online retailing

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Retailing in Electronic Commerce (E-Tailing)

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Learning Objectives

Define and describe the primary business models of electronic retailing (“e-tailing”)Discuss various e-tail consumer aids, including comparison-shopping aidsDiscuss various e-tail markets, such as groceries, music, cars, and othersIdentify the critical success factors of direct marketing and e-tailing, along with mistakes to avoid

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Learning Objectives (cont.)

Identify the principles of “click-and-mortar” strategies for traditional retailersDescribe the issue of disintermediation, reintermediation, and channel conflicts in e-tailingIdentify various managerial issues of concern to e-tailers

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Opening Case: Amazon.com

B2C business model where customers look for a:

Low priceFast shipmentGood return policyHelpful customer service

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Opening Case: Amazon.com (cont.)

Largest Bookstore in the worldOffers millions of items

Books and musicDVDs and videosToys and video gamesElectronics and softwareHome improvement products

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Opening Case: Amazon.com (cont.)

Auctions Hosts and operates auctions for individuals and small businesseszShops, Amazon marketplace, Amazon payment processing

Provide the opportunity for small businesses to develop custom storefrontStorefronts are supported by Amazon’s backend order fulfillment processing

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Opening Case: Amazon.com (cont.)

Easy browsing and searchingUseful product informationReviews, recommendations, and personalization

Broad selection and low pricesSecure payment system (1-Click order technology)Gifts departmentOnline communitySecured payments

Features

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Opening Case: Amazon.com (cont.)

Customer relationship managementCreates interesting and informative front-endHighly automated and efficient back-end supportPersonalized service

Return customers are welcomed back by nameCustomer wish lists availableE-mails customers purchase recommendations based on their purchasing history

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Opening Case: Amazon.com (cont.)

Financial performanceOverall losses rather than profitsAbility to move into new areas of business should move them toward profitability, but makes money from booksHigh level of customer service and customer loyalty adds value

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Opening Case: Amazon.com (cont.)

Diversification through business alliancesOnline sale of cars - greenlight.com Online health and beauty aids - drugstore.com Wireless phones – multiple business partnersToys - ToysrUs.com

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E-Tailing and B2C Market Growth

Business-to-business (B2B)Requires precise record keeping, trackability, accountability, and formal contracts, usually with high volume of transactions and large amount paymentsAlso online retailing

Business-to-consumer (B2C)Ability to create direct relationships with consumer without intermediaries like distributors, wholesalers, or dealers

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E-Tailing and B2C Market Growth (cont.)

The B2C Market success is derived from:Offering quality merchandise at good pricesExcellent customer serviceConvenience

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E-Tailing and B2C Market Growth (cont.)

Characteristics of goods leading to high online sales volumes

Brand recognition and guaranteesDigitized productsFrequently purchased, inexpensive itemsWell-known items with standard specifications

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Consumer Purchase Processand Marketing Plan

Purchase decision processPrepurchase steps

Awareness of need for purchaseIdentify basic need or want

Actual purchaseEstablish decision criteriaSeek recommendations and informationMake purchase

Postpurchase stepsAssistance with installation or setupOnline help desks and instruction manuals

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Figure 3-1The Consumer Purchase Decision Process

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Consumer Purchase Processand Marketing Plan (cont.)

Time-starved consumersShopping avoidersNew technologistsTime-sensitive materialists or click-and-mortar consumers

TraditionalistsHunter-gatherersBrand loyalistsSingle shoppers

Types of online shoppers

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Decision Criteria

Value proposition—customer service, better prices, higher qualityPersonal service—treat the customer as a unique individualConvenience—self-contained site that serves all the customer’s needsOther criteria—service after the sale

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A Marketing Plan

Influence the consumer’s decision process through the “marketing mix”

Product—portfolio of items availablePrice of the productsPromotion of products (advertisements and giveaways)Packaging and delivery

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Online Purchasing Aids

Shopping portalsComprehensive portals

Links to many different sellersShopping comparison sitesComparison tools are available

Niche orientedSpecialize in a certain line of products (dogtoys.com)Some collect referral fee onlyOthers have formal relationships with affiliates

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Online Purchasing Aids (cont.)

Shopbots and agents—tools that scout the Web for specific search criteria requested by consumers

Mysimon.com - best prices on multiple itemsAutoBytel.com – carsZdnet.com/computershopper – computersOffice.com – office supplies

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Online Purchasing Aids (cont.)

Business ratings sites—sites that rate e-tailers

Bizrate.com—compiles results provided by a network of shoppers

Gomez.com—consumer identifies relative importance of different criteria

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Online Purchasing Aids (cont.)

TRUSTe seal of assuranceE-tailers pay TRUSTe for use of sealHope consumers use seal as proxy for actual research about their site

BBBOnLineYearly license fees based on company’s annual revenue

Secure AssureYearly license fees based on company’s annual revenue

Ernst and YoungCreated its own service for auditing e-tailersOffers some guarantee of integrity of business practices

Trust verification sites—evaluate and verify trustworthiness and integrity of e-tailers

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Online Purchasing Aids (cont.)

Other shopping toolsEscrow services—3rd party to assure quality

Proper exchange of money and goodsResearch informationPayment-processing support

Communities of consumersEpinions.com—searchable recommendations on productsPriceGrabber.com—comparison shopping

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E-Tailing Business Models

Subscription models: charge monthly or annual subscription fee for serviceTransaction fee models: charge service fee based on the level of transaction offeredAdvertising-supported models: charge fee to advertisers instead of customersSponsorship models: companies sponsor the business through donations (usually supplemental income)

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Figure 3-2Disintermediation in the B2C Supply Chain

Source: M. Warkentin, et al. (2000). Used with permission of Dr. Merrill Warkentin.

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E-Tailing Business Models (cont.)

Direct marketing—sell directly to consumersManufactures can sell directly to customers

Disintermediation—removal of business process layers in the value chainShortens the distribution chain

Eliminates inefficienciesShortens delivery timeBuilds closer relationships with consumers

Click-and-mortarAdditional marketing channel to the conventional oneEffectively supports build-to-order requests

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E-Tailing Business Models (cont.)

Pure-play e-tailers—sell over the Internet without a physical sales channel

General purpose e-tailers (Amazon.com)Broad range of productsLarge number of consumers

Specialty or niche e-tailers (CatToys.com)One specific product areaHigh demand items in the areaEffective practices for customer appeal

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E-Tailing Business Models (cont.)

Traditional retailers with Web sitesPhysical storeMay include mail-order or catalog salesMultichannel store operates both

Physical storeE-tail site

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ODDS: Grocery Market Case

On-Demand Delivery Services (ODDS)Own fleet of delivery vehicles

Regular deliveries (weekly bases)Delivery within short time period (1 hour or same day)

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ODDS: Grocery Market Case (cont.)

Potential online grocery shoppersShopping avoidersNecessity users—limited by their ability to shopNew technologistsTime-starved consumersResponsible consumersTraditionals

Repeat customersExample: Parknshop in Hong Kong

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Digital Delivery

Digital (“soft”) goodsMusic, movies, videos, software, newspapers, magazines, graphics, etc.Can be delivered in “hard” or “soft” form

Computer program on CD-ROM with owner’s manual and warranty cardDownload from Web site after payment

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Table 3-2Digital Goods

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Digital Delivery (cont.)

Napster experience—person-to-person sharing tool

Enables individual users to download music files from each other’s computersPhenomenal growth of Napster communityNew version of its file-swapping software includes a “buy button” linked to CDNowMay be beneficial to overall music sales as individuals easily sample a broader range of music

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Digital Delivery (cont.)

New developmentsCustom-publishing music CD sites—collection of personal favoritesDisintermediation of traditional print media

Journals and magazinesNewspapers (e.g., Wall Street Journal)

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Successful Click-and-Mortar Strategies

Click-and-mortar hybrid strategiesSpeak with one voice—link all back-end systems to create an integrated customer experienceEmpower the customer—powerful channel for service and informationLeverage the channels—offs advantages of each channel to customers from all channels

Return item purchased online at physical storeOrder via the Web at the physical store items not available there

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Successful Click-and-MortarStrategies (cont.)

Circuit City Case: transform to click-and-mortar (CircuitCity.com)

Educates customers about features and capabilities of productsCustomers can perform powerful searches to find most appropriate productsOffers extensive amount of information on electronics etc., organized very flexiblyOnline purchases are smooth, secure and seamless

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Successful Click-and-MortarStrategies (cont.)

Amazon and Toys R Us: alliance of pure-play with traditional retailer

Toys R Us had limited logistics capabilities including distribution centersAmazon failed in the toy market lacking supplier relationships with toy manufacturersAlliance allows each partner to leverage each others core strengthsInnovative model still working out problems

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Disintermediation & Reintermediaries

Disintermediation—manufacturer sells directly to consumerReintermediaries—new intermediary roles in the digital environment offer new ways to:

Reach new customersBring value to customersGenerate revenues

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Channel Conflict & Personalization

Channel conflict—members antagonistic over:

IncentivesRewardsPoliciesSupport

Personalization—custom designed marketing plan

Tailored to buying patternsAppeal to sense of valueExcellent customer serviceMass customization

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E-Tailing : Lessons Learned

Profitability—online marginal sales don’t lead to marginal profitsBranding—drive to establish brand can lead to excessive spendingPerformance—Web sites need to function in a fast, user-friendly mannerStatic design—dynamic sites with rich databases of information appeal most to customers

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Managerial Issues

First-mover advantage or wait and learnStrategic positioningTrustNew risk exposureFinancial viabilitySuccesses