronic retailing in the United States and then zeroes in for a detailed look at each of its three major markets: television shopping channels, infomercials, and interactive retailing (shopping by computer). Numerous charts and tables define and trace the development of trends, while insightful commentary explains

20


how these trends are shaping electronic retailing today and how they are likely to impact upon its future.

But that's not all. This unique study also features a series of Competitive Profiles in which leaders in each of the three major markets reveal the strategies they used to beat out the competition. You'll learn the secrets behind the runaway success and sustained growth of QVC, HSN, Hawthorne Commu-nications, Regal Group, CompuServe, The Interaxx System, and other market leaders.

A vast compendium of crucial data on this fast-growing segment of the retail industry

Detailed information on the size, growth, composition, and competitive environment of remote shopping and its three main markets

A detailed exposition of demographic, socioeconomic, and other trends impacting on the U.S. retail market and their significance to electronic shopping

Dozens of eye-opening Competitive Profiles of leaders in all three markets

The Electronic Retailing Market is an indispensable tool for retailers, vendors, suppliers, and providers who would like to profit from this exciting new medium. It is also a source of valuable, hard-to-find information for current and prospective producers of home shopping programming.

An indispensable tool for retailers, vendors, suppliers, and providers who would like to profit from an exciting new medium.

The Electronic Retailing Market

This unique study features a series of Competitive Profiles in which leaders in each of the three major electronic retailing markets reveal the strategies they used to beat out the competition. You'll learn the secrets behind the runaway success and sustained growth of QVC, HSN, Hawthorne Communications, Regal Group, CompuServe, The Interaxx System, and other market leaders.

You'll also find a wealth of valuable, hard-to-get information for current and prospective producers of home shopping programming.

A vast compendium of crucial data on this fast-growing segment of the retail industry

Detailed information on the size, growth, composition, and competitive environment of remote shopping and its three main markets

A detailed exposition of demographic, socioeconomic, and other trends impacting on the U.S. retail market and their significance to electronic shopping

A fascinating review of the history and development of electronic retailing

21


Packaged Facts is a New York-based market research firm and a leading publisher of syndicated market studies. One of the few such publishers to cover consumer markets, it currently publishes more than 40 market studies a year. A division of the worldwide consulting and research firm Find/SVP, it was founded in the early 1960s as one of North America's first information services.

Distinct features

However, if one bothered to get down to the nitty gritties of retailing and e-tailing, the differences in the way business is conducted in both the segments should become clear.

A retailer is restricted to a particular location, retailing is location-driven. But, an e-tailer can go global. Being local in nature, a brick-and-mortar retailer has to identify a good location for his operations and wait for customers. On the other hand, an e-tailer has to virtually attract a customer to his site and offer him exemplary services. In fact, location is no longer the key to success if e-tailing is what we are talking about. Thus, while the target customer remains the same both in retailing and e-tailing, the mode of conducting business is changing dramatically.

There is another distinct feature of e-tailing that is challenging. In retailing, as much as 50 per cent of the initial investment could go towards acquiring real estate. Post-acquisition of real estate, a retailer has to spend considerable time, effort and money in setting up his shop, stocking inventory and creating display patterns. Thanks to web-driven retailing, an e-tailer has no such hassles. But, there is a challenge before him: retaining a customer who has shopped through his site.

Retaining an e-tail customer

The primary aim of every e-tailer is to attract a prospective customer to his e-tail site. That calls for a large adspend. Naturally, there has been a surge in dot.com advertising in countries such as the United States. Dot.com adspends are so large that as much as two-thirds of the capital raised by dot.com companies are spent towards advertising. Adspends by dot.com companies are so huge that whatever savings achieved in the areas of real estate and inventory is more than offset.

The question still remains: after all that ad-spend, will the customer remain loyal to the e-tailing site? Kumud Goel, managing director of KLG Systel which owns the site Jaldi.com: "The Internet customer is very hard to predict and is different from the normal customer. Retaining him is not so simple. While a retailer expects strong loyalty, such a loyalty on the Net is difficult to obtain. A customer may shift from the Internet if someone else offers him a better deal."

That is why Jaldi.com will be using a mix of marketing tools such as public relations, advertising, promotions, direct marketing and Internet advertising to spread awareness among its target audience. Jaldi.com went a step ahead. Its offline promotions started with a successful consumer launch held at Priya PVR I theatre in New Delhi where 3,600

22


free Phir Bhi Dil Hai Hindustani tickets were given to every customer who logged on and registered at the site Jaldi.com.

What all these tell you is one simple thing: customer retention is the toughest thing on the web. K Ramesh, vice president of i2inext.com: "First of all, it is difficult to get a consumer come to your site. After he comes in, the task is to retain him and get him frequently. Once he is confident about you, he will use his credit card to make his purchases at your site."

On balance, retaining an e-tail customer is certainly a costly affair. For, in the world of the web there is nothing such as loyalty. If one offers some freebies, a customer may keep on coming to your site, with the expectation every time that there would be some freebies out there. The moment you stop freebies, you could simply lose the customer." So, managing e-tailing promotion through freebies could be a tricky affair.

Changing economics

That is one aspect of the e-tailing promotion. In fact, it has been observed in countries such as the USA, traditional retailers, despite the strength of their brand equity and their existing relationships with suppliers and customers find it extremely hard to compete online. Reason: the vast difference between the retailing and the e-tailing segments.

Though this is true, the web offers a host of advantages which may tilt the economics in its favour. The Internet world could transform much of the traditional economics of retailing. While a physical store caters only to a particular locality, the Internet reaches out to the world. The fallout: in e-tailing, the e-tailer goes for a bigger and wider audience and still be in touch with individual preferences.

Another approach that is emerging in e-tailing is to re-examine the normal retailing value chain. The web makes it possible to dispense with much of the traditional value chain altogether, thanks to direct sales by manufacturers to consumers. There is another side to this approach. According to some e-tailing specialists, web retailing also creates new points in the value chain. Example: Internet portals that act as shopping malls or intermediary aggregators such as Vasool.com that offer a new way of amassing buying power.

Certainly, the economics of the Internet offers a powerful first mover advantage. An e-commerce operation on the web can be scaled up at a low cost in such a way that its physical equivalent cannot. And even among e-tailers there is the first mover advantage. If the first mover gets everything right - its website, its order fulfillment and distribution - a newcomer might find it much harder to beat an established person at the game.

Shopping on the Net

But, the question is why should anyone shop on the Net? What is the incentive to try a new medium of shopping?

23


If anyone has to try this new medium of shopping, there should be overwhelming reasons for doing so. The benefits must go beyond mere convenience. For one, the consumer will certainly be interested if he gets things cheaper on the net. The Net being a new medium, we have to convince people to use this new medium to buy. For convincing a customer to use this new medium, one has to offer an incentive to buy on the Net. Otherwise, it would be very difficult to get a customer to shop with you. According to consultants KSA, easier and faster shopping are the reasons for shopping on the Net.

How? One can go to a brick-and-mortar retailer who could offer you 10,000 items in his store. Chances are that he might be 10 per cent out of stock. On the other hand, the Internet offers millions of products with no chances of an out of stock situation.

Easy and comfortably-obtained info is another advantage that shopping on the Net offers. On the Internet, product information is just a few clicks away, all accessed in the comfort of a home. Traditional retailing stands out in stark contrast: the consumer searches frantically, runs up and down, grills a poorly trained store assistant who is unable to help him out. In the bargain, valuable time is lost. Simply put, shopping on the Internet for, say 15 minutes, could save a two hour trip to the mall. Consumers prefer to save this time so that they can devote more time for their professional and domestic priorities.

BRANDING IN ELECTRONIC RETAILING

Today's electronic retail setting poses new dilemmas for both sellers and buyers. Building strong brands by forming a well conceived branding strategy can greatly aid in overcoming those dilemmas. If firms neglect to realize the power of branding they risk being overcrowded by increasing levels of on-line competition, not to mention becoming dependent on price based strategies. Indeed, focus on price has been shown to be especially venturesome on the Internet. Persistent consumer hesitance is yet another factor supporting the need for well established brands.

On-line shoppers, due to the fact that it is a virtual environment, are denied the circumstances which they are normally accustomed to when in a retail setting. Vendors conducting catalogue businesses have, for a long time, been well aware of the importance consumers attach to brands since physical inspection prior to purchasing is not available. This same line of reasoning applies for electronic retailers. Hence, shoppers must content themselves with other cues that convey qualities they regard as important when contemplating a purchase. Brands fill this important function to a large extent.The issue regarding consumers anxieties of making on-line purchases. The same study also indicated that some 82% of the respondents declared that being familiar with a product's brand name as important or very important in their decision to purchase on-line. Included was also the question of how significant it is for web shoppers to be familiar with their electronic retailer. 79% responded by stressing its importance. In so far as a manufacturing site 80% preferred it to be an established, familiar vendor. However, only 52% felt it necessary when visiting a mall-like web site.

24


The Internet's superiority in offering a wide variety of "places" to purchase may also, simultaneously, be its drawback. Never before have consumers been exposed to so many potential vendors. This dilemma is often experienced by the on-line shopper as information overload. Simply, this means the consumer encounters a measure of anxiety by not being able to fully weigh all potential electronic retail sites, thereby increasing the likelihood of making a poorly informed judgment. This consumer dissonance can be greatly alleviated by building a strong brand since consumers often adopt, especially on the Internet, brand based choice tactics. This not only reduces heightened levels of risk but improves the efficiency of the shopper.

In this context of improving consumer efficiency, ensuring that the brand is well anchored in the mind of the consumer enhances the prospect that they may make a concerted effort to search for a particular brand. Encouraging this kind of consumer behavior is pivotal since electronic retailers rely heavily on pull strategies.

Attracting consumers to one's site is one thing but encouraging them to make the next step of purchasing a product is yet another issue to be dealt with. One of the most contributing factors which makes on-line shoppers hesitant is concerns over on-line security. Strong brand equity can greatly reduce those hesitations consumers may have with security issues. There for a brand that is perceived trustworthy reduces dissonance consumers may otherwise experience. Yet another convincing reason for pursuing a strong branding strategy is the firm's interest in erecting entry barriers. By doing so there is less pressure on the firm to engage in price competitive measures to attract customers. Thus, branding provides a means by which to circumvent to some degree threats posed by increased price transparency.

However, do building strong on-line brands only pertain to activity on the Internet, or do traditional media better serve to enhance a particular part of a branding strategy while the Internet is better suited in bolstering other aspects of a branding strategy? Branding of Internet related products is best achieved over the Internet. In cases of non Internet related products there exists no such general rule. In any event, the strategy itself of building strong brands remains intact - which are the art of segmenting, differentiating, and most importantly positioning the firm's brand in the mind of the consumer. With this said the Internet enables yet another channel of communication to achieve that desired position.

BRAND NAME AWARENESS

At the root of any branding strategy lies the challenge of gaining brand awareness. For if the brand does not exist in the consumer's mind it, in essence, does not exist at all. This is particularly a pressing issue for electronic retailers wanting to increase traffic to their site and also hopefully generate business. Brick and mortar businesses have commonly run traditional media campaigns in an effort to appeal to their particular segment because that is where their clientele could be reached. Therefore, it is not surprising that virtual stores

25


attempt to generate brand awareness on the Internet since that is where their customers are to be found. Banners have been developed to hammer in a repetitive slogan as a means of generating brand awareness. There are indications that plastering banners on sites are not very effective and are often experienced by users as a nuisance. The Internet user is after all, as a Business Week article asserts, goal oriented and is seeking to perform a task and therefor often times experiences flashy banners as distracting. In recognizing this even those primarily in the virtual world can not abandon traditional media if they want to reach potential customers not surfing the Internet regularly and at the same time reaching regular Internet users through a variety of channels. "

Thus, it is very unlikely (if not all together invalid) that Internet's unique value proposition lies in gathering awareness to a brand's presence on-line. In this context and presently, Internet rather appears to function best as a support media." Achieving a high rate of brand recognition is not enough. Unaided forms of recall of a brand are just as important. One specific component of increasing brand awareness discusses tying a brand with a consumer's particular goal orientated task. The Internet provides the opportunity of combining a brand with a specific task on the Internet. This is not as easy to accomplish in traditional media since it lacks the Internet's high degree of interactivity. "TV users are looking for entertainment. The Internet user is on-line for more practical reasons." "Our [firm's] brand efforts reflect that end-user goal." "By giving the consumer something they want you are helping them and promoting the brand message at the same time." The Clickers survey conducted in the Nordic region indicates serious difficulty in generating high rates of brand recall in terms of Internet based brands. However, Clickers conclude the cause may lie in on-line advertisers not making a large enough commitment but also because of the cluttered on-line media environment.

Branding on the Internet offers an opportunity to extend brand awareness by reaching new customers. Interflora, the international flower business, has astutely succeeded in doing just that. Prior to their Internet venture the majority of their customer base was mainly composed of women. By pursuing a conscious branding strategy on the Internet they have been able to increase their awareness but also increase sales among the male population hence capturing a previously untapped revenue source.

Brand awareness is thus one of the crucial ingredients in generating visitors to one's site using a pull strategy. This holds true for both electronic retailers and non electronic retailers alike. "Brand awareness -- specifically your dot-com brand awareness -- is a key contributor to driving traffic to your online storefront."

BRAND LOYALTY

As has been discussed earlier the Internet poses real threats for firms unable to adapt to this unique medium. In the case of brand loyalty there have existed fears that its equity may decline in a virtual environment. Prominent economists, such as Kuttner, support this view on brand loyalty since the Internet in certain regards resembles the concept of a perfect market. The Internet with its free flow of information, Kuttner suggests, would

26


result in "fierce price competition" and "vanishing brand loyalty." Meanwhile less disheartened businesses seeking to build brand loyalty recognize that brands also have the potential to grow in the marketspace. However uncertain this task may seem possibilities do exist in encouraging brand loyalty.

On the Web, brand loyalty is a function of the useful, qualitative interactions provided by the vendor. Using this as a measuring stick simple descriptive pages that contain only what print-based documents already do will rank lowest in generating customer response. Somewhat more engaging sites that feature registration and order forms may rank a little higher. Sites that feature areas beyond simple ordering and provide real interactive capabilities, such as in-depth profiling, downloadable samples, discussion forums, online support, and password access for preferred customers, will tend to generate much more than mere sales.

Yahoo.com and Amazon.com are just two successful examples of firms enacting brand loyalty measures into their sites as outlined above. One-to-one techniques have also been proposed in order to advance the cause of brand loyalty on the Internet.

What firms have been less adept at perceiving and implementing is the connection of brand to 1to1 marketing programs. Yet, never before has there been such a wealth of opportunity to make that connection. Custom magazines, newsletters, Web content, special reports - indeed, any branded, interactive vehicle that reaches out to customers in human terms - provides a means to solicit customer input and acquire insights on future customer behavior.

According to the Clickers report when pursuing a well conceived on-line branding action new opportunities arise that can enhance the possibility of increasing brand loyalty among those who posses little, if at all, any brand loyal behavior. "Internet can provide a comprehensive brandscape environment, which implies an opportunity to get one's target market to radically transform their perceptions. Speed is Implicit in radical transformation, and applies to non-users, brand disloyal, and brand switchers." Skillfully coordinating such an impact on attitudes towards brands is essential since impact is unavoidable from the very moment an Internet venture is undertaken.

PERCEIVED QUALITY

The determinants of perceived quality in electronic retailing differ from that of marketplace retailing. This type of retail setting permits vendors new opportunities to greatly ensure that those determinants of quality are homogeneous. Less controllable in-store variables do not have to be considered, thereby leaving the on-line shopping experience less to chance. However since this environment lacks the usual characteristics of a retail setting on-line specific measures can be taken to ensure that the shopper experiences value added perceptions of the brand.

27


1. Do not keep web shoppers waiting

Too much information should be avoided since it only serves to slow the amount of time it takes to download a page. Internet users tend to get frustrated if they experience delay.

2. Do not hide the merchandise:

Remove any potential obstacles that may hinder on-line shopper to make a quick and effortless purchase. Navigation tools should be provided allowing for quick access to products.

3. Build trust:

The issue of insecurity by the consumers must be dealt with. The following suggestions help in that regard. Feature name brand products Make it easy to contact you by phone Display testimonials from existing customers and kudos from the press Offer an up-front statement of your privacy policy Become a member of TRUSTe and featuring their logo Assure shoppers that you'll cover the $50 credit card company charge if they are a

victim of credit card fraud while shopping at your store Promise a no-hassle return policy Allow customers to view the merchandise in detail.

4. Do not hide the prices:

Doing so only justifies suspicion by the consumer.

5. Make human contact.

"There are a number of ways to do this, such as featuring a prominent phone number, offering live chat, and showing photographs of employees along with brief bios in relevant areas of your site."

Guaranteeing a high degree of quality in on-line content is essential for Internet users since they have high expectations. Greater consumer demand means the vendor has to

28


provide at least, if not better on-line than off-line service. Ease of navigation and the degree of integration of the content is necessary in being wholesome, an important aspect in order to be perceived as being high in quality. "Meaningfully interconnected content, with plenty of action, and where it is easy to move around - this is the on-line space where radical transformation of attitudes can occur."

Fierce competition on the Internet has the potential to lead to convergence in the market since many of the services offered are easily duplicated by competitors. What only recently may have been seen as a value added unique service may tomorrow be considered a prerequisite for even hosting a web site. Free e-mail is one such example. Firms must therefor heavily work towards fostering perceived quality as a means of fending off the competition. This can be achieved by focusing on what the customers view as decisive factors in determining quality when shopping on-line. Catering to customers specific needs in this area will thus help in raising quality perceptions.

BRAND ASSOCIATIONS

"Brand association has a lot to do with whether your prospective customers have sufficient trust to make a purchase from your online store." This issue of consumer trust is explored later under the heading "Consumer privacy". This key association is a common denominator for electronic retailers hoping to build a strong brand on-line. Depending on the specific retailer other associations through interactive measures, such as offering on-line music videos, can enhance a desired image. A site may be associated with entertainment thus establishing itself as an entertainment outlet for its customers. In doing so the retailer puts itself in a central position in the mind of the consumer whenever a customer may seek, in this case, entertainment.

BARRIERS TOWARDS ELECTRONIC RETAILING

The barriers of electronic retailing have been divided into external and internal to make the distinction of what the single merchant firm has to deal with and what are more general issues that have to be approached on a higher level.

EXTERNAL BARRIERS

Let us ask the question of which external barriers exist for electronic retailing. At first, consumers need to have a computer. Second, they need to be on-line, and third, they must be willing to actually shop on-line. According to an Ernst & Young study conducted in September 1998 on 1363 consumers, 41 retailers, and 74 manufacturers, 43% of North American households have PCs, 52% of those are on-line, and 38% of the latter shop on-line. That is, approximately 10% of households shopped on-line during 1998. Those households that were on-line but did not buy anything, cited as their two main reasons

29


fear of giving out credit card information, and the need to see the product before buying it. Consumers that do shop on-line said that to keep them doing so, on-line retailers must improve on transaction security and ease of navigating their sites1.

INTERNAL BARRIERS

The internal barriers, in this context, are those issues that electronic retailers themselves can, and have to deal with. The lack of corporate resources, consumers concerns for security, and difficulties in linking the site to other business processes, are the greatest challenges that retailers think that they face.

THE HURDLES

Is shopping on the Net really catching on in India?

The Indian scenario is quite different from that of the West. For good reasons, Indians have always been great shoppers and enjoy shopping anywhere in the world. With malls and departmental stores springing up in India now, Indians are just beginning to get a taste of things to come. Internet shopping is one such taste which the Indians have begun to savour.

There are hurdles here, however.

1. Need for a critical mass

This is vital for any successful e-commerce project. Consider: growth in e-commerce will come not from well-designed websites or web-marketing but from deeper penetration of the Internet. That is why a case has been made out for increasing broadband Internet connections which are faster than the dial-up connections.

One estimate is that India has a mere 20 lakh Internet users, mostly concentrated in the metros. Web analysts feel that in many areas of retailing and commerce, Internet is unlikely to garner a sizable slice of the market. And that could be for several years to come. This is true, especially in businesses where margins are thin. Consider fast moving consumer goods, the FMCG sector. In the Indian FMCG business, margins are as low as 10 per cent. Hence, e-tailing in such areas might not catch on."

2) Despite a higher Internet penetration

1

30


Cities like Mumbai or New Delhi might not be a haven for an e-tailer. Reason: for things like grocery, there is a shop out there at every nook and corner. All that an individual has to do is just make a phone call and the goods are delivered at his doorstep. Thrown in along with free home delivery is a month's credit. In case of perishables such as fruits and vegetables, the Indian buyer prefers them farm-fresh. What does he do? While returning from work, they drop in at the vegetable market and complete their purchases.

3) Cheap labour

Thanks to easy availability of domestics at an affordable wage bill, quite a few of the rich customers hire them for doing domestic chores which include shopping.

4) The usual Indian aversion to use credit cards

Thanks to low penetration of credit cards and the lack of popularity of debit cards, e-tailing might find it an uphill task to catch on.

It is not just the aversion to credit cards. Elder citizens are averse to using even the computer. However, they are at ease while using the remote control of a television set. That throws up an interesting solution. Accessing the Internet through a television in the near future might be something that an individual should be offered if e-tailing is to grow faster. The last and the most important hurdle to the growth of the e-tailing industry is the efficient management of logistics. Here the role of a courier company is extremely important. Most portals offering e-commerce have tied up with courier companies. For instance, Jaldi.com has tied up with Gati for taking care of their delivery logistics.

There are other examples too. Blue Dart plans to enter the household shipment business in a big way to serve the needs of the online community in India. Looking at the coming e-commerce boom, Blue Dart is targeting a 80 per cent annual jump in its business, mostly from the shipment requirements of its online customers. For this purpose, Blue Dart has already invested Rs 40 crore to tune up its existing infrastructure and interface it with e-commerce potential.

On the technological front, Blue Dart is upgrading its intranet facility, linking 1,300 terminals with over 2,000 people at 70 locations to meet the e-commerce requirements. This means that e-shoppers in these locations can log on to Bluedart.com and ask for the shipment of ordered goods from these e-shops. Also, Blue Dart has aligned with leading portals and e-shops like Rediff.com and Fabmart.com to meet their distribution needs.

What will work?

The most important question now is this: what kind of retailing model is going to deliver the goods in the Indian scenario?

31


For an answer, consider the following. The most important cost advantage of e-tailing comes from whittled down shopfront costs and elimination of intermediaries and economical distribution. For example, book e-tailing means dispensing with big shops replete with slow-moving stock. Consider the case of Amazon.Com, where the orders go straight to the wholesaler. That means the working capital costs are cut down drastically. Not just that, an e-tailer is paid before he pays his distributor. The implication: need for lower working capital.

However, one has to compare these gains against certain web-related costs that have to be provided for. Running a website and servicing it to ensure that it is cent per cent reliable is not easy. Logistics and distribution are of utmost importance and that is where many e-tailers are known to have gone wrong. While it is true that many e-tailers have been able to cut costs, they have lost large sums of money in the process of offering goods at low prices. A few of them who have made profits have ploughed them back for financing customer acquisition or retention.

All these do not mean an end to traditional retailing. E-tailing will have to co-exist with traditional retailing. For things such as music and books, a whole new market will be created. This will increase the market manifold. E-tailers will have to work in combination with traditional retailers. Even the biggies in the business such as Amazon.com have realised this and are setting up distribution warehouses for the same.

As the combination of retailing and e-tailing set to deliver the goods, the trend of using the Internet as another service medium will gradually catch up. E-tailers like Jaldi.com have already set up kiosks in various cities which have been successful. Tsnshop.com makes use of its teleshopping network franchisees in various cities for selling its products. It helps in gaining customers fast as individuals have the option of returning the goods purchased if they do not like it. They can just go across to the shop. This gives them a certain level of comfort and confidence. Such a comfort and confidence-level is a must for a successful e-tailing venture.

This research report seeks to:

compare traditional and electronic retailing; identify the benefits of electronic retailing (e-retailing);

examine the key successes and factors;

introduce models & features of e-retailing;

discuss the PASS Model.

At the end of this report we would be able to:

32


describe the differences between retailing and e-retailing; identify new concepts and unique features of e-retailing;

Advantages and disadvantages of e-retailing;

Technical issues to creating an e-retailing site.

Goods for consumers

Traditional retailing

It was selling to a final customer through a physical outlet or through direct communication e.g.:

Malls – collection of individual stores, individually managed. Mall management provides physical location where a retailer can create an outlet;

Generalised stores – have a unified management but carry different product lines;

Specialised stores – sell a specific product line;

Franchise stores – a single marketing and brand, but individual store may be run by a different management, with a fee paid back to franchisee.

Direct mailing – catalogue is sent to customer, who then send a mail order.

33


Other forms:

Telemarketing; Door-to-door sales;

Vending machines;

have moved away from physical outlet to virtual retailing.

Retailing to E-retailing

E-retailing results from mapping traditional retailing to the new medium of the internet:

Specialised stores -> specialised e-stores; Generalised stores -> generalised e-stores;

Malls -> E-malls;

Franchise stores -> ?

New Classes of E-retailing

1) E-brokers - bring together customers and suppliers.

do not sell directly;

match customers’ requests to e-retailers;

search is based on attributes supplied by the consumer e.g. cheapest price;

important now (name-your-price) & in the future.

2) Supplementary distribution channels to traditional stores:

respond to aggressive strategies of e-stores;

additional sales-ordering mechanism;

service enhancement;

drawing people to the physical store.

3) Direct selling by manufacturer:

34


permits mass customisation;

reduced costs;

new specialised products.

Benefits of E-retailing

To the customer:

Convenience; Better information;

Competitive pricing;

Customisation;

Shopping anywhere, anytime.

To the e-retailer:

Global reach; Better customer service;

Low capital cost;

Mass customisation;

Targeted marketing;

More value added services;

New forms of specialised stores and niche marketing.

Features of E-retailing

Important features of an e-shop:

On-line catalogue for goods, linked to the order process ;

35


Provision of a search engine for products;

Shopping cart, for good selection and automatic price update;

Personalisation of store layouts, promotions and marketing;

An online contact person;

Order status checking facility;

Use of forums and customer communities.

Retail Store Attributes

Electronic shopping incorporates many of the same characteristics as "real" shopping. Thus, we identified attributes that shoppers consider when patronizing a retail store. Considerable research exists on the evaluation of department stores by consumers. The distinguished store image components in functional qualities, such as the merchandise selection, price ranges, credit policy and the store layout, and psychological attributes that were associated with the customer's feeling comfortable in the store. In our research, we only concentrated on functional qualities, as we did not survey actual customers. This earlier research concentrated on modeling customer store choice behavior.

These attributes are categorized into four groups: merchandise, service, promotion, and convenience. Merchandise variables measure product selection, assortment, quality, guarantees, and pricing. Service variables examine general service in the store and sales clerk service for merchandise return, credit policies, etc. Promotion variables record sales, advertising, and appetizer features that attract customers (e.g., a "What's new" section). Navigation variables include store layout and organization features. It extended the navigation attributes to include ease of navigating through the store and a fast checkout.

How do features from bricks and mortar retail stores relate to online retail stores?

Obviously some features like store atmosphere are difficult to measure and characterize in online retail stores. Other features like store promotions are less difficult to measure in online retail stores.

Merchandise

Beyond product count and amount of textual information for each product, the number of hierarchical levels between the store entrance and the final product page are important.

36


The number of hierarchical store levels serves as a proxy variable for the number of product categories. The number of product categories is not easy to define across different stores since stores offering different types of products will have very different levels of product categories. In one store, men's, women's and children's clothing might represent three high-level product categories; in the next case, it might be business attire, casual and sporting goods.

Service

Interactive service is an important aspect of online stores. Company information as well as extra product information was measured in number of lines. Binary questions examined gift services; the use of a frequently asked questions (FAQ) section; the use of email, phone, or mailing lists; the presence of a customer feedback section, the collection of personal customer data, extra product information and help on product size selection. One important way to establish credibility of the business of the Internet is to provide information about the history of the company, store policies and other company information. For established companies with a reputable brand name this is not as important as for a new firm operating on the Web.

Analogies between real stores and online retail stores

"Real" Store Online Retail Store

Salesclerk service Product descriptions, information pages, gift services, search function, sales clerk on the phone / email

Store promotion Special offers, on-line games and lotteries, links to other sites of interest, appetizer information

Store window displays Home page

Store atmosphere Interface consistency, store organization, interface and graphics quality

Aisle products Featured products on hierarchical levels of the store

Store layout Screen depth, browse and search functions, indices, image maps

Number of floors in the Hierarchical levels of the store

37


store

Number of store entrances and store outlets / branches

Number of links to a particular online retail store

Checkout cashier On-line shopping basket and/or order form

Look and touch of the merchandise

Limited to image quality and description, potential for sound and video applications

Number of people entering the store

Number of unique visits to the online retail store

Sales per period Sales per period

Promotion

The cybermall featured advertisements for products on a welcome screen after logon. The number of hours a store's products were on this welcome screen per month is important. It ranged from one to thirty hours. The number of hours per month individual stores were featured in other ads also was obtained from the cybermall.

Navigation

Shopping effort served as a guide to select the navigation variables. The features that influence the amount of effort (time, number of steps, etc.) required to browse and navigate the online retail store. Navigation features include the number of hyperlinks into each store as well as links between products (which were surprisingly rare). Each link is like an additional entrance to the store. Other navigation features include the number of products on the end product pages, the number of buttons used to browse the store, and the type of checkout and order process. If the average number of items in the list was greater than the box size in lines, customers had to scroll this list to see all items. Some stores provided the products' prices in the lists as well as on the final product screens.

The number of different shopping modes facilitates market segmentation. For example, a wine store can arrange the virtual store by vineyard or by variety or by price. Each different mode was counted. Shopping modes included search functions and product indices.

The basic product list consisted of a nine-item scroll list with two buttons: one to OPEN list items and one to display MORE items (Figure 1). An improved version of this list displays either an image or text description or both with the product name. Customers can select this product directly, without having to navigate further levels. This makes

38


navigation throughout the store much easier because windows do not need to be closed and re-opened.

Scrolling menu showing a basic product list.

Store Size

Larger stores attract more traffic. But as we have also seen, this traffic does not necessarily translate into higher sales. One reason for this outcome is that consumers may not find the products they are looking for in larger stores. Improved search functions or other shopping modes should overcome this low conversion to sales. Store size is also reflected in the number of hierarchical levels between the store entrance and the product pages. In some stores, the consumer had to pass seven screens before arriving at the final product screen.

Store Presentation

It appears that no amount of "sparkle" in the presentation of products can overcome a site design with poor navigation features. The impact of different features of the cybermall interface design on traffic and sales, it does not provide any detail about converting traffic into sales. Analyzing clickstream and browsing navigation data could provide an understanding of how to increase profitability of on-line markets.

Interface Variables

Consistency is a principle of computer interfaces. Color attracts attention and helps organize information in a computer interface. We surveyed the background color, texture, or pattern of the home page. Help functions are most often related to helping users recover from errors or find a particular function in the documentation. The stores should offer any initial help for customers to shop their store. This includes help information about the store's navigation or the use of ordering features like a shopping cart function. Homogeneity, coded on three levels, records whether lists contained different types of items such as products, text screens or navigation functions at the same time.

39


E-Tailing Business Models

1. Virtual merchants

Single - channel Web firms that generate almost all their revenue from online sales.

2. Clicks and mortar

Companies that have a network of physical stores as their primary retail channel, but also have introduced online offerings.

3. Catalog merchants

Established companies that have a national offline catalog operation that is their largest retail channel, but who have recently developed online capabilities.

4. Online Malls

A variation on the virtual merchant business model; they generate revenue from “rents” and services paid for by retailers who sell under the mall’s umbrella.

5. Manufacturer-Direct

Single or multi channel manufacturers who sell directly online to consumers without the intervention of retailers.

6. Electronic auctions

Proprietary auction site is an application of the supplier-oriented market place. These sites are open only to approved customers. They are designed to cement relationships between the company and its regular buyers. Sellers can get rid of surplus goods, and business customers can realize deep discounts.

7. Electronic Bartering

Related to auctions and bidding, electronic bartering is the exchange of goods and/or services without the use of money.

Examples include:

Amazon.com;

40


Walmart;

Yahoo!Store;

dell.com;

ba.com;

Priceline.com

DEVELOPMENT ISSUES

To develop an e-commerce system we need: An emergent business model

41


– if “old economy” model exists, then fusion of old model with the new e-commerce processes is needed and may require BPR (Business Process Re-engineering), and more;

– if “start-up”, then it is important to be clear about the emergent business model.

A software engineering methodology with tools for analysing the domain of application to model, specify, and implement the resulting system.

Business model issues

Extending an old economy model goes beyond BPR: Addition of new products/services, such as sale of info;

New sales and marketing modes;

Automation and streamlining of back-end processes;

Move from mass production to mass customisation;

Linking marketing to ordering;

Targeted marketing;

An electronic payment system;

Customisation and personalisation.

For an emergent business model we need to have:

A clear definition of type of system;

A clear definition of the market mechanisms that will adopted e.g. direct selling or intermediary;

A clear specification of the type of goods/services to be traded (and how they relate to the key profit drivers);

The mechanism for order fulfilment and distribution for the goods.

Steps in Development Methodology

42


The steps of the development can be summarised as: Develop description of existing business model;

Develop e-business model;

Develop requirements statement through analysis (conceptual model);

Choose system architecture and implementation platform(s);

Design & develop software structure model and architecture;

Detailed design including web UI, databases, legacy aspects;

Implementation and customisation;

Testing and piloting the e-commerce system.

REVENUE MODEL FOR B2C

Most widely used model is the PASS model: Publicity – a company sets up a web-site for publicity reasons;

Advertisement – for web-sites with a significant number of visitors advertisements can be a good source of income;

Sale of goods/services – direct way to make money by carrying out the transactions of selling on the internet.

Subscription – certain parts of the web-site are open to the public but certain others are accessible by subscribing.

Cyber shopping

The promises of on-line shopping touted by the popular press include convenient access to greater amounts of information that enhances consumer decision-making and increases

43


market penetration for the merchants. Numerous articles equally bemoan these promises. With titles such as "On-line shopping - Virtually Impossible!" critics are quick to point out that expectations are not being met. As one cybershopper stated, "I imagined that buying clothes on-line would be as easy as clicking on a outfit and having it appear on my doorstep. But after the third time I waited more than five minutes for a fuzzy picture to download and then sifted through the information, I realized that the technology has not caught up with my imagination." Regrettably, the number of shoppers and total sales are still marginal, in part, because of poor interfaces and store navigation.

Account managers, production staff and merchant partners should not assume customers do not want an item in a retail store if it is not selling. Nor should they conclude that a poor response to a given store design is because of the merchandising mix. It is important to take a harder look at the possible relationship between poorly selling items and screen design and layout. Could customers be having a tough time wading through the screens? Can customers find what they want in the stores? Are customers aware of what products are in the stores? After all, diligence in browsing a store is not a virtue Internet retail marketers should expect from their customers.

While store traffic and sales are adversely influenced by poor interface features, it is important to document and quantify how much sales are impacted as well as to understand the underlying consumer behavior. The number of levels between the store entrance and end product, the number of browsing modes, such as searching by brand or by price, as well as the consistent design of lists and menu bars should influence consumer buying behavior in an on-line marketplace. Using a regression model, we examine the relationship between interface design features and traffic and sales data in order to quantify tradeoffs among different interface redesign alternatives. The variance in store traffic and sales as a function of differences in interface design features. This can be used to assess the existing store and to improve features that are below average. It can also answer questions such as: "What is the value of implementing a search function into a site?" or "What is the value of having a product featured on the home page of a store?" This type of data provides some arguments for redesigning Internet retail stores. Even small improvements in traffic and conversion rates can have a huge influence on sales.

ELECTRONIC RELATIONSHIPS

Electronic relationships consist of relationships that are supported by Information Technology. With the help of IT distant relationships that were once hindered due to geographic considerations can now become less "distant". As the Information society evolves exchanges of all kinds between buyers and sellers will no longer be limited to physical surroundings, with exceptions of course. Certain products and services will inevitably, due to their nature, still require a transaction to physically take place between buyer and seller; however, other types of transactions will acquire a fundamentally more "digital" character – leading to the concept of "electronic" relationships. Certainly there have existed technologies in the past that supported long distance relationships but all,

44


more or less, lacked the capability for real time inter-activity in a digital format. Since all types of media posses distinctive qualities each media is potentially perceived differently by the recipients, hence, leading to varying forms of relationships. Relationship strategists now emphasize how data must be transformed into relations. "That is electronic networks are constructed in order to handle relationships and not for handling information."

One of the objectives of digital marketers is to attract visitors to a site and encourage them to come back - thus raising an opportunity of creating an on-line relationship with the customer. For customers to return to a certain site, they have to be offered an incentive to do so. Bishop mentions four types of such incentives:

Financial incentives Intellectual incentives Functional incentives Entertaining incentives

The customer database is a central tool in managing electronic relationships since it enables knowledge about individual customers. "A customer database is the fundamental tool of digital marketing. By keeping an accurate profile of your customers, a database will help you develop better relationships with them on a one-to-one basis." Databases are at the heart of electronic retailing, they are a necessary tool for mass-customization, and the industrialization of one-to-one service that can only come through when the buyer and seller "know" each other.

Pains & pleasures of E-tailing

45


E-tailing is a concept that is catching on. With each passing day, one hears about new B2C portals announcing their plans. That does not mean it is an end to traditional brick-and-mortar retailing. There is every possibility that traditional retailing would co-exist in a complementary role with e-tailing.

Difference between e-tailing and retailing

The concept of e-tailing is to effectively e-enable a phenomenon that is part and parcel of our everyday lives. E-tailing offers a delivery channel of convenience that takes away the pain of shopping. It is taking advantage of the technology boom. It is the marketing window of technology.

Traditional retailing and e-tailing can co-exist

Both retailing and e-tailing will continue to co-exist for quite sometime to come. We don't see e-tailing as a complete alternative to physical shopping. Clearly, both will co-exist. What will happen is this: people buying on the Net will start increasing slowly. Quickly after some time, there would be an exponential jump with people realising that this medium definitely offers significant convenience. For need-based products, the Net is becoming a very convenient way of buying. We strongly believe e-tailing will expand the market in the case of impulse-based products such as books and music. The Net offers you an opportunity to buy irrespective of where you are. This will clearly expand the market. After a period of time, we believe both retailing and e-tailing will reach their plateau and continue to co-exist with each other.

Size of the e-tail market, growth of it to be in the coming years

If financial services and travel services were to be included, the e-tail market would be a huge one. Various forecasts by research agencies estimate that the e-tail market is $180 million large in South and South East Asia. As far as India is concerned, the e-tail market should be anywhere near $10 million. Research reports are known to have gone wrong. The greatest growth in e-tailing will come from class B and class C Indian towns. The gut feeling is that 10 per cent of the Indian population would buy at least once on the Net in 2001. The internet is going to spread like wildfire in our rural and semi-urban areas.

The e-tail market should be anywhere close to Rs 75 to Rs 100 crore. However, the rate of growth will be substantially higher. This is because when PC-penetration increases, the rate of growth will accelerate. During the next five years, the e-tail market will increase ten times every year.

46


Importance of logistics in e-tailing

The net has to work in partnership with hundreds of people including couriers, banks and credit card companies. All kinds of partnerships will emerge on the Net. It is important to create your own logistics.

What is important is when the orders come into the administrative module. And then the supply chain has to be e-enabled for the whole system to work smoothly.

We are currently offering 54 well-known brands across as many as 18 categories of products. The truth is that most of those with whom we have allied for these brands are not online. So I don't have any method of tracking online inventories of each brand. These are the issues that will be technologically solved provided that the entire value chain is completely de-linked. This is is not the case today. We have already set up a logistics setup in the home shopping segment via television. We are in a position to leverage our existing knowledge and physical bases to do that.

Finally, the most important issue which everyone shopping on the net has thrown up is what happens to the customer when he has a problem with the merchandise. Of course, you can send an e-mail and then get an answer. But, we found that with our 102 physical locations, we have a huge advantage. My customer can go with my invoice and what he bought from me to 102 places and get the refund. So, the key issue here is to satisfy a customer who has a problem.

Margins of e-tailing

In fact all of us must be making gross margins on the items we sell. We are also trying couriers, though the cost is higher. Retail margins are around 25 to 30 per cent. Most of this would go to cover the initial set up cost. People come to the Net expecting goods to be cheaper, which will put further pressure on e-tailers. Largely, over a period of time we have to pass on the efficiencies of this new media to the consumer. The minimum period that will take for an e-tailer to make money is three years. There are people who think the easiest thing about e-tailing is to put some four items and exit in six months by selling off. However, this will not work because of the pressure on margins.

Successful E-tailing model

There are going to be different categories of players who will define their modules through innovative marketing, innovative price reduction and by getting the customer

47


online at a cheaper cost. There could be various ways of making a customer migrate from a real life store to an online store. For any B2C successful module, one will have to invest in a large B2B module. 80 to 90 per cent of the capital will have to be invested in setting up of the supply chain. Many of our clients have been told that they need to invest large amounts in the back-end system and they need to set up a centralised inventory management system which will keep track of all the goods at one centralised point of delivery. For making money, there are going to be large opportunities for everybody. There should be a consolidated effort, not just in one segment. We have to go through a certain stage where one will be able to make profits earlier and may require to invest that in other segments to acquire customers. Over thenext three to four years, we are definitely going to have larger segments. There will have to be a convergence of all these modules.

The concepts of a portal and an e-tailer are actually very complicated and are different. Most of us are not portals in that sense, we are basically e-tailers. We don't intend to be portals in the conventional sense of the word. We have taken a stance in our module that we would go by an umbrella strategy wherein we are trying to build a concept of an e-mall. There, I am effectively a manager of space. So, that is the concept. We are saying that the mall in the international context is a re-builder of space in which branded merchants come and create their own store fronts and create their own marketing postures and positions. So that is one level of it. If it is a module going forward, in a market which is yet to segment itself into varying niches, we really do not know which product category is going to outdo the other.

Customer loyalty on the net and to acquire and retain an e-customer

All of us are trying to acquire this fictitious customer. This customer is very smart, he knows where he will get his goods cheaper. I don't think customer is someone you can acquire today. Our customers range from kids 10 years of age to those 70 years old. I think the customer is extremely witty. I don't think in e-business it is possible to get a customer for life because in another 10 months there will be another few e-tailing sites. We are trying to outdo each other on prices and giving free gifts. Despite our experience, I cannot say how to nail this customer to our site. This customer is very smart, he is going to visit 25 other sites all through the day. I am very foxed at this customer who is the biggest mystery of life. I think low prices tempt customers. One of the ways the customer can be acquired is to look at the customer's purchasing power. Virtually, everyone spends about 10 to 15 per cent on excise and there is a 15 per cent logistic cost. So, ultimately 25 to 30 per cent is thecost getting across to the customer. If the Internet becomes a powerful media, there can be a substantial reduction in the cost. This could be passed on to the consumer.

Companies such as Sony have spent considerable fortune in building up their distribution networks. And they find that someone buys on the Net at 30 per cent cheaper, it upsets

48


the whole value chain they have created. That is one big constraint. In India, disintermediation is going to be very difficult. The real game is this. Whether one can get something at a substantially lower price. In e-tailing companies, credibility and pricing will be major issues.

It is possible to keep the customer with a particular retailer for a reasonably long period of time, may be one to three years. Brand loyalty on the internet is very convenient because competition is just a click away. So, it is possible to build strong brands on the Net. The consumer will not shift unless he has very strong reasons. If his experience is not very pleasant, he will not come back to you. The Net can be a pain to use. Only retailers who offer overwhelming value can successfully retail on the Net. The trick is here. If the internet store is constantly innovating and offering new values to the consumer, there is no reason for him to shift. What we are very clear about is the need to invest continuously in acquiring customers.

The fundamental difference of e-tailing is this. It is not just a new medium of offering products. In e-tailing we are trying to change the buyer area which is not very easy to do. You can run a promotion today and you will get customers. You stop the promotion tomorrow and obviously the customer forgets. Some of them might be waiting for the next promotion. Because, the consumer today is not used to the net. In fact, all of us are being brought up buying in the brick and mortar.

We are speaking specifically here about the online media which is more or less the cheapest media available. We have found that that every 60th customer who logs in becomes our customer. This figure may change drastically over the next couple of years as we get comfortable with the usage of the net. Repeat visitors are going to come in. There may be different categories of customers coming along. Shopping will not be restricted only on the price count, there will be a lot of other things. It will be a reinvention of market strategy that will come along.

E-tailing in a couple of years

It is difficult to understand this e-tailing concept through a conventional medium. We are struggling to do three or four things. We are effectively trying to build or sell a concept rather than sell a product since we are creating the market for the first time. A lot of our time goes in selling the idea on the Net. All of us in our own way spend enormous amount of time trying to explain simple things to very enlightened people in very large companies.

We believe in our wisdom that the first time a person is converted into a Net- shopper, it is going to be a lasting impression. There are many ways of doing it. We are trying to create the phenomenon of making a person shop with us for the first time, because we feel that it is a very special moment in his buying behaviour. The idea that came to us to make his buying simple is to build a type of currency, not only on our site, but also across

49


other sites. And we introduced a concept called e-chips. This was a multi-pronged marketing tool which helped us build a loyalty programme.

On day one, we came up with a concept called virtual pass book on our site. There are apprehensions that credit card may not be safe, that the site may be hacked and credit card will be exposed. But, today you can directly transfer from your bank and buy a certain number of e-chips on my site. So, effectively you have got a debit card, which you can use it. The customer can redeem the benefits of e-chips across the world. I have never seen anyone talking about bandwidth. As far as e-tailing is concerned, the whole business of cyber laws and payment gateways offering various online solutions are major hindrances.

One of the mistakes we made was this: we did not make the project report and we did not understand the implications of e-biz. Honestly, we started with the approach of get-rich-quick that was our first motivator. We had no idea of what the cost of e-biz is going to be.

We were completely convinced that our focus will work. We had the option of building portal sites and offering free e-mail and astrological predictions. But somewhere we felt that this business of shopping required intense focus. If you can promote your site and spend money on advertising, people will come. But, the fundamental obstacle to e-tailing in this country is inertia. We could have built a smarter strategy of addressing this inertia right from the beginning. We figured it out as we went along, we subsequently ran promotional schemes which have helped people to come and sample our e-commerce. We ran a scheme which became reasonably popular, it was called two-for-two. We gave away music cassettes at one rupee each. It was not promotion and the objective was not discount. The idea was this: if at one rupee you can bring a customer to overcome the inertia and sample e-commerce once and if that experience turns out to be pleasant, perhaps he will start buying on the Net.

INTERNET AND ONLINE SCAMS

Ten Internet Scams

50


There are so many incredible looking deals on the Internet. Not a day passes that we don't get an email offering to make us rich, have improved body parts, get cheap drugs, get a free vacation, earn thousands of dollars...you get the picture. Here are the most prevalent Internet scams that you'll come across. Beware!

1. Internet Auctions

After sending their money, consumers say they’ve received an item that is less valuable than promised, or, worse yet, nothing at all. If you participate in online auctions, particularly for a valuable item, check out the seller and insist on paying with a credit card or using an escrow service.

2. Internet Access Providers

Consumers say they’ve been "trapped" into long-term contracts for Internet access or another web service, with big penalties for cancellation or early termination. If a check arrives at your home or business, read both sides carefully and look inside the envelope to find the conditions you’re agreeing to if you cash the check. Read your phone bill carefully for unexpected or unauthorized charges.

3. Web Cramming

You are offered a free custom-designed website for a 30-day trial period, with no obligation to continue. Consumers say they’ve been charged on their telephone bills or received a separate invoice, even if they never accepted the offer or agreed to continue the service after the trial period. Review your telephone bills and challenge any charges you don’t recognize.

4. Travel and Vacation

You are offered a luxurious trip with lots of "extras" at a bargain-basement price. Consumers say some companies deliver lower-quality accommodations and services than they’ve advertised or no trip at all. Others have been hit with hidden charges or additional requirements after they’ve paid. Get references on any travel company you’re planning to do business with. Then, get details of the trip in writing, including the cancellation policy, before signing on.

5. Investments

You are told you can make an initial investment in a day trading system or service and you’ll quickly realize huge returns. Check out the promoter with state and federal securities and commodities regulators, and talk to other people who invested through the program to find out what level of risk you’re assuming.

6. International Modem Dialing

51


Get free access to adult material and pornography by downloading a "viewer" or "dialer" computer program. Consumers complained about exorbitant long-distance charges on their phone bill. Through the program, their modem is disconnected, then reconnected to the Internet through an international long-distance number.

7. Credit Cards

You are told you can surf the Internet and view adult images online for free, just for sharing your credit card number to prove you’re over 18. Consumers say that fraudulent promoters have used their credit card numbers to run up charges on their cards. Share credit card information only when buying from a company you trust. Dispute unauthorized charges on your credit card bill by complaining to the bank that issued the card. Federal law limits your liability to $50 in charges if your card is misused.

8. Multilevel Marketing and Pyramid Schemes

You are told you can make money through the products and services you sell as well as those sold by the people you recruit into the program. Consumers say that they’ve bought into plans and programs, but their customers are other distributors, not the general public. Some multilevel marketing programs are actually illegal pyramid schemes. When products or services are sold only to distributors like yourself, there’s no way to make money. Avoid plans that require you to recruit distributors, buy expensive inventory or commit to a minimum sales volume.

9. Business Opportunities

Be your own boss and earn big bucks. Taken in by promises about potential earnings, many consumers have invested in a "biz op" that turned out to be a "biz flop." There was no evidence to back up the earnings claims. Talk to other people who started businesses through the same company, get all the promises in writing, and study the proposed contract carefully before signing. Get an attorney or an accountant to take a look at it, too.

10. Health Care Products & Services

The claim is that items not sold through traditional suppliers are "proven" to cure serious and even fatal health problems. Claims for "miracle" products and treatments convince consumers that their health problems can be cured. But people with serious illnesses who put their hopes in these offers might delay getting the health care they need. Consult a health care professional before buying any "cure-all" that claims to treat a wide range of ailments or offers quick cures and easy solutions to serious illnesses.

What Every Online Retailer Needs to Know

52


The privacy policy, or lack of one, is becoming increasingly important to Internet shoppers. According to the second annual National Technology Readiness Survey (NTRS), privacy tops the list of important features for an online shopping site.

Four-in-five U.S. consumers think that an e-commerce site's privacy policy detailing their use of customers' personal information is important. Seven-in-ten consumers are looking for clearly spelled out policies on warranty protection, returns, and shipping and handling fees. And nearly two-thirds would like retailers to post clear explanations or descriptions of the product or service on sale.

Many factors go into the design of a web site, such as the look and feel, navigation and content. But in order to design a prosperous e-commerce web site, companies also need to consider a number of shopping-related factors, such as protecting the privacy and purchasing rights of consumers, and providing sufficient help if the online shopping process does not go as planned."

Of comparatively less importance than privacy is the availability of various payment methods:

Credit cards are both the most common method of payment (82%), and the one that the most online consumers prefer (68%).

Only one-quarter of consumers would use checking or debit cards that withdraw money directly from their bank accounts.

Technical support and after-sales service are important with Internet consumers:

58% consider the availability of customer support via telephone important 53% consider the availability of online support important 84% find it at least somewhat desirable to call a customer service representative

on the phone most consumers are amenable to any type of help option offered 46% of consumers named a phone conversation with a customer service

representative as their most preferred way to receive help

Online shopping help-options bring us back to consumers' desire for the human touch. The market of tomorrow may be more dependent on a live person than it is today, as the next generation of less technology-savvy, more cautious shoppers, comes online over the course of the next 12 months.

METHODOLOGY

53


Given the purpose of this research, the natural starting point was to examine the opportunities and difficulties faced by practitioners, which was done by the collection of primary data through questionnaires. Secondary data was collected through published literature, magazine articles, Internet articles, and seminars. The wide range of theories reviewed was necessary in order to impose structure on the wide array of opportunities and difficulties presented by the primary data. Finally, created a business model of electronic retailing that encompasses traditional marketing theory, but with certain amendments and modifications.

54

E-BUSINESS THEORYINTERNET

CHARACTERISTICS AND IMPLICATION FOR

ELECTRONIC RETAILING

A MODEL FOR ELECTRONIC RETAILING

Fig 2.1 General outline of the research


PHASES AND CHOICES IN THE RESEARCH PROCESS

The following observations about the subject were made in the initial phase of the research process:

Electronic retailing as a phenomenon is relatively new and in particular it was new. Therefore it was a challenge for me to know beforehand exactly what questions to pose. Considering this, it would have been difficult for the authors to generate relevant data through a quantitative method, not to mention the challenges of validity and reliability.

Internet technology, demographics, and usage patterns are changing so fast that quantitative data becomes obsolete relatively soon. Therefore, "hard data" decreases in importance.

Quantitative data of a much higher quality than the authors could hope to produce, with the limited resources at hand.

For these reasons, an exploratory and qualitative research approach was adopted to allow

for continuous adjustment of focus as more understanding of the subject was generated.

The initial purpose was to examine how a firm new to electronic retailing should

incorporate electronic retailing. However, it became clear that examining how a business

should manage on the Internet was a more rewarding and interesting question. A new

purpose was defined: "to provide guidance on how to become a successful electronic

retailer" (a perfect example of "purpose drift"). After consulting the supervising

professors, it became evident that this second purpose was too vague, and thus the third,

and final, purpose was redefined so as to be more specific.

55


To a great extent, a hermeneutic approach was applied. Initially a general understanding

of research, and basic knowledge on the subject of electronic commerce. Between two to

three weeks were invested in deepening that initial knowledge through studies of

secondary sources on certain marketing theories and published material on electronic

commerce. Subsequently, the first interview forms were composed and revised upon

testing. The first three interviews were then conducted, where upon the results were

evaluated. Drawing upon the new perspectives generated by these initial interviews,

additional literature was consulted - a new understanding was formed. This process was

repeated two more times until the final model was conceived.

56

Initial understanding

New understanding

Interpretation

Dialogue

Dialogue

Interpretation

New understanding

The hermeneutic research process


PRIMARY DATA

Primary data, that is, material that the researcher gathered themselves, fills an important function in this researcher. It was through questionnaires with students, common man, business representatives that handle electronic retailing issues in their daily work, that the authors were able to understand what issues should be analyzed and tackled by the suggested model of electronic retailing. Most questionnaires were conducted in-person, and were recorded and later summarized in text as well as using SPSS to facilitate their use and analysis.

Choice of reference groups and respondents

Respondents were gathered from three main areas: personnel in firms that conduct electronic retailing, consultants in the fields of web solutions, marketing, promotion, and strategy, and academic experts. The thought behind this wide selection of expertise, was to allow the authors to comprise a dynamic, yet balanced, perspective on the subject of electronic retailing. Also, the wide array of sources reduces the risks of tendency.

Firms that actually conduct electronic retailing are closest to the market, and can be expected to have a very practically oriented perspective.

57

ConsultantsFirms conducting electronic retailing

Students

Fig 2.4. Creating a balanced collection of primary data


Through these questionnaires, researcher perceives an idea of how electronic retailing is actually being pursued today, and what practitioners perceive as their real problems and opportunities.

Consultants, and students using electronic retailing and electronic commerce services, were the largest group of respondents. The consultant category was chosen because its members could provide structured and generalized analysis of opportunities and difficulties faced by electronic retailers since they had accumulated experience through their customers.

Critique of primary data

As a subject, electronic retailing still lacks any true leading actors. Therefore, it was from the very beginning unclear which primary sources would be pertinent. Initially, the choice of respondents was to a large extent random in nature.

58


SECONDARY DATA

Various forms of secondary data were used within the scope of this paper, e g published material on e-retailing, the Internet as a media, and electronic retailing articles in magazines and on the Internet, seminars, etc.

Secondary data filled mainly two functions:

1. It was the starting point of the research process, providing the initial framework within which the researcher worked.

2. Secondary data provided figures and complimented the primary data collected through questionnaires.

The Internet

Due to the relative novelty of electronic retailing, its fast pace of change (sources more than a few years old are more or less useless), and the nature of the subject, the Internet was used extensively as a source of information throughout this research. Of all the features of the Internet, e-mail, FTP, and the www, were used for gathering and sharing data. Internet articles were consulted to a great extent to complement the theoretical models presented, in terms of Internet specific applications of traditional marketing theory. Also, the chosen articles contained specific information pertaining to on-line shopping behavior, branding on the Internet, and one-to-one applications.

Critique of secondary data

Problems experienced in the choice of secondary data sources resembled to a great extent those faced during the collection of primary data. Electronic retailing does not exist as an academic discipline, neither is it well represented among existing marketing theory. It might be argued that traditional marketing theory can not be applied to contexts within electronic retailing, due to new dynamics of the electronic markets.

Initially the researcher focused on a few core marketing theories that appeared relevant for the purpose of the study. Thereby, the risk of the authors being biased to use these theories as a framework, even though not optimal for analysis, was clearly present. The fact that these theories, together with relationship marketing and branding theory, seemed in the end to capture all aspects of electronic retailing, might appear to be a result of very good judgment or intuition by the authors, or it might seem that the information collected on electronic retailing was squeezed to fit these theories. However, this risk is always present, no matter how clearly a scholar realizes that he is biased towards one or more ways of interpretation. Every person has prior experiences, and so an underlying frame of reference.

59


Internet sources were consulted to a relatively large degree, posing special reliability problems. There are vast amounts of information, just waiting to be collected from the Internet. It is not always easy to find however, and the quality varies substantially. A critical eye is extra important when dealing with the Internet since anyone can publish information and it is relatively easy to make it appear professional. Methods to judge the reliability of Internet sources included: publisher, references/links from other Internet sources, printed material and interview persons, and how recently the page was up-dated. Major search engines, such as Altavista and Yahoo were consulted.

60


QUESTIONNAIRE

Thinking about your experience with [INTERNET_RETAILER], please indicate your opinions about the following statements:

Strongly agree

Agree Neutral Disagree Strongly disagree

Not sure

I prefer making a purchase from this Internet retailer over using local offices, malls or stores.

I prefer this Internet retailer over other home shopping services (i.e., catalogs, "1-800" services or television).

This Internet retailer doesn't just sell products or services--it entertains me.

I received special rewards and discounts from doing business with this Internet retailer.

I say positive things about this Internet retailer to other people.

I consider this Internet retailer to be my first choice when I need products or services of this type.

The "look" of this Internet site is appealing to me.

I really like doing business with this Internet retailer.

I intend to continue to visit this

61


Internet retailer's site in the future.

I intend to purchase from this Internet retailer in the future.

This Internet retailer is one of the first places I intend to look when I need the type of merchandise or services it provides.

It would require a lot of time and effort on my part, to set up an account with another Internet retailer.

It would take a lot of time and energy to look for another Internet retailer for this type of product.

The products and/or services I purchased from this Internet retailer were a good value.

I enjoy doing business with this Internet retailer.

62


ANALYSIS


Frequency Percent Valid PercentCumulative

PercentValid Strongly

agree5 10.0 10.0 10.0

Agree 21 42.0 42.0 52.0

Neutral 18 36.0 36.0 88.0

Disagree 6 12.0 12.0 100.0

Total 50 100.0 100.0

This Internet retailer doesn't just sell products or services--it entertains me



agree7 14.0 14.0 14.0

Agree 14 28.0 28.0 42.0

Neutral 18 36.0 36.0 78.0

Disagree 8 16.0 16.0 94.0

Strongly disagree

3 6.0 6.0 100.0

Total 50 100.0 100.0




agree2 4.0 4.0 4.0

Agree 15 30.0 30.0 34.0

Neutral 14 28.0 28.0 62.0

Disagree 11 22.0 22.0 84.0

Strongly disagree

8 16.0 16.0 100.0

Total 50 100.0 100.0

63


I say positive things about this Internet retailer to other people



agree5 10.0 10.0 10.0

Agree 13 26.0 26.0 36.0

Neutral 17 34.0 34.0 70.0

Disagree 10 20.0 20.0 90.0

Strongly disagree

5 10.0 10.0 100.0

Total 50 100.0 100.0

I consider this Internet retailer to be my first choice when I need products or services of this typ



agree5 10.0 10.0 10.0

Agree 11 22.0 22.0 32.0

Neutral 18 36.0 36.0 68.0

Disagree 13 26.0 26.0 94.0

Strongly disagree

3 6.0 6.0 100.0

Total 50 100.0 100.0




agree3 6.0 6.0 6.0

Agree 13 26.0 26.0 32.0

Neutral 16 32.0 32.0 64.0

Disagree 11 22.0 22.0 86.0

Strongly disagree

7 14.0 14.0 100.0

Total 50 100.0 100.0

I really like doing business with this Internet retailer.

64




agree5 10.0 10.0 10.0

Agree 15 30.0 30.0 40.0

Neutral 14 28.0 28.0 68.0

Disagree 10 20.0 20.0 88.0

Strongly disagree

6 12.0 12.0 100.0

Total 50 100.0 100.0

I intend to continue to visit this Internet retailer's site in the future.



agree5 10.0 10.0 10.0

Agree 14 28.0 28.0 38.0

Neutral 13 26.0 26.0 64.0

Disagree 13 26.0 26.0 90.0

Strongly disagree

5 10.0 10.0 100.0

Total 50 100.0 100.0

I intend to purchase from this Internet retailer in the future.



agree3 6.0 6.0 6.0

Agree 10 20.0 20.0 26.0

Neutral 20 40.0 40.0 66.0

Disagree 11 22.0 22.0 88.0

Strongly disagree

6 12.0 12.0 100.0

Total 50 100.0 100.0

This Internet retailer is one of the first places I intend to look when I need the type of merchandise or services it provides



agree3 6.0 6.0 6.0

Agree 10 20.0 20.0 26.0

Neutral 18 36.0 36.0 62.0

65


Disagree 13 26.0 26.0 88.0

Strongly disagree

6 12.0 12.0 100.0

Total 50 100.0 100.0

It would require a lot of time and effort on my part, to set up an account with another Internet retailer.



agree3 6.0 6.0 6.0

Agree 20 40.0 40.0 46.0

Neutral 19 38.0 38.0 84.0

Disagree 7 14.0 14.0 98.0

Strongly disagree

1 2.0 2.0 100.0

Total 50 100.0 100.0

It would take a lot of time and energy to look for another Internet retailer for this type of product



agree5 10.0 10.0 10.0

Agree 11 22.0 22.0 32.0

Neutral 18 36.0 36.0 68.0

Disagree 13 26.0 26.0 94.0

Strongly disagree

2 4.0 4.0 98.0

Not sure 1 2.0 2.0 100.0

Total 50 100.0 100.0

The products and/or services I purchased from this Internet retailer were a good value.



agree5 10.0 10.0 10.0

Agree 13 26.0 26.0 36.0

Neutral 15 30.0 30.0 66.0

Disagree 12 24.0 24.0 90.0

Strongly disagree

5 10.0 10.0 100.0

Total 50 100.0 100.0

66


I enjoy doing business with this Internet retailer.



agree4 8.0 8.0 8.0

Agree 11 22.0 22.0 30.0

Neutral 16 32.0 32.0 62.0

Disagree 12 24.0 24.0 86.0

Strongly disagree

7 14.0 14.0 100.0

Total 50 100.0 100.0

67


Strongly agree Agree Neutral Disagree


0

10

20

30

40

50

Per

cen

t


68


Strongly agree Agree Neutral Disagree Strongly disagree

I prefer this Internet retailer over other home shopping services (i.e., catalogs, "1-800" services or television).

0

10

20

30

40

Per

cen

tI prefer this Internet retailer over other home shopping services

(i.e., catalogs, "1-800" services or television).

69



This Internet retailer doesn't just sell products or services--it entertains me

0

10

20

30

40

Per

cen

tThis Internet retailer doesn't just sell products or services--it

entertains me

70




0

5

10

15

20

25

30

Per

cen

tI received special rewards and discounts from doing business

with this Internet retailer.

71



I say positive things about this Internet retailer to other people

0

10

20

30

40

Per

cen

tI say positive things about this Internet retailer to other people

72



I consider this Internet retailer to be my first choice when I need products or services of this typ

0

10

20

30

40

Per

cen

tI consider this Internet retailer to be my first choice when I

need products or services of this typ

73




0

10

20

30

40

Per

cen

tThe "look" of this Internet site is appealing to me.

74




0

10

20

30

40

Per

cen

tThe "look" of this Internet site is appealing to me.

75


E-Retailing: The Small Business Development Center

It Looks So Easy

All one have to do is put up a web site that offers a good product, sit back, and watch the money roll in! After all there must be enough people in a world wide market who want to buy my product to make E-Retailing the direct route to wealth, free time, and early retirement”. If it were that easy there would be a lot more people basking in the sun at a beachfront condo (or wherever your dreams take you). Successful E-Retail companies have a real story to tell. They will tell you that it takes years of hard work with a combination of the entrepreneurial spirit, careful business planning, and maybe even a little luck. In this publication you will explore your entrepreneurial skills, the preparation requirements, the commitment, the costs, the scammers, and the reality of success.

Know Yourself

Owning one’s own business can be a rewarding experience; the profits, the independence, and the lifestyle. From creating a vision for business to the day to day operations one have the ultimate authority in the decision making process. However, there are also many challenges that come with the operation of a business, whether it is a brick and mortar operation or a web-based E-Retail business. As an entrepreneur one must be able to deal with the rigors of hard work, day to day stress, and the risk of failure. Successful entrepreneurs typically have four main characteristics1;

need for achievement willing to take risks self-confidence a passion for the business.

A self-evaluation will give you a good indication if we meet the initial requirements as an entrepreneur. Of course, there are always exceptions to every rule but these are very good indicators. In fact, the fourth characteristic, a passion for the business may be the most important. It indicates a willingness to make the commitment to hard work and the tenacity to succeed. The entrepreneurial process can be divided into a series of steps2:

1. Deciding your are an entrepreneur 2. Deciding whether to buy or start a business 3. Define the business with a business plan 4. Operate the business 5. “Harvest” or sell the business

76


In many cases the real payoff for the entrepreneur is the harvest. That is when they are truly rewarded for the years of hard work and dedication to the business.

Know Your Customer

What you are planning to sell online is critical to the success of your E-Retail business. You will explore your customer in a number of different ways in this section. First you need to be aware of some statistics regarding electronic commerce. In a report put out by the United States Census Bureau3 one amazing statistic stands out. Over 93% of electronic commerce is conducted Business to Business (B2B). Less than 7% of electronic commerce is credited to Business to Consumer (B2C) sales. B2C sales are then nearly equally divided into Retail and Selected Services. The 3.2% of Retail Sales is heavily dominated by electronic shopping and mail order houses. Selected Services accounts for 3.5% of e-commerce and is dominated by travel and reservation services. Even at these small percentages annual sales amount in the billions. With this in mind, retail electronic commerce is even more competitive than is normally thought. With literally millions of E-Retail web sites the revenue pie gets divided very small, especially considering the major brick and mortar businesses that use E-Retailing as part of their business plan. E-Retailing and e-commerce have distinct advantages and disadvantages for both the seller and the buyer. The following chart highlights both: Advantages for E-Commerce Seller Advantages for E-Commerce Buyer Increased sales opportunities Wider product availability Decreased transaction costs Customized and personalized

information and buying options Ability to operate 24/7 Ability to shop 24/7 Ability to reach narrow market segment over a global market

Easy comparison shopping

Increased speed and accuracy of information exchange

Quick delivery of digital products

Ability to maintain strong customer relationships with direct interaction

Ability to create a one-on-one relationship with the seller

77


Disadvantages for E-Commerce Seller Disadvantages for E-Commerce Buyer

Rapidly changing technology Concern with transaction security and privacy

Insufficient telecommunications capacity (bandwidth) in some areas

Lack of trust for unfamiliar sites

Difficulty integrating existing systems with e-business software

Inability to touch and feel products before purchase

Problems maintaining security and reliability Unfamiliar buying process using electronic money

Global market issues of language, politics, and currency conversion

Complicated legal environment

Increased instances of failure to pay or fraud Return policies that are difficult to understand

Before one create a business plan, one may want to review the following lists for additional ideas on your E-Retail business. The first list includes some of the typical E-Retail business ideas. The second list includes a number of things one can do with its web site. Hopefully both will give you ideas to create a winning online business.

What to sell online

• Products that can sell cheaper • Products that require consumer research • Items that are hard to find (i.e., collectibles and specialty items) • Products that appeal to tech-savvy users

What else can one do online?

• Increase brand or product awareness • Enhancing corporate image • Achieving market leadership • Providing information and/or displaying samples of goods or services • Generating a list of prospective customers • Qualifying leads • Building loyal relationships with customers • Improving customer service • Gathering information about customer needs and preferences to guide future product

development • Improving knowledge of customer demographics • Testing consumer response to discounts or other special offers • Finding strategic business partners, dealer, franchisees, or suppliers

78


• Recruiting employees, members, subscribers, or investors • Saving money through automation, streamlined distribution channels, reduced cost

or order fulfillment, or smaller inventories

Another consideration is the conversion rate or converting shoppers to buyers. Customers buy online because of a variety of reasons. You will need to consider them in your business and marketing plan. United States Department of Commerce statistics indicate almost 50% of online shoppers site convenience as the best thing about shopping online. Next is ease of research at 22%, followed by good prices and deals at 12%, and good selection at 11%. The remaining 6% of the reasons shoppers buy online is divided between impulse, fun, customer service, and other.

Fall 2006 Top Items Purchased Singles Married Student loans Drugs/remedies/prescriptions Credit card Home improvement Video game cartridge Computer software - educationalComputer software - games Gardening tools/supplies Music CDs/tapes Toys/non-computer games

Knowing your customer will play a critical role in the success of your E-Retail business. As you have seen there are many considerations and competition in selling to the consumer in a B2C enterprise. You may also want to explore the opportunities is the B2B area of electronic commerce. Consider this, selling one item to the consumer is good, but selling 1,000 items to another business who will sell to the consumer is better.

Commitment

Your commitment to the business is measured in time, energy and the skills you bring with you to the business. As indicated earlier you will need to devote time to the development of a sound business and marketing plan. Once you have created the plan there will be many hours of development time. Development time includes the planning of the E-Retail web site itself, the purchase of manufacturing of the products you plan to sell, and the infrastructure required to operate the business. Once the E-Retail business is operating you will need to devote time to updating all of the above. The Internet is ever evolving so in order for your web site to remain current you will need to be updating it as the industry dictates. You will also be constantly evaluating what your customers are buying and not buying to adjust your product and product line.

79


Maintenance is another time commitment related to the technology of your E-Retail business. As your business grows you will be faced with decisions about how to handle the web site traffic. You will also have to make adjustments to the infrastructure of the business to handle increased shipping and customer service demands. The skills you bring to the business will determine in part the costs of starting and operating your business. In today’s DIY (Do-It-Yourself) business climate you will have to wear many hats. Here is a list of just some of the skills required to operate an electronic commerce business: Information Technology Programming Security Graphics Accounting Database Management Inventory Management Accounting Marketing Human Resources

Your commitment in energy goes back to your passion for the business. Your commitment of time and your skill level will have a direct impact on the costs related to building your E-Retail business.

Costs

Your E-Retail business will incur startup costs similar to that of a brick and mortar business. The main difference is there will be no indication to anyone other than yourself and those working with you that anything is happening with your business. With a brick and mortar business potential customers can anticipate the opening of your business based on the progress of the building. The “curb appeal” of a brick and mortar business can help establish an immediate customer base, but with an electronic commerce business no one knows that you are doing anything until the grand opening announcement is made through your marketing efforts. The business plan you created included a financial plan. It is difficult to predict costs because the number of variables related to starting a new business.

As you build your E-Retail business you will soon find that in addition to a time commitment there is a significant financial commitment. Just because it is web-based does not mean there are any shortcuts.

80


Fraud

One of the concerns of E-Retailers is whether their customers believe they are a trustworthy seller. Developing a trusting relationship with a customer will take time and effort and it’s no wonder. The Federal Trade Commission reported that online scammers robbed Americans of more than $437 million dollars in 2003 with Internet related fraud accounting for 55% of all fraud reports6.

Top Products/Services for Internet-Related Fraud Complaints, 2005

Internet auctions 48%Shop-at-home/Catalog sales 20%Internet access services 8%Internet info and adult services 6%Foreign money offers 4%Computer equipment/software 2%Business opportunities 2%Note: Percentages are based on the total number of Internet-related complaints for the year (166,617)

Internet fraud is not something that happens somewhere else. A recent event held locally promised success and financial independence while inviting attendees to sign a contract to develop an online storefront with their company. The contract required an investment of $2,500.00 and offered little more than a “how to” manual and two free meals. The “how to” manual promised to teach the attendee the same basic concepts included in the Small Business Development Center’s Business On the Web Series of publications available at little or no charge. The old adage, “If it sounds too good to be true, it probably is!” should have been written for Internet scams. As a potential Internet business owner you will be faced with both sides of this issue. You will need to be wary of potential fraudulent offers to build or setup your online business. On the other side, once you have established your online business you will need to make sure that visitors to your online business know that it is a legitimate business they can trust.

81


Reality of Success

A theory in business, especially electronic commerce is the first mover advantage. The first mover advantage is being the first to market and brand a product or service. Consider Kleenex as a first mover in tissue paper. Grocery shopping lists still include Kleenex, no matter what brand of tissue the customer purchases. Consider Xerox a first mover in copy machines. People still use Xerox as a verb, “I’ll Xerox you a copy”. Consider Ebay as a first mover in the Internet auction business. There are thousands of auction sites today and very few people can identify another auction site by name. Unfortunately it is not easy to develop a product or service whose brand name will become the generic term for that product or service. You will need to rely on competitive advantage. Competitive advantage exists when your product or service offers a perceived value superior to those of your competitors. Here are some examples of competitive advantage1:

• Price/Value: the price and/or value of your product or service surpasses that of your competition

• Unique service features: new, different, or better customer service • Notable product attributes: enhanced product to better meet customer needs • Customer experience: offering a pleasant “shopping” experience • Accessibility: additional convenience or availability

A tool in determining the competitive advantage of your business is the SWOT (Strengths, Weaknesses, Opportunities, and Threats) analysis. A SWOT analysis is an evaluation of the strengths of your business compared to your competitor’s, the weaknesses of your business compared to your competitor’s, and so on. You will use the results of this analysis to prepare to meet the challenges of your competition.

82


CONCLUSION

The goal of this guide is to highlight some of the considerations and concerns of creating an E-Retail business. There is no question that the industry will continue to grow and offer tremendous opportunities to the entrepreneur that is willing to invest the time and effort required to make a business a success. The even better news is that the Internet can be fun and offers the challenge of an ever changing environment. One will need to research the specific areas that relate directly to your E-Retail business idea and create a business plan for success.

Once you have created an electronic commerce business you have reached the “transactional” level. As time progresses the sophistication level of your web initiative increases. The final level is “integrated.” Integrated web site functionality would mean that your e-commerce solution is interactive from product manufacturer to end-user. In other words, if a customer places an order on your web site and you are out of inventory for that item, your electronic commerce system will automatically place an order with your supplier and make arrangements for direct shipment to the end user. Integrated functionality is the goal for more sites than an achievement at this point, but as technology improves advancements will be made toward this type of functionality.

83


11. References

1. www.domain-b.com, www.prdomain.com, and www.ticworks.com.

2. yahoo.com

3. altavista.com

4. kuldeeponline.com

5. Google.com

6. surveys.com

7. http://www.business.com/directory/advertising_and_marketing/market_research/

consumer_behavior/

8. Marketresearch.com

84

http://www.business.com/directory/advertising_and_marketing/market_research/consumer_behavior/

http://www.business.com/directory/advertising_and_marketing/market_research/consumer_behavior/

http://www.ticworks.com/

479. research study on electronic retailing

Documents